Foreign Teachers, Trainees and Professional Athletes
There is a distinct advantage to filing taxes as a non-resident alien as opposed to a resident alien. Non-resident aliens only have to pay income tax on money earned from U.S. sources, while resident aliens (legal residents of the U.S. who are not citizens) owe tax on income from all sources, including foreign businesses and entities [source: Cussen].
One of the criteria that the IRS uses to decide if a taxpayer is a resident or non-resident alien is how many days they lived in the U.S. during the tax year and three prior years. So if you're a non-U.S. citizen and you want to pay less in taxes, there's a strong motivation to lower the official number of days you were in the country.
Here's where this particular exemption comes in. If you are a non-U.S. citizen temporarily in the country as a teacher or trainee (holding a J or Q visa), you can exempt all of the days you lived here. In other words, if you lived the entire year in the U.S. on a J visa while teaching at a university, you can still qualify as a non-resident alien for tax purposes. You would need to file Form 8843.
The same exemption covers an even smaller group of potential taxpayers: foreign professional athletes. If you are an Australian rugby player in the U.S. for an international tournament, none of those days count toward your total days of residency.
Author's Note: 10 Tax Exemptions You Should Know
Seriously, though. I would love to be a fly on the conference room wall when the poor IRS writers sit down to compose their annual filing instructions. I am 100 percent sure that it's not their intention to create the most convoluted and confusing documents in the English language, but it's hard to tell from the results.
The true culprit, I know, isn't the IRS itself, but the 4-million-word tax code that it's trying to explain. There are so many terms to define, and so many caveats and special cases to decipher, that there's no way to be brief and straightforward. Also, your audience is so incredibly diverse — from wealthy households with vacation properties and foreign stock earnings, to struggling families surviving on government assistance.
This is how we get a definition of "dependent" that stretches over two pages and still doesn't address every possible way that a person can depend on your financially. So my heart goes out to the derided IRS, even as I mercilessly make fun of their forms. Why do I feel an audit in my future?
- Cussen, Mark P. "Tax Rules for Resident and Nonresident Aliens." Investopedia (Oct. 31, 2014) http://www.investopedia.com/articles/tax/11/tax-tips-for-non-residents.asp
- Duncan, Kimberly. "Full List of Property Tax Exemptions by State." Veterans United Network. Aug. 23, 2014 (Oct. 31, 2014) http://www.veteransunited.com/futurehomeowners/veteran-property-tax-exemptions-by-state/
- IRS. "Certain Payments to Disabled Veterans Ruled Tax-Free; Some May Be Due Refunds." Dec. 12, 2007 (Oct. 31, 2014) http://www.irs.gov/uac/Certain-Payments-to-Disabled-Veterans-Ruled-Tax-Free;-Some-May-Be-Due-Refunds
- IRS. "Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners" (Oct. 31, 2014) http://www.irs.gov/pub/irs-pdf/f4361.pdf
- IRS. "H. IRC 501(k) – Child Care Organization" (Oct. 31, 2014) http://www.irs.gov/pub/irs-tege/eotopich89.pdf
- IRS. "In 2014, Various Tax Benefits Increase Due to Inflation Adjustments." Oct. 13, 2013 (Oct. 31, 2014) http://www.irs.gov/uac/Newsroom/In-2014,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments
- IRS. "Information for Veterans with Disabilities" (Oct. 31, 2014) http://www.irs.gov/Individuals/Information-for-Veterans-with-Disabilities
- IRS. "Personal Exemptions and Dependents" (Oct. 31, 2014) http://www.irs.gov/publications/p17/ch03.html
- IRS. "Publication 501" (Oct. 31, 2014) http://www.irs.gov/publications/p501/ar02.html
- The New York Times. "An Incomplete Fix." Jan. 13, 2013 (Oct. 31, 2014) http://www.nytimes.com/2013/01/14/opinion/an-incomplete-fix.html?_r=0
- Tax Policy Center. "Alternative Minimum Tax (AMT)" (Oct. 31, 2014) http://www.taxpolicycenter.org/taxtopics/amt.cfm
- Tax Policy Center. "Taxation and the Family: What is the personal exemption?" (Oct. 31, 2014) http://www.taxpolicycenter.org/briefing-book/key-elements/family/exemptions.cfm
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.