Brazilian students in the US may be in debt with the IRS

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US Federal Revenue Service Re-evaluates Exemptions and Questions Brazilians

Foreign students living in the United States can be classified as US tax residents and be in debt with the US Treasury. The alert is made by tax consultant Bruno Drummond and is valid for Brazilians who are in the United States with the F, J or M category visas (F – students who have been accepted or are enrolled in a US school; J – people who participate in exchange or training programs; M – individuals who will study at a professional or non-academic institution, such as vocational colleges and community colleges).

As a rule, foreigners holding student visas would be exempt from the Substantial Presence Test — a calculation that counts the length of stay in US territory and establishes foreigners as tax residents. However, the Internal Revenue Code re-examined the law and has recently begun to question foreign students and collect taxes.

Credit: Karolina Grabowska/Pixabay

Bruno Drummond’s orientation for Brazilians studying in the United States is to fill out and submit Form 8843 (“Statement for Exempt Individuals and Individuals with a Medical Condition”) along with Form 1040NR or 1040NR-EZ (“US Nonresident Alien Income Tax Return”) to keep up with the IRS and avoid future headaches. “It is important for the individual to explain their tax situation to the US government before being questioned. Another essential point is in no case to send the Definitive Exit Communication and the Final Exit Declaration to the Internal Revenue Service in Brazil while abroad,” he emphasizes.

The foreign student who qualifies for the Substantial Presence Test must verify, through form 8843, that they meet the following requirements:

  1. No intention to reside permanently in the United States;
  2. Has substantially complied with the immigration laws and the requirements regarding their non-immigrant status;
  3. Has not taken any steps to change their non-immigrant status in the United States to become a permanent resident of the United States;
  4. Has a closer connection with a foreign country than with the United States — through the Income Tax filed in Brazil.

If these conditions are not met and/or the student does not submit the form, the individual will be classified as a global tax resident and will have to pay taxes in the United States on all the assets that they hold — both in the US, in Brazil and elsewhere in the world. “The student will also be exposed to fines and administrative proceedings,” concludes Bruno Drummond.

There are two ways to become an American tax resident: by obtaining the green card or through the Substantial Presence Test. The Substantial Presence Test is a rule that determines that individuals who have spent 183 days or more in the United States within a 3-year period are considered tax residents and must provide explanations to the US Internal Revenue Service. The calculation includes all the days of the current year, one-third of the previous year and one-sixth of the second year before. Click here and understand the calculation better.