Local, State & Federal Tax
The United States tax system encompasses at least six different types of taxes (e.g., income taxes, Social Security tax, sales tax, personal property tax) and three layers of taxation (local, state, and federal). You have obligations at several levels.
"Sales tax" is similar to the value-added tax collected in many countries, except in the United States the amount of the tax collected is not included in the advertised prices of goods. Sales tax rates vary from state to state. North Dakota has a 6% state sales tax on all consumer goods and services except food; (any food prepared before you buy it will be taxed, such as fast food restaurants). Minot has an additional 1% city sales tax added on to the state sales tax.
In the United States it is each individual’s personal responsibility to meet his or her tax obligations; the government will not do it for you, but it will penalize you if you do not do it yourself. If you work, at the time of your hire, you are responsible for helping your employer estimate how much of your income should be "withheld" (or deducted) from your wages for the purpose of paying taxes by filling out a Form W-4 Tax Withholding Worksheet (see below for more information on this document). Your employer pays those amounts directly to the United States Treasury on your behalf. In your annual tax return, you must reconcile your account with the government to verify that you paid the right amount over the course of the year. If you paid too much, you may claim a refund, which will be paid promptly unless the government disagrees with your calculations. Americans call the process "filing a tax return."
It is your responsibility, as an F-1 student or J-1 student or scholar, to file U.S. taxes each year. The Office of International Programs will point you to some resources that can help you with this process, but it is ultimately your duty to seek proper assistance and file taxes in a timely manner. Tax workshops will be offered on the MSU campus during in the spring semester. Workshop dates will be announced once they are scheduled. Keep in mind however, that the volunteers will not do the tax forms for you; they are only available to assist you with your questions.
Even though U.S. tax laws are difficult to understand, do not be tempted to ignore this obligation. Each year the USCIS and IRS increase the amount of information they share. It is in your best interest to meet your tax obligation.
Foreign students and scholars, regardless of whether or not they work or earn income while in the United States, ARE REQUIRED to file an appropriate return each year. Students and scholars who do not earn any income are still responsible to file form 8843 with the IRS. Students in F and J status are not responsible for Social Security taxes for the first 5 years. After 5 years they may qualify as a resident for tax purposes and be responsible for Social Security (FICA) taxes. Scholarships and waivers are considered taxable income and must be claimed on taxes.
Income is not limited to wages paid to you in cash, but also includes that portion of your scholarship, fellowship, or assistantship that is applied to your housing and meal expenses. The amount applied to your tuition fees, books, and supplies is not counted as income. When preparing your tax returns, also be sure to ask the tax professional who is assisting you about the applicability of any tax treaty that might exist between your country and the United States.
Students with an income or scholarships will file their taxes on form 1040NR for Federal taxes if they are considered a non-resident for tax purposes. A non-resident is defined as F-1 or J-1 student in the U.S. for 5 years or less, or a J-1 scholar in the U.S. for 2 years or less. The North Dakota State Tax Form for state taxes must also be filed. Form 1040NR can be downloaded from www.irs.gov, or you can call 1-800-829-1040 to order forms.
Form W-4 Tax Withholding Worksheet
This form is completed by the student or scholar employee upon the start of employment, either on or off campus. You should not write "Exempt" on the W-4 from, but rather complete it according to the number of dependents you have and whether or not your country has a tax treaty with the U.S.
Form W-2 Wage and Tax Statement
This form is issued to you after the end of the calendar year in which you have been employed. This short form must be used in order to complete your tax forms and file them. It provides information on your wages, the amount and type of taxes withheld, etc. If you do not receive this form during the month of January, contact your employer immediately. Taxes must be filed no later than April 15 each year.
* Penalties for not filing in a timely manner can be substantial. *
Websites to help with taxes
Even though U.S tax laws are difficult to understand, do not be tempted to ignore this obligation. Each year the USCIS and IRS increase the amount of information they share. It is in your best interest to meet your tax obligation.