The Social Security/Medicare And Self-Employment Tax Liability Of Foreign Students, Scholars Teachers, Researchers, And Trainees
Self-Employment Tax Liability
The Internal Revenue Code imposes the self-employment tax on the self-employment income of any person in the United States who has such self-employment income. However, the Code also provides an exemption from self-employment tax on the self-employment income of NONRESIDENT ALIENS. A NONRESIDENT ALIEN is simply not liable for the self-employment tax. However, once an alien individual becomes a RESIDENT ALIEN under the residency rules of the Code, he then becomes liable for self-employment taxes under the same conditions as a U.S. citizen.
Under the rules pertaining to the Substantial Presence Test, foreign scholars, teachers, researchers, trainees (including medical interns), physicians, au pairs, summer camp workers, and other nonimmigrants who arrive in the United States on J-1, Q-1, and Q-2 visas are considered to be "exempt individuals" (i.e., exempt from counting days of presence in the United States under the Substantial Presence Test) during the first two calendar years of their physical presence in the United States; and foreign students who arrive in the United States on F-1, J-1, M-1, Q-1 or Q-2 visas are considered to be exempt individuals during the first five calendar years of their physical presence in the United States. This means that foreign scholars, teachers, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students who enter the United States on J-1, Q-1 or Q-2 visas are considered to be NONRESIDENT ALIENS during their first two calendar years in the United States; and foreign students who enter the United States on F-1, J-1, M-1, Q-1or Q-2 visas are considered to be NONRESIDENT ALIENS during their first five calendar years in the United States. Foreign scholars, teachers, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students who enter the United States on J-1, Q-1 or Q-2 visas usually become RESIDENT ALIENS on January 1st of their third calendar year in the United States; and foreign students who enter the United States on F-1, J-1, M-1, Q-1 or Q-2 visas usually become resident aliens on January 1st of their sixth calendar year in the United States.
After an alien student, scholar, teacher, researcher, trainee, physician, au pair, summer camp worker, or other nonimmigrant in F, J, M, or Q status has become a RESIDENT ALIEN under the residency rules of the Code, then he loses the NONRESIDENT ALIEN exemption from self-employment tax provided by the Code, and becomes fully liable for the self-employment tax. As an aside, however, it would be good to remember that, as a general rule, the immigration laws of the United States do not permit nonimmigrants to earn self-employment income; and thus, the question of a foreign student’s or scholar’s liability for self-employment tax does not arise very often. Nevertheless, if a nonimmigrant violates his nonimmigrant status and earns self-employment income in the United States, the Internal Revenue Service (IRS) will not hesitate to impose income taxes on such self-employment income, and will not hesitate to impose the self-employment tax on such income if the alien has become a RESIDENT ALIEN.
The Social Security/Medicare Tax Liability
The Code imposes the liability for social security and Medicare taxes on both the employer of, and the employee, who earns income from wages in the United States. The Code grants an exemption from social security and Medicare taxes to nonimmigrant students, scholars, teachers, researchers, and trainees (including medical interns), physicians, au pairs, summer camp workers, and other nonimmigrants temporarily present in the United States in F-1, J-1, M-1, Q-1or Q-2 status. The Social Security Act contains the same provision. Both code sections exempt the above-named nonimmigrants from social security/Medicare taxes for as long as these nonimmigrants are "NONRESIDENT ALIENS" in F-1, J-1, M-1, Q-1 or Q-2 status.
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