Taxes On April 15th of each year, everyone in the United States with an income - regardless of whether you are on the Fermilab payroll or receive a salary from another U.S. source - has to file an annual tax return. Even though Federal and State taxes are usually withheld each month from your paycheck (depending on your salary, between 18% and 42.6% are withheld), you must file a tax return. Special forms are needed to be filed with, the Internal Revenue Service (IRS), a branch of the U.S. Department of Treasury, as well as with the Illinois Department of Revenue. The forms are available in post offices, public libraries, online at www.irs.gov/forms_pubs/index.html, or you can order them to be mailed to you at 1-800-TAX-1040. IX.  Taxes     1.  How to file a tax return     2.  Resident or Nonresident     3.  Tax forms     4.  Tax treaties     5.  Social Security tax
1.	How to file a tax return Some time in January you will receive a W-2 form from your employer. It reflects your income and all taxes withheld during the previous year. For your Federal taxes, one copy of the W-2 form needs to be sent together with your other tax forms to the Internal Revenue Service Center. The address can be found on the back of the instructions belonging to the forms you are filing. For your Illinois State taxes, a copy of your W-2 form and the state tax forms need to be submitted to the Illinois Revenue Center. Again, please find the address on the back of the instructions. Remember, the earlier you file your tax return, the earlier the IRS will send you your refund check if too much tax was withheld. The IRS offers a number of publications, including instructions for each type of tax form. They can be obtained at the same places as the forms (see above). To start, the most important and helpful IRS publication for you will be No. 519 "Tax Guide for Aliens" and No. 901 "U.S. Tax Treaties". You can prepare your own tax return. This requires handling various tax forms, instructions and publications. Alternatively, a wide range of tax return software is available for your personal computer at home, but they might not meet the special needs of aliens. Check this before you buy any tax return software! If you feel uncomfortable preparing your own taxes, you may consider consulting one of the numerous tax prepare services. These are either Accredited Tax Advisors, Certified Public Accountants (CPA), Tax Attorneys or Enrolled Agents. They will charge a fee depending on how complex the tax situation is and on how many forms need to be prepared. Serious tax consultants never guarantee a refund before completing your return. If the tax preparer might offer you immediate payments of returns, this is a loan, and you should carefully pay attention to the terms and fees before you sign. You can find names and addresses of tax consultants in the phone book (Yellow Pages), newspaper ads, etc.; you should also consider asking friends and colleagues for referrals. The following are names and phone numbers of CPAs in the Chicago area who helped foreigners in the past and are experienced in dealing with tax issues that involve foreign countries: Steven Glover Africk Chez PC 847-236-9800 Howard Serlin Howard R. Serlin CPA 847-677-9925 Susan Lewis CPA 630-548-9600 Another possibility is choosing a national tax service chain, of which H&R Block is the most popular one. They maintain franchise offices throughout the country, operated often only between February and April - the high peak tax season - with convenient locations and office hours. The staff is required to attend a 75-hour tax seminar given by the company. That does not make them experts, but they are probably far more experienced than you are, and less expensive than an individualized service. Back to top
2.	Resident or Nonresident? To do your taxes, you first need to figure out which tax form to use. This is based on whether or not you are a resident for tax purposes. But do not get confused! The IRS determines U.S. "residents" in a different way than the Immigration and Naturalization Service (INS). Thus, for tax purposes only you may be considered a resident, although with the INS you really are a nonresident alien. The tax guide for aliens (IRS Publication 519) offers a simple chart on page 5 to determine your tax status. This "substantial presence test" asks, if you were present for more than 183 days during the 3-year period that includes the current year and the two years immediately before that. How to count the days of presence is complicated since a lot of exemptions apply. You will find the instructions on page 4 of the tax guide for aliens. Days of presence as an exempt individual must not be counted when taking the substantial presence test. According to the tax guide for aliens (page 4), the exempt individual rule applies for students in F-1 visa status as well as teachers and trainees in J-1 visa status. But the tax guide is not specific enough to give reliable advice if researchers in J-1 visa status are as well subject to this rule; it depends on your interpretation, whether you consider yourself an exempt individual (and therefore a non-resident) or a resident for tax purposes with less tax rates and more deductions to claim. Fermilab's payroll department usually considers a J-1 researcher a non-resident for tax purposes for the whole duration of stay and withholds the higher taxes for non-residents. Nobody at Fermilab is allowed to give you any tax advice. If you need help filing your tax return you should contact a certified tax adviser (see information provided above). Back to top
3.	Tax forms The following is a list of the most common tax forms and a short explanation under which circumstances they need to be filed. 1040:   U.S. Individual Income Tax Return, basic form for each resident 1040 Schedule A:   Itemized Deductions for residents 1040EZ:   Easy form for U.S. Individual Income Tax Return, provided that you file a single or, if married, a joint return, your taxable income is less than $50,000, and you do not claim any dependents. 1040NR:   U.S. Non-resident Alien Income Tax Return 1040NR-EZ:   Easy form for certain non-resident aliens with no dependents 1099INT:   Statement you will receive from your bank regarding any interests earned. W-2:   Income statement provided by employer Fermilab Forms: Status Deterimination for Payroll Taxes Alien Tax Certification Form IRS and Illinois Dept. of Revenue Forms in PDF format: 8233 Instructions 8233 519 1040NR Instructions 1040NR 1040NR-EZ Instructions 1040NR-EZ IL1040 Instructions IL1040 Back to top
4.	Tax Treaties (see chapters 8 and 9 of the Tax Guide for Aliens, Publication 519 and Publication 901) The United States has income tax treaties with a number of foreign countries, under which residents of foreign countries are taxed at a reduced rate in certain cases, or even totally exempt from U.S. income tax. These reduced rates and exemptions vary among countries and specific items of income. If you are taxed as a resident for tax U.S. purposes (see above 2.), you cannot claim to be the subject of any tax treaty with your home country! The purpose of income tax treaties is to prevent citizens or residents of one country who temporarily reside in another country from paying taxes to both governments for the same income source. Tax treaties do not prevent you from paying taxes at all. Treaty-based exemptions from paying income tax in the U.S. are usually valid for a maximum of two years. If you stay in the U.S. longer than two years, even if it is only for one additional day, you may have to pay taxes for the whole period of time starting back at day one of your stay! Hence, a review of each treaty is necessary. Tax treaties currently exist between the U.S. and the following countries: Australia Austria Barbados Belgium Canada People's Republic of China Cyprus Czech Republic Denmark Egypt Finland France Germany Greece Hungary Iceland India Indonesia Ireland Israel Italy Jamaica Japan Kazakhstan Korea Luxembourg Mexico Morocco Netherlands New Zealand Norway Pakistan Philippines Poland Portugal Romania Russia Slovak Republic Spain Sweden Switzerland Thailand Trinidad and Tobago Turkey Tunisia Ukraine United Kingdom The full text of some of the treaties is available online at www.irs.gov/prod/ind_info/treaties.html. If you think you are eligible for the tax treaty in effect with the country of your last residence, you have to inform the payroll department as soon as possible by completing IRS form 8233 "Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual". It is the employee's obligation to complete and the employer's obligation to forward form 8233 to the IRS. If you are on the Fermilab payroll, you should talk to Ronald W. Pahl, Payroll Manager, ext. 2991, email: rpahl@fnal.gov, regarding any payments made by Fermilab, please contact Barbara Fetzner, Manager of General Accounting and Disbursements, ext. 6386, email: bfetzner@fnal.gov. You will also have to fill out a status determination form. The sooner the tax exemption form is filed, the better. It takes approximately five days for the payroll department to adjust your payroll account for the next month, and they can not reimburse you for any taxes withheld in previous months. To get your money back, you have to wait for IRS to reimburse you after submitting your income the tax return for that year. Even if you are eligible for a tax exemption based on a tax treaty, you still have to file a tax return, because you received income from a source inside the U.S. If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. tax treaty with the country of your last residence, file form 8833 "Treaty-based Return Position disclosure under section 6114 or 7701(b)" together with your 1040NR or 1040NR-EZ form. However, you should not file IRS form 1040, because you claim to be a resident of a country other than the U.S. and therefore subject to a tax treaty. Even if you seem not to be required to file a tax return because of your treaty-based position, you must file a return to report your position. If you fail to file form 8833, you may have to pay a $1,000 penalty. Back to top
5.	Social Security Tax In addition to Federal and State income taxes, most incomes in the U.S. are subject to Social Security tax (for 2000 the rate is 6.20% up to a maximum taxable amount of $76,200 gross income, plus 1.45% on all earnings) for retirement and medical insurance benefits - regardless of residence status. The employer deducts these taxes and additionally pays the same amount. Whether or not you will ever be eligible to receive these benefits in return depends on various circumstances and conditions. You can find information on this issue in the Tax Guide for Aliens, IRS Publication 519, pages 39 and 40. The rules regarding this topic are not clear and in the end a matter of interpretation. You may be able to get reimbursed for withheld Social Security taxes if you file the appropriate information with your employer. The employer has to submit the necessary paperwork to the IRS, since he paid his portion of the Social Security tax, for which he will get reimbursed as well. This is certainly a subject you want to discuss with an experienced tax advisor. For people in F-1 visa status with work authorization and J-1 visa holders, certain exemptions may apply. Social Security taxes are not withheld from salaries for work performed in accordance with the requirements under which the student or exchange visitor was admitted to the U.S., unless he or she is considered a resident alien. However, your obligation as an alien in J-1 status to pay Social Security tax starts with the first day of your third calendar year of employment in the U.S. (Example: date of arrival: November 15, 2000, your Social Security tax deduction starts in January of 2002). However, an exemption applies, if someone leaves the U.S. before the 184th day of the third calendar year. In this case, you should contact the payroll department, Ronald W. Pahl, ext. 2991, email: rpahl@fnal.gov. F-1 visa holders may be able to claim an exemption for up to five years. Foreigners in all other visa categories, including J-2 visa holders with work authorization, normally have to pay Social Security taxes from day one of their employment. Back to top