Nonresident Tax FAQs

These FAQs are intended to help you obtain general understanding of your tax obligations as you study in the United States. They may be viewed in conjunction with information made available by the UConn Payroll Department at payroll.uconn.edu/PY/faqs/nrafaqs.html and by International Student & Scholar Services at global.uconn.edu/tax-resources-for-international-students-and-scholars/ (applicable to students with F-1 and J-1 visas).

The taxation of foreign individuals is a complicated subject and involves many factors that vary from person to person. Accordingly, the University is not able to provide you with individual tax guidance, and strongly urges you to retain your own accountant or tax advisor for assistance with these issues. However, each year, the School of Business Accounting Department sponsors a Volunteer Income Tax Assistance (“VITA”) program, and information about that program is generally sent out in January or February.

Do I have to file a United States tax return?
The answer to this question depends on many factors, including your country of origin, your immigration status and whether you earned income in the United States.

The United States laws classify individuals as either United States residents or nonresidents (also known as “nonresident aliens”) for tax purposes. Your residence for tax purposes is not always the same as your country of citizenship. Rather, your residence for tax purposes is affected by a number of variables like whether you have a United States green card, what kind of visa you have, and how much time you have spent in the United States. More information on this subject is available from the Internal Revenue Service (or “IRS”) at http://www.irs.gov/Individuals/International-Taxpayers.

If you are considered a United States resident for tax purposes, then you may be required to file a United States tax return if your total income (from sources inside or outside of the United States) exceeds a certain amount. If you are considered a United States resident, please refer to the Student Tax FAQs, as most of the issues addressed by those FAQs will apply to you.

If you are a nonresident alien, then information about whether you have to file a tax return is available from the UConn Payroll Department at http://payroll.uconn.edu/PY/faqs/nrafaqs.html and from the IRS at http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Students-and-Scholars.

Finally – even if you are not required to file a tax return – you still may want to file one if you had taxes taken out of any payments you received, like money you earned from a job or stipend. You may be able to get a refund of those taxes based on your individual circumstances.
What is nonresident withholding tax?
In many cases where the University makes payments to international students, the United States laws require the University to retain a portion of the payment and send it to the Internal Revenue Service (“IRS”). The portion of the payment that the University sends to the IRS, called a “withholding tax,” is intended, in part, to compel you to file a United States income tax return. If the University has collected withholding tax on payments to you, you may receive a refund of the tax that was withheld if you file an income tax return.

The University collects nonresident withholding tax in a variety of situations. If you receive a paycheck from the University, the University may automatically be deducting a certain amount of tax from your paycheck. If you receive a fellowship or taxable scholarship through the University, the University may be withholding tax from your fee bill. If you choose to participate in the University’s health or dental insurance plan and receive a subsidy for your insurance, then the University’s subsidy is considered a scholarship, and the subsidy will be included in determining the amount of tax to be withheld from your fee bill. If taxes are withheld on a fellowship or scholarship, you will see a charge labeled “NRA Tax” on your bill.
Does the University earn any money from nonresident withholding tax?
No. The University only collects nonresident withholding tax in situations where it is required to do so by United States law. The University pays all of the tax to the Internal Revenue Service. The University does not keep any portion of the tax.
Are all international students subject to nonresident withholding tax?
No. Some international students have dual citizenship or may be considered U.S. residents for tax purposes, depending on factors including whether they hold green cards and how long they have lived in the United States. Additionally, many international students are residents of countries that have tax treaties with the United States. Depending on the terms of each tax treaty, certain types of payments may be partially or totally exempt from nonresident withholding tax. Every tax treaty is different. Many do not apply to scholarships, and many only apply for a certain period of time or up to a certain level of income.

The University collects and retains information about each student’s residency status and home country, and determines whether students are U.S. residents for tax purposes. When students are not U.S. residents for tax purposes, the University determines whether a tax treaty applies. If someone from the Accounts Payable or Payroll Department contacts you about nonresident withholding, you should respond promptly. The person calling you may be looking for information or documents necessary to establish that you are not subject to nonresident withholding. If you do not provide the necessary information and documentation, the University may be obligated to withhold tax.
I’m not getting any money from the University to pay for my health or dental insurance. Why will the University be placing a charge on my fee bill to cover the withholding tax?
Many graduate students, such as fellows and graduate assistants, elect to participate in the University’s health or dental insurance plan and receive coverage at a substantially reduced cost. The University pays the difference between the charge to students and the total cost of the premiums. If you receive reduced cost insurance coverage because the University paid the rest of the premium for you, then the amount that the University contributed on your behalf is considered a scholarship.

Scholarships are not always subject to nonresident withholding tax. When scholarships are used to pay required tuition and fees, they are not considered taxable income and are not subject to withholding tax. However, the IRS maintains that medical and insurance costs (including student health fees) are not required tuition and fees. A scholarship that covers only health or dental insurance, which is the case here, is a taxable scholarship that may be subject to nonresident withholding tax.

For most students who are considered United States residents for tax purposes, the University is not obligated to withhold any tax, even though the subsidy may be subject to federal income tax. For students who are not considered United States residents (and who are not eligible for tax treaty benefits), the University is generally required by Section 1441 of the Internal Revenue Code to collect and withhold 14% of the subsidy.
Can you provide an example of how nonresident withholding tax might apply to my health insurance?
For the purposes of illustration, in the 2014-2015 academic year, the cost of health insurance for a graduate assistant will be $4,257. If you are a graduate assistant, and you choose to obtain coverage for yourself only, then you will pay only $200 of this cost. The University will pay the remaining cost of insurance in the amount of $4,057. If you are a United States resident, this $4,057 payment might be income to you, but the University is not required to withhold tax. If you are a not a United States resident, and if you are not from a country with a tax treaty that exempts you from withholding, then you will notice a charge on your fee bill equal to $567.98 (equal to 14% of $4,057). The charge will be labeled “NRA Tax.”

When students obtain family insurance coverage, the University contributes a greater amount towards insurance costs. In these situations, the NRA Tax charge will be higher.

More information about the costs of graduate student insurance, including the amount paid for by the University, is available at http://www.baileyagencies.us/.
My accountant disagrees and tells me that I should not have to pay any tax with respect to my health or dental insurance. What do I do?
The University cannot provide individual tax guidance and cannot tell you how to complete your personal income tax returns. However, the University has researched the issue and obtained the opinion of an independent law firm, which agreed that the University is required to apply nonresident withholding tax with respect to graduate health and dental insurance subsidies.
I know another college that doesn’t collect nonresident withholding tax in these situations. What’s different here?
There are many factors that can affect whether insurance costs are part of a taxable scholarship and therefore subject to nonresident withholding tax. For example, some colleges may require international students to pay more than United States residents for insurance, and treat the difference as nonresident withholding tax. Other colleges might provide different forms of insurance, and others may simply not be in compliance with the law. The University cannot comment on whether the approaches of other colleges are appropriate or correct. However, the University has researched its own situation thoroughly and obtained an independent tax opinion supporting the University’s position.
What do I do if I have more questions?
Since the University cannot advise you with regard to your personal tax situation, you should contact your accountant or personal tax advisor. However, more general information about the taxation of nonresident aliens is available from the UConn Payroll Department at http://payroll.uconn.edu/PY/faqs/nrafaqs.html and from International Student & Scholar Services at http://global.uconn.edu/tax-resources-for-international-students-and-scholars/. You might also consult IRS Publication 970: Tax Benefits for Education (2013), and IRS information for Foreign Students and Scholars available at http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Students-and-Scholars.