Introduction to US Taxation Fermilab 2012 January 31, 2012.

Introduction to US Taxation Fermilab 2012

January 31, 2012

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Disclaimer

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.

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Purpose

To introduce you to the US Individual Income Tax System.

To help you recognize when you may be responsible for US Individual Income Tax filing.

To help you understand that you may have to file an income tax return.

To help you understand the forms and processes needed in order to fulfill the US Individual Income Tax filing.

To help you understand the reporting of Foreign Bank Accounts to the US Treasury Department (Report of Foreign Bank Accounts) and reporting of Foreign Financial Assets to the Internal Revenue Service (Form 8938).

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Agenda

Overview of US Taxation of Foreign Citizens Your tax obligations while you are present in the United States US Federal Individual Income Tax State Individual Income Tax Withholding US Tax Residency US Individual Income Taxation based on US visa status Effectively Connected Income Consequences of Not Complying with Tax Obligations Tax Treaty Benefits Social Security Number Individual Tax Identification Number Submitting Your Tax Return to the Federal/State Tax Authorities Foreign Bank Account Obligations to the US Treasury Department Foreign Financial Asset Obligation to the Internal Department of Revenue

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Overview of US taxation of foreign citizens

Under United States income tax law, a foreign citizen or national is subject to US tax in different ways depending on whether he or she is a resident or a non-resident.

In the United States, individuals generally prepare their own tax returns and compute their own taxes.

The federal tax authority is the Internal Revenue Service (IRS), a part of the US Treasury Department.

Most states and some counties and municipalities also impose income taxes, which are separately administered (generally by the tax authorities in that state or local jurisdiction).

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Your obligations during your stay in the US

Three obligations

1. US Individual Income Tax:

– Complete and send certain tax forms to the Internal Revenue Service that will provide them more information about your federal tax obligation due to your income.

– Pay taxes to the Internal Revenue Service if owed by deadline.

2. State Individual Income Tax:

– Complete and send certain tax forms to the state tax authorities that will provide them with information about your tax obligation due to your income.

– Pay taxes to the state authorities if owed by deadline.

3. Notification about foreign funds

– You may have to inform the US Treasury Department of your foreign bank accounts.

– You may have to inform the Internal Revenue Service of your foreign financial assets.

These are separate obligations.

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US tax filing – Federal

The federal US government agency responsible for collecting taxes and enforcing the US Revenue Code is the Internal Revenue Service (IRS).

http:// www.irs.gov/

www.irs.gov home page 1/6/2012

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http://www.revenue.state.il.us/

http://www.irs.gov/


US tax filing – State

Each state has its own taxing authority. Illinois Department of Revenue is the agency that collects tax forms for Illinois. Depending on circumstances, an individual might have to also file with two or even more states. http://www.revenue.state.il.us/

http://www.revenue.state.il.us/home page 1/6/2012

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Federal 1040 individual resident return

9http://www.irs.gov/formspubs/index.html


Withholding

Organizations are required by a variety of laws to take a certain portion of the funds that they have agreed to pay to an individual, and instead send those funds to the taxing authorities. This is called “withholding”.

You can think about this as the organization pre-paying the taxes the individual might eventually owe to the taxing authority.

If the individual owes taxes at the end of the year, he/she needs to make a payment to the tax authority for the difference between the tax liability and the amount withheld (which the tax authorities already have).

If the individual does not owe taxes, or owes less tax than what was “withheld” by the organization, the individual might be entitled to a refund to some of the money the taxing authority received from the organization.

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Where does Keren file a state tax return?

Keren completed her Bachelor’s degree at the Really Rural College of Florida (in F-1 status) in July 2011; she began her studies in August 2008.

She began her graduate studies at the Well-Funded University of Michigan – also in F-1 status – in August 2011. She received a research assistant’s stipend from the Well-Funded University of Michigan.

In October 2011, her WFU Michigan advisor sent Keren to Fermilab in Illinois to do her thesis research. She has rented an apartment and bought a car in Illinois.

Where does Keren need to file state tax returns in 2011?

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Where does Keren file a state tax return? (continued)

Each state in the United States has its own tax system and rules. There is no state tax obligation in Florida, so Keren does not have to complete a tax return in Florida. Keren will have to complete a 2011 Illinois Non-Resident Tax Return (Form IL-1040 and Schedule

NR) and send it to the Illinois Department of Revenue in Springfield, IL.

– She has to report income that she earned in Illinois while working at Fermilab on her 2011 Illinois Non-Resident Tax Return.

Keren will have to complete a 2011 Michigan Resident Tax Return (Form MI-1040 and Schedule W) and send it to the Michigan Department of Treasury in Lansing, MI.

– She has to report income that she earned in Michigan and Illinois on her 2011 Michigan Resident Tax Return.

– Illinois has the first right to tax her income earned in Illinois while working at Fermilab. Therefore, she will need to claim a credit for the tax paid to Illinois on her Michigan tax return.

– She will be required to pay quarterly estimates in future years.

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2011 Form IL-1040

13http://www.revenue.state.il.us/TaxForms/IncmCurrentYear/Individual/index.htm


2011 Schedule NR



2011 Form MI-1040



2011 Schedule W



US Tax ResidencyAm I a resident or a non-resident for tax purposes?

As a general rule, the US tax system divides individuals into two types:

1.US Citizens and lawful permanent residents (green card holders) and

2.Non-US citizens and individuals who do not have a green card US citizens and green card holders are considered to be residents of the US for tax purposes Non US-citizens and individuals who do not have a green card could be either resident or non-

resident for tax purposes. Most tax rules determine US residency by evaluating whether the person has spent a lot of time in

the US and benefitted from engaging in certain activities in the United States.

The tax rules categorize an individual by evaluating the following:

1.Country of origin

2.Days spent in the United States

3.Visa status

4.Other aspects of the individual’s physical presence in the United States

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US Tax ResidencyAm I a resident or a non-resident for tax purposes? (continued)

So how does one become “resident for tax purposes”?

– A “US tax resident” is defined as a foreign citizen or national who meets either of two tests: the lawful permanent resident test or the substantial presence test. This definition applies only for purposes of determining a foreign individual’s US income tax liability.

– A foreign national who is a lawful permanent resident (green card holder) under the immigration laws is considered a resident for US income tax purposes.

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US Tax ResidencyAm I a resident or a non-resident for tax purposes? (continued)

Unlike the lawful permanent resident test, the substantial presence test focuses on physical presence in the United States. Under the substantial presence test, a foreign national will be considered a US resident for tax purposes if:

– The individual is present in the United States for at least 31 days during the current calendar year; and

– The sum of the number of days of US presence during the current calendar year, plus one-third of the US days during the first preceding calendar year, plus one-sixth of the US days during the second preceding calendar year, equals or exceeds 183 days.

Exceptions to Substantial Presence There are two main exceptions to the substantial presence test: the exempt individual

exception and the closer-connection-to-a-foreign-country exception.

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Important questions to ask in relation to substantial presence test

Do you have 31 days of US presence in the current year?

a) If no – not “resident for tax purposes”.

b) If yes - “Look back test”— do you have183 days of US presence using the following formula:

– Current year...................1/1 = 100.00% PLUS

– First preceding year.......1/3 = 33.33% PLUS Second preceding year...1/6 = 16.67%

Fractional days of presence count as full days.

If = 183 days, you are “resident for tax purposes”.

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How do I know if I meet substantial presence test?

Definition of a Resident and Non-Resident Alien IRC Sec. 7701 (b) (3)

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Calculating substantial presence days

Aleksey is a Russian national visiting Fermilab in B-1 visa status. He wants to know if he will be a resident for tax purposes for the 2011 tax year.

Aleksey was in the US as follows:

2011 – 120 days

2010 – 138 days

2009 – 102 days

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Calculating substantial presence days (continued)

To calculate whether Aleksey meets the substantial presence test:

2011 days: 120

2010 days: = 138 days/3 = 46 days (a partial day counts as a whole day)

2009 days = 102 days/6 = 17 days

Total Days: 120 + 46 + 17 = 183 days

Aleksey met the Substantial Presence Test. He could be “Resident for Tax Purposes” in the US, even though he has never received US income and only visited, in B-1 visa status, for fewer than 5 months each year.

Answer:

Substantial Presence Test Formula:

All days in current year + 1/3 of last year’s days + 1/6 of days in the second preceding year

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US individual income taxation based on US visa statusExceptions to substantial presence

There are two main exceptions to the substantial presence test: the exempt individual exception and the closer-connection-to-a-foreign-country exception.

This is not an exemption to eliminate your requirement to complete and submit a tax return.

1) First exception: Under the exempt-individual exception, an individual will not be treated as being present in the United States on any day in which the individual is considered an exempt individual.

– Exempt individual is anyone temporarily present in the United States as a foreign government-related individual, or an individual holding a “J” , “Q”, “M”, or “F” visa.

– A foreign government-related individual will remain a non-resident regardless of how long he or she resides in the United States.

– The law, however, provides time limits for these individuals to be treated as exempt from this exception.

1.If for any of the last six calendar years, the individual was previously considered to be exempt.

2.In certain cases, this period is limited to four of the last six calendar years.

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US individual income taxation based on US visa statusExceptions to substantial presence (continued)

2) The second exception is the closer-connection-to-a-foreign-country. To answer the questions necessary to determine whether this exception applies you must determine

where your “Tax home” is located.

– “Tax Home” is generally the area of your main place of employment or the place where you regularly live.

In order to meet this exception, an individual must answer all of the following as “YES”:

1.I did not spend more than 183 days during the current calendar year in the United States; and

2.I did maintain a tax home in a foreign country during the calendar year; and

3.I have a closer connection in this current calendar year to the country in which I have my tax home, which is not the United States.

If you answered, yes to all of these questions, you would be considered to meet the second exception and would not be considered resident under substantial presence.

Again, this means only that you are not subject to tax as a resident for tax purposes.

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Am I an exempt individual?

IRS Publication 4011 (Rev 2011) pgs 2-3

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Resident taxes versus non-resident taxes

Tax Non-Resident (Does not meet the Substantial Presence Test, or is exempt via

visa)

Tax Resident (Meets the Substantial Presence

Test)

Income included US-Source Only* Worldwide (All Income)

Deductions from taxable income

State taxes, charity, misc. Medical expenses, state and property taxes, interest, charity, misc.

Exemption amounts available

Taxpayer Only Taxpayer, spouse, and family (Resident Dependents)

Tax Rates (if you are married)

Cannot use joint tax rates Can use joint tax rates

Credit for Non-US Tax Paid

Not available Available

* US source income includes per-diems from US sources that are over the federal limit, and any personal income such as interest, dividends, and stock that are US based.

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Resident taxes versus non-resident taxes for scholarships and fellowship grants

*

Type of Income US Resident US Non-Resident

Scholarships Not-taxable if used for qualified expenses.

"Qualified scholarship" not taxable; otherwise, reportable to the IRS if

the source is from the United States.

Fellowship grants for non-degree

candidates

Not-taxable if used for qualified expenses.

Reportable to the IRS if the source is from the United States.

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Residency

Francis is employed solely by Rich University of the United Kingdom, receiving roughly $100,000/year. He has never received funding from any US source.

Between 2004 and 2007, he visits Fermilab intermittently in Visa Waiver status, remaining physically in the US for 7 months (210 days) each year.

Beginning in 2007, Francis is sponsored for a J-1 visa by Fermilab, which is valid through 2012, while remaining employed by Rich University. He visits the US for more than 10 months each year while in J-1 status. UK taxes are deducted from his UK salary.

1. Is Francis “Resident for Tax Purposes” in the United States?

– Francis is considered to be a resident for US individual income tax purposes in 2004, 2005 and 2006.

– In 2007, 2008, 2009 and 2010, Francis is considered to be a non-resident for US individual income tax purposes due to J-1 visa status.

– In 2011, he will be considered a resident for US individual income tax purposes as he had the J-1 visa for more than four years out of the last 6 years.

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Residency (continued)

Francis is engaged to a US citizen. In 2011, he wants to pursue US permanent residence. He has just discovered that he has to include his last year’s tax return with his immigration petition – but he does not have one, because he has never filed taxes in the United States.

2. What can he do, if anything?

– If Francis becomes a permanent resident of the US, he will no longer be treated as an exempt individual and will be treated as a resident for US individual income tax purposes.

– Francis needs to complete his tax returns for prior years. The tax authorities will consider these to be late tax returns. Interest and penalties could arise if taxes are owed. Francis should consult a tax professional to determine requirements to file these late returns.

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Visa impact on residency

Tatiana completed her master’s level research at Fermilab while holding a J-1 internship visa from May through July 2007. She was paid a per-diem from Fermilab of $51/day.

She returned to Fermilab in October 2007 to do her PhD research, completing it in May 2010. She returned briefly to Russia for the issuance of her PhD, and then returned to Fermilab as a Post Doc in September 2010. She has resided continuously since then. She held J-1 Research Scholar visa since October 2007.

Tatiana was paid wages of $25,000 a year as a PhD student. As a Post Doc, she receives wages of $55,000/year.

Hypothetical #1 – The wages were paid by Moscow University the entire time, and Tatiana received no wages from a US source (only per diem in 2007).

Hypothetical #2 – The wages were always been paid by Fermilab.

What is Tatiana’s Tax Residency Status?

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Visa impact on residency (continued)

Visa

Hypothetical #1 – All wages paid by foreign

source (Moscow University)

Hypothetical #2 – All wages paid by Fermilab Tax Residency

May – July 2007 J-1 Intern n/a (received per diem from Fermilab)

Non-Resident for Tax Purposes

Oct – Dec 2007 J-1 Research Scholar Exempt – 1st year of 4 yr exemption

Exempt – 1st year of 2 yr exemption

2008 J-1 Research Scholar Exempt – 2nd year of 4 yr exemption

Exempt – 2nd year of 2 yr exemption

2009 J-1 Research Scholar Exempt – 3rd year of 4 yr exemption

No Exemption Non-Resident for Tax Purposes if paid from MU.

Resident for Tax Purposes if paid by Fermilab

2010 J-1 Research Scholar Exempt – 4th year of 4 yr exemption

No Exemption

2011 J-1 Research Scholar No Exemption AND meets substantial presence.

No Exemption Resident for Tax Purposes!

Visa TypeLength of Exemption if

paid by a US EmployerLength of Exemption if paid

by a Non-US Employer Other Considerations

J 2 out of the last 6 years 4 out of the last 6 years Highly recommended to keep track of days even during “exempt” years

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Tax resident versus tax non-resident

Javier is an Argentinean citizen who is a J-1 research scholar in the US, and part of the astrophysics collaboration. He first arrived in the US in 2004 on a F-1 student visa, graduating in 2006 and has remained in the US ever since on his J-1. He has received a $20,000 grant from his Argentina institution since working for Fermilab, pays $2,000 in taxes on his home in Argentina, and also has a bank account back home, receiving $1,000 of interest annually. Javier had been living in Illinois since 2004. In April 2011, Javier went to Wisconsin to work on a temporary project for two months. Javier came back to Illinois in June 2011.

Describe Javier’s tax situation in the US from 2004-2011.

What state returns does Javier need to complete in 2011?

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Tax resident versus tax non-resident (continued)

2004-2006 = F-1 student visa Javier’s days are exempt, Argentinean interest is exempt, and his Argentinean taxes are not

deductible.

2007-2010 = J-1 research visa (4 years) Javier becomes a US tax resident for income tax purposes and is taxed on worldwide income. His

property taxes may be Are exempt from substantial presence, therefore, Javier is non-resident for income tax purposes.

Foreign interest income is exempt from US taxation during that time. Grant income from Argentina may be exempt depending on the type of grant. Grants usually may be either of the following: scholarship/fellowship income, or compensation for

personal services, which is usually considered wages. For tax purposes, a scholarship/fellowship may be defined as an amount given to an individual which

has the following characteristics: It is paid to aid the individual's pursuit of study, training, or research; it does not constitute compensation for personal services - past, present, or future; and it is paid more for the benefit of the grantee than the grantor.

2011 = J-1 research visa (5th year) Is not an exempt year. Javier becomes a US tax resident for income tax purposes and is taxed on

worldwide income. His property taxes may be deductible. 34


Tax resident versus tax non-resident (continued)

As a resident of IL, Javier must file a Resident Income Tax (Form IL - 1040) and send it to the Illinois Tax Authorities in Springfield, IL.

Javier is considered a non-resident of Wisconsin since he worked in Wisconsin on a temporary basis and did not intend to permanently move there. However, any income he earned that is derived from Wisconsin sources is subject to tax by Wisconsin. Therefore he needs to complete a Wisconsin non-resident tax return (2011 Wisconsin Form 1NPR).

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J vs. B visa

Carmine is an Italian scientist who anticipates visiting Fermilab for at least 6 months per year over the next 5 years starting 2012.

He receives wages from his University in Italy that are equivalent to $75,000/year. While at Fermilab, he will receive a per diem, which for this year would be $46/day.

His University also pays him a housing allowance for his time at Fermilab, equivalent to $600/month.

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J vs. B visa (continued)

J visas B visa or Visa Waiver

2012 Exempt – 1st year of 4 yr exemption Non- resident for tax purposes

Non-resident for tax purposes

2013 Exempt – 2nd year of 4 yr exemption Non- resident for tax purposes

Generally, Fermilab is required to make withholding on per diem payments at 30% rate unless there is a treaty rate.

Resident for Tax Purposes – subject to US taxes on worldwide income, including his Italian wages and housing allowance.

2014 Exempt – 3rd year of 4 yr exemption Non-resident for tax purposes

2015 Exempt – 4th and final year of 4 yr exemption Non-resident for tax purposes

2016 If Carmine meets the substantial presence test in 2016, by spending more than 183 days in the US in 2016, he will be considered resident for income tax purposes in 2016 and subject to US taxation on his worldwide income.

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What is effectively connected income?

In general, a non-resident individual is taxable on effectively connected income only from US sources. However, certain income from sources outside the United States will be treated as effectively connected with the conduct of a US trade or business.

Non-residents for tax purposes are taxed on US-sourced income and income that is “effectively connected” to the US when the non-resident individual has an office or other fixed place of business in the United States to which the income is attributable. The types of income are:

– Rents and royalties for the use of intangible property derived from the conduct of a licensing or similar business;

– Dividends, interest, or gains from stocks, bonds, or debt obligations derived in the active conduct of a banking, financing, or similar business with the United States; and

Income from the sale of inventory property outside of the United States, unless the property is sold for use, consumption, or disposition outside of the United States and a foreign office of the taxpayer materially participates in the sale.

All other foreign source income is not taxable to a non-resident individual.

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Visa waiver and research scholar (J-1) visa

In October 2006, Silvia began visiting Fermilab under the Visa Waiver program, remaining here for 3 months each time, with 1-month return trips home. She averaged 9 months at Fermilab each year after that. She received per diem of $25/day from Fermilab for each day she was here.

In addition, in 2008 she began receiving a wage from her home institution of $35,000.

In 2011, she asked the Visa Office for J-1 Research Scholar visa paperwork, after being hassled at the airport during admission about the length of time she had spent in the United States.

Silvia has never filed US tax return.

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Visa waiver and research scholar (J-1) visa (continued)

Time spent in the US Funding Visa Status Tax Situation

2006 3 months (90 days) Per diem only Visa Waiver (WB) Non-resident for Tax Purposes No US-Sourced Income

2007 9 months (270 days) Per diem only Visa Waiver (WB) Resident for Tax Purposes (exceed 183 days) – taxed on worldwide income (which = zero)

Withholding on Per Diem begins on 1-year anniversary (October 2007)

Potential for refund of withholding depending on circumstances.

2008 9 months (270 days) Per diem + foreign wages

Visa Waiver (WB) Resident for Tax Purposes – taxed on worldwide income (including foreign wages)

Withholding on Per Diem








J-1 Research Scholar

Non-resident for Tax purposes (1st year of 4 year exemption)


J-1 Research Scholar

Non-resident for Tax purposes (2nd year of 4 year exemption)

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Consequences of not complying with tax obligations

Advantages Compliant with US law Avoid immigration problems Avoid significant interest and penalties

Consult with a tax professional to determine the requirements to file late returns.

Disadvantages Penalties Legal recourse (deportation, prison, etc) Lien on assets (homes, cars, bank accounts,

etc) Wage garnishment Credit history affected (unable to obtain a loan) Special rules that might lower tax obligation

rates can only be claimed for a limited time. A long delay in filing might mean that these special rules may no longer be available if you file late.

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Tax treaty benefits

Non-resident individuals from countries with which the US has an income tax treaty may qualify for certain benefits if they meet the requirements of the treaty.

– Most treaty provisions require that the individual be a resident of the treaty country in order to qualify.

– Some treaty provisions require that the individual be a national or citizen of the treaty country.

– Many treaties provide a lower rate of withholding tax on certain income, including dividends, interest, and royalties.

Many tax treaties provide that a resident of a treaty country will not be taxed on compensation for services rendered in the United States if he or she meet all of the following:

1.Present in the United States for a short period of time (generally not more than 183 days during a taxable year or 12-month period); and is

2.Paid by and is rendering services for a foreign employer, provided that the employee’s remuneration is not borne by a US permanent establishment (for example, a US branch) of the foreign employer.

3.The treaties may also require that the compensation be less than a specified amount.

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Tax treaty countries

Australia Austria Bangladesh Barbados Belgium Bulgaria Canada China Cyprus Czech Republic Denmark Egypt Estonia Finland France Germany

Greece Hungary

Iceland India Indonesia Ireland Israel Italy Jamaica Japan Kazakhstan Korea, South Latvia Lithuania Luxembourg Malta 43

Mexico Morocco Netherlands New Zealand Norway Pakistan Philippines Poland Portugal Romania Russia Slovak Republic Slovenia South Africa Spain

Sri Lanka Sweden Switzerland Thailand Trinidad and Tobago Tunisia Turkey Ukraine United Kingdom Venezuela


Tax treaty benefits (continued)

Yvonne is employed by Windsor University as a Research Associate. She is assigned to Fermilab in 2011 to participate in an experiment here, and visits frequently using the Visa Waiver program. She receives $35,000 from Windsor University in wages.

Yvonne’s wages from Windsor University may be considered to be “effectively connected” to the US and thus subject to US tax. She may need to file a resident or non-resident tax return depending on the days spent in the United States.

1. What if Yvonne is from United Kingdom, a treaty country, and she stays within the treaty guidelines?

– In this case, Yvonne’s income earned while working in the US will not be taxable in the United States. However, she still has to file US income tax return to report the taken treaty position.

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Social security number

Social Security Number (SSN) – If you receive US sourced funds such as salary or per-diem from a US source, you generally need to have a Social Security Number.

If your family members do not work in the US, they do not require a Social Security Number. The number is obtained from the US Social Security Administration Office. For more information, place access their website http://www.ssa.gov/ Fermilab’s Visa Office can provide guidance on Social Security numbers.

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http://www.ssa.gov/


Individual taxpayer identification number

Individual Taxpayer Identification Number (ITIN) is used to report family members on your federal and/or state tax returns.

ITINs are obtained from the IRS. Members who may be claimed as dependents under applicable tax rules are eligible for the ITINs. Who needs an Individual Taxpayer Identification Number (ITIN)?

Internal Revenue Service issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for Social Security Number (SSN). A non-resident individual needs an ITIN if s/he (1) is not eligible for a SSN and (2) is required to file a US tax return only to claim a refund of tax under the provisions of a US tax treaty,. Other examples of individuals who need ITINs include:

- A non-resident individual required to file a US tax return

- A US resident individual (based on days present in the United States) filing a US tax return

- A dependent or spouse of a US citizen/resident individual

- A dependent or spouse of a non-resident individual visa holder The number is obtained from the Internal Revenue Service. For more information, place access their website at www.irs.gov.

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http://www.irs.gov/


How do I apply for an ITIN?

To apply for a Individual Tax Identification Number (ITIN)

- Form W-7

- Certified documents that establish your identity and foreign status

- Form W-7 can be mailed with the federal tax return or sent separately.

Application instructions can be found on the IRS website http://www.irs.gov/

http://www.irs.gov/formspubs/index.html47

http://www.irs.gov/


How do I apply, and why do I need an ITIN?



Submitting your tax return to the federal/state tax authorities

Although you may not have any income that is taxable in the US, you still have an obligation to file a tax return. States follow federal tax due dates.

Type of US incomeAmount of US

Source Income

IRS Form

Deadline *may change if 15th

holiday or weekend day

Extension Option

Wage (Salary) only Less than $3,650 Form 8843 only June 15th Yes

Wage (Salary) Only $3,650 or more • Form 1040NR & 8843, OR• Form 1040 April 15th* (April 17, 2012) Yes

Wages & taxable fellowship grant Amount Irrelevant • Form 1040NR & 8843 OR

• Form 1040 April 15th* (April 17, 2012) Yes

Taxable fellowship grant only Amount Irrelevant • Form 1040NR & 8843 OR• Form 1040

April 15th for Residents (April 17, 2012), June 15th for Non-

ResidentsYes

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Submitting an extension to the federal/state tax authorities

Form 4868 is an automatic extension to submit, not pay.

Form 4868 for 2011 US Federal Tax Return, needs to be submitted by April 17, 2012.

Form 4868 pertains to federal tax returns. Most states follow the federal extension.

Some states require a separate extension application.

State of Illinois does not have a separate extension form.

http://www.irs.gov/formspubs/index.html50


Submitting your return to the federal/state tax authorities regardless of where I am located (in or out of the United States)

IMPORTANT: If you are filing a non-resident return you cannot electronically file your return.

If you are eligible to electronically file your return:

■ You can submit directly to the Internal Revenue Service system (click on the I need to file link on the www.irs.gov website or visit www.irs.gov/efile ) which will provide you with the link to the free efile system.

If you choose to mail your return or if you are filing a non-resident tax return:

■ Enclose all necessary forms, and send to the appropriate mailing address. The appropriate address can be found on the filing instructions of your return.

*You will need to indicate “applied for Taxpayer Identification Number” if you have not yet received this.

Fermilab users who are non-resident for tax purposes might be able to use the online tax software system being made available by the Fermilab Visa Office. Contact the Visa Office at [email protected] for an appointment to discuss accessing the system, if you think you will qualify.

www.irs.gov home page 1/6/2012

51

http://www.irs.gov/

http://www.irs.gov/efile

mailto:[email protected]

http://www.irs.gov/


Submitting your tax return to the federal/state tax authoritiesFederal payment voucher

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INCLUDE ON THE MEMO LINE OF THE CHECK: NAME

TAX RETURN YEAR FORM NUMBER

AND YOUR SOCIAL SECURITY NUMBER (OR ITIN)

http://www.irs.gov/formspubs/index.html


Submitting your tax return to the federal/state tax authoritiesWhat forms do I have to file?

Generally, you will have to file one or a combination of the following:

1)Federal 8843 Return for Exempt Individuals

─ No income to report, or part/all your income is not reportable.

─ Mail the form to the authorities by June 15 (October 15 if completed an extension).

2)Federal 1040NR Non-Resident Return

─ Income to report, but do not meet the Substantial Presence Test or the Lawful Permanent Resident Test.

─ Mail the form to the authorities by April 15 or June 15 if you qualify (October 15 if completed an extension).

3)Federal 1040 Individual Resident Return and or Federal 1040NR Non-Resident Return

─ Meet the Substantial Presence Test or

─ Lawful Permanent Resident Test.

─ Mail the form to the authorities by April 15 (October 15 if completed an extension).

*2011 US tax return deadline is April 17, 2012 due to a holiday.

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Completing and submitting the US tax return

Lido, an Italian graduate student, participated in an internship at Fermilab using two successive J-1 Intern visas, from January 2010 to June 2011. He received a $40 per diem from Fermilab, and returned home after his internship. What does he need to file and when? The per diem amount is assumed to be nontaxable and as such the $40 per day per diem is exempt and there is no income to report.

2010 Tax Year – Form 8843 for Exempt Individuals (1040 or 1040NR is not required).

- On or before June15th, 2011 (Possible extension to file until October 17th).

2011 Tax Year – Form 8843 for Exempt Individuals (1040 or 1040NR is not required).

- On or before June 15th, 2012 (Possible extension to file until October 15th).

Since Lido is filing only Form 8843, no balance due is expected; therefore no late filing penalties apply.

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Completing and submitting the US tax return (continued)

What if Lido was paid a wage of $25,000 by Fermilab, and stayed until June 1st 2012?

2010 Tax Year – Form 1040NR and Form 8843 - On or before April 18th, 2011 (Possible extension to file until October 17th)

2011 Tax Year – Form 1040NR and Form 8843 - On or before April 17th, 2012 (Possible extension to file until October 15th)

2012 Tax Year – Form 1040NR and Form 8843

- On or before April 15th, 2013 (Possible extension to file until October 15th)

Note: Penalties and interest may apply even with extension if balance due is not paid by the filing due date (without extension).

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Submitting your tax return to the federal/state tax authoritiesForm 8843 – Exempt Individuals

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Submitting your tax return to the federal/state tax authoritiesFederal 1040NR non-resident return



Submitting your tax return to the federal/state tax authoritiesFederal 1040 individual resident return



FBAR: Reporting requirement for non-US financial accounts

The following only applies to US tax residents.

Non-US Financial Accounts with aggregate balances exceeding $10,000 at any point during the calendar year must be disclosed to the US Treasury Department via Form TD F 90-22.1 (FBAR).

You must complete and mail the form to the US Treasury to ensure receipt by June 30th, 2012 (there are no extensions).

Penalties for failure to file Form TD F 90-22.1

– Willful failure = greater of $100,000 or 50% of account balance– Non-willful failure = up to $10,000

It is your responsibility to ensure you are compliant with this requirement.

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Foreign bank account form to the US treasury department

http://www.irs.gov/formspubs/index.html 60


FATCA – NEW reporting of foreign financial assets

Effective for 2011 tax year

Form 8938, Statement of Foreign Financial Assets

Filed with income tax return by certain US individuals that hold any interest in specified foreign financial assets if the value of those assets exceeds certain thresholds

Form 8938 reporting is separate and in addition to FBAR reporting requirements

Substantial penalties

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Who is a specified individual?

US citizens Green card holders Green card holders claiming to be non-resident of the US pursuant to an income tax treaty Non-US citizens resident in the US for any part of the year Non-resident individual who makes an election to be treated as a resident individual for purposes of

filing a joint tax return Non-resident individual who is a bona fide resident of American Samoa or Puerto Rico

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Common examples of reportable foreign financial assets

Foreign bank accounts Investment vehicles such as foreign mutual funds, foreign hedge funds, and foreign private equity

funds Interests in a foreign entity, foreign partnership, foreign trust, or foreign estate Bond, note payable, or any other form of indebtedness if payor is not a US person or entity Stock issued by a foreign corporation Deferred compensation payable by a foreign corporation Foreign pension Foreign life insurance policy if cash surrender value Principal residence held in foreign entity

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Reporting thresholds

Filing status Living in

Meets reporting threshold if value of specified foreign financial assets is…

On Last Day of Year

On Any Day of Year

Unmarried/Married Filing Separately

United States >$50,000 >$75,000

Married Filing Jointly United States >$100,000 >$150,000

Unmarried/Married Filing Separately

Foreign Country >$200,000 >$300,000

Married Filing Jointly Foreign Country >$400,000 >$600,000

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Action required regarding Form 8938

Consider all your foreign financial assets and determine the maximum value during the year

– The exchange rate to be used is the US Treasury year-end exchange rate found at: http://www.fms.treas.gov/intn.html

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http://www.fms.treas.gov/intn.html


Form 8938 – needs to be enclosed with the US federal tax return

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Conclusion


Questions

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Your Feedback is Appreciated!!!

http://wdrs.fnal.gov/visas/unexpect_tax_feedback.htmlOr go to Fermilab’s Users Office website at users.fnal.gov (http://wdrs.fnal.gov/visas/taxes.html)

Click on “Tax for Non US-Citizens” under Quick Links (on the right), and then click on “Unexpected Tax Obligations Feedback Form” in the Quick Links (on the right).

Email questions to

[email protected]

http://wdrs.fnal.gov/visas/taxes.html



Introduction to US Taxation Fermilab 2012 January 31, 2012.

Documents

Transcript of Introduction to US Taxation Fermilab 2012 January 31, 2012.