Many believe that if they do not have a social security number, they are exempt from taxation. The ITIN (Individual Taxpayer Identification Number) is a 9-digit tax processing number issued by the IRS.

1. Tax Implications on Certain Immigrants and Non-
Immigrant
ITIN’s
Many believe that if they do not have a social security number,
they are exempt from taxation. The ITIN (Individual Taxpayer
Identification Number) is a 9-digit tax processing number issued
by the IRS. ITIN’s are issued regardless of immigration status
because both resident and non-resident aliens may have U.S.
tax return and payment responsibilities under the Internal
Revenue Code. ITIN’s do not authorize work in the U.S. or
provide eligibility for social security benefits. An original
passport is one of the 13 types of documents that are
acceptable proof of identity and foreign status.
IRS Publication 1915 states the following question: “Can I get an
ITIN if I am an undocumented alien?” And it gives the answer:
“Yes, if you are required to file a U.S. federal income tax return
or qualify to be listed on another individual’s tax return, you
must have either a valid social security number or an ITIN. If
you are an undocumented alien and cannot get a social security
number, you must get an ITIN for tax purposes.”

2. Resident Alien
An individual who is not a U.S. citizen is classified as a resident
alien if he meets 1) the lawful permanent resident test, 2)the
substantial presence test, or 3)elects to be treated as a
resident. The substantial presence test uses a complicated
formula under which the individual is treated as a resident alien
if they are present in the U.S. a) for at least 31 days during the
current year, and b) for a total of 183 adjusted days under the
formula.
Non-Resident Alien
On the other hand, income of a non-resident alien that is not
effectively connected with the conduct of a U.S. trade or
business is generally exempt from U.S. income tax unless it is
from sources within the U.S. and falls within the definition of
“fixed or determinable annual or periodical gains, profits, and
income” (otherwise known as “FDAP”). FDAP includes wages
and compensation, interest, dividends, rents and royalties
received from U.S. sources, but does not include capital gains
and other income realized from the sale of property. The tax on
FDAP is applied at a flat rate of 30 percent and is usually
collected by the payer of income who withholds this tax from
the nonresident alien and remits the tax to the IRS. No
deductions are allowed in arriving at the taxable amount.

3. Salaries, wages and compensation from U.S. sources are
included in FDAP and these payments are subject to either (i)
the 30 percent withholding tax, or (ii) wage withholding on the
same basis as U.S. citizens and residents. Wages, salaries and
compensation are U.S. source if such payments relate to
services performed in the U.S. However, if such compensation
does not exceed $3,000 for a tax year the income is treated as
foreign source, and not subject to withholding, if (1) the
nonresident is temporarily present in the U.S.; (2) the
nonresident is not present in the U.S. for more than 90 days
during the tax year; and (3) the employer is either a foreign
person not engaged in business in the U.S., or is a foreign office
of a U.S. employer. Most students will fail to qualify for this
exemption. Still, because the performance of services in the
U.S. generally gives rise to the existence of a U.S. trade or
business (and because nonresident student aliens holding F, J
or M visas are always considered engaged in a U.S. trade or
business), payments for such services are often not subject to
the withholding tax and are instead taxed under the effectively
connected income rules.
Income of a nonresident alien that is effectively connected with
the conduct of a U.S. trade or business (otherwise known as
“effectively connected income” or “ECI”) is subject to taxation
on a “net basis,” meaning that the nonresident may take into
consideration certain allowable deductions when computing

4. taxable income. Additionally, tax is payable following the close
of the tax year at normal, graduated tax rates.
Items ordinarily included in FDAP are instead treated as ECI if
one of two tests is satisfied. The first test is satisfied if the FDAP
type income arises from assets used or held in the conduct of
the U.S. business. The second test is satisfied if the activities of
the U.S. trade or business were a material factor in producing
such income.
The U.S. has income tax treaties in effect with many countries.
If you are a resident or citizen of such a country you may qualify
for certain benefits that reduce or eliminate the need to
withhold income or employment taxes.
Foreign Students
When determining the impact of U.S. income taxes on a foreign
student, the analysis always begins with determining whether a
student is a “resident alien” or “non-resident alien” for tax
purposes.
Since most school years start in August or September, most
foreign students will likely not meet the substantial presence
test above during their first year. Also, there is an exemption to
the substantial presence test for students. A special form needs
to be filed with the IRS to verify this exemption. If a person is
determined to have violated their F, J, or M visa according to

5. the IRS, they can lose this exemption. There are several
exceptions to this exemption, so please call us at 281-340-2074
with any questions.
Taxable scholarships and grants received by nonresident aliens
are subject to the withholding tax if the payer of the
scholarship or grant resides in the U.S.; however, the rate of tax
is reduced to 14 percent. Generally, scholarships and grants are
taxable to the extent not used for qualified expenses, which
include tuition and fees required to enroll in school. Therefore,
amounts used for living expenses are generally taxable. To the
extent a scholarship or grant is provided by your educational
institution, the school may actually withhold tax from that
portion of the scholarship or grant payable towards expenses
such as room and board. Ordinarily, nonresident students
admitted to the U.S. under F, J or M visas that receive income
from wages, tips, scholarships and grants are subject to tax as if
such income is ECI.
Foreign students who are treated as resident aliens are taxed
on their worldwide incomes in a manner identical to that of
U.S. citizens. Annual income tax returns must be completed and
income tax should be paid to the U.S. government.

6. In Summary
Non-Citizens with U.S. source income should always consider
consulting with a qualified tax professional as the tax rules
affecting these groups is unfortunately very complex.
Disclaimer: This article is not meant as specific advice regarding
a person’s individual case. An attorney should be consulted.
This article does not create an Attorney-Client relationship. Any
tax information or written tax advice contained herein
(including any attachments) is not intended to be and cannot
be used by any taxpayer for the purpose of avoiding tax
penalties that may be imposed on the taxpayer. (The foregoing
legend has been affixed pursuant to U.S. Treasury Regulations
governing tax practice.)