The FICA Tax Exemption for Non-Resident Aliens in the U.S. Under F, J, M, or Q Visas
A common issue for employers of non-resident aliens authorized to work in the U.S. is whether (and when) such individuals are exempt from FICA taxation. Under the Internal Revenue Code, a nonresident alien (“NRA”) in the United States under a teacher, researcher, trainee, or student visa is exempt, within certain limitations, from FICA taxation.
A teacher, researcher, or trainee is an individual (other than a foreign student) “admitted temporarily” to the U.S. as a nonimmigrant under Code §§ 101(a)(15)(J) or (Q) of the Immigration and Nationality Act and who substantially complies with the requirements of being admitted. These individuals are in the U.S. under a J-1, Q-1, or Q-2 visa.
A foreign student is any individual “admitted temporarily” to the United States as a nonimmigrant student under Code §§ 101(a)(15)(F), (M), (J), or (Q) of the Immigration and Nationality Act and who substantially complies with the requirements of being admitted. These individuals are in the U.S. under an F-1, J-1, M-1, Q-1, or Q-2 visa.
The determination of whether an F-1, J-1, M-1, Q-1, or Q-2 visa holder is a resident alien or a non-resident alien is set forth under the Code’s residency rules. If any of these visa holders becomes a resident alien under the rules, that individual loses the nonresident alien FICA exemption. These rules provide that:
- A teacher/researcher/trainee visa holder is not exempt for the current year if for any two calendar years during the preceding six years the person was exempt as a teacher/researcher/trainee or as a foreign student.
- If the teacher or trainee received compensation from a foreign employer, the person is no longer exempt if for any four years during the preceding six years the person was exempt as a teacher/trainee or as a foreign student.
- A “foreign student” is no longer exempt after five years.
An individual will be deemed a resident during any calendar year in which the person is 1) lawfully admitted for permanent residence (i.e., has a green card, married to a U.S. citizen or a U.S. resident); 2) makes an election in the first election year to be treated as a resident of the U.S. for that year; or, 3) meets the “substantial presence test.” The substantial presence test requires an analysis of days present in the U.S. over the past three years.
If an individual meets the substantial presence test, the person is deemed a U.S. resident for tax purposes and is no longer exempt from FICA taxes. If a foreign student or teacher/researcher/trainee does not meet the substantial presence test, the person remains exempt (assuming the individual has not been lawfully admitted for permanent residence nor made an election to be treated as a resident in the first election year).