Can I switch from TN to OPT to save $$?

Hi Canadians,

I just graduated in June from a Master's program in Boston and started a one-year work fellowship on July 1. The international visa counselor at my school told me to get a TN visa because it was easy - and I did. But I am not wondering if that was a mistake - I am likely moving home to Canada next June, and just realized that I would not have to pay FICA deductions if I had just applied for an OPT with my F-1 visa.is that right?

So, my question is: does anyone know if I can switch from my TN back to my F-1 with OPT in order to stop paying into social security? Ahhhh, so confusing!

If I can switch, can I apply for a refund on any of the taxes?

Thanks SO much if anyone can help!

Margaux

What a dipstick counselor, you'd think EAD would be the first thing out of their mouth. I'm not sure there is any great tax advantage if you are working a regular job as OPT, the tax advantages are essentially the same as F-1 and TN-1 because in either case you have "non-immigrant intent" and should file 1040NR. Any social security tax withheld in either case counts in Canada under the totalization agreement anyway. But have a read of IRS publication 519, specifically the first few pages and page 48 (and some of the other stuff dealing with students). The tax advantages for foreign students are usually based around the idea that you will be receiving funds from abroad, so that doesn't get taxed (assuming you file 1040NR and 8843 every year).

If you want to get OPT you'd have to leave and re-enter as F-1 assuming your I-20 is still valid.

Bear in mind you should be filing a 1040NR and an 8843 if you get an EAD this way. If you are in TN-1 you should file a 1040NR and an 8840 or 8833, depending on the situation. Read publication 519 and it will explain the differences between the visas and the taxation and which forms to file with your 1040NR return.

Also read this: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

It doesn't mention Form 8843 in there but the filing procedure is the same. You should already have been filing a 1040NR and an 8843 every year as an F-1 student - but I'm guessing your counselor didn't bother to mention that either.

Hi Steve - wow, thanks SO much for your input. Do you have time to clarify some things for me? I have been reading over publication 519 as you suggested and it has helped, and confused! I did find this:

Employment for optional practical training is sometimes permitted for students in “F-1â€

Hello,

I'm a little confused by Steve's answer. I can't include links to the examples that I mentioned due to the fact that I have yet to make 10 posts, but I did explain where to go to find each piece of information I mention.

If you are doing your OPT under F1 then you do NOT have to pay Medicare or Social Security , however, if you are on TN status you do have to pay all the same taxes as a US citizen. If you go to IRS's website and look up "Publication 519: U.S. Tax Guide for Aliens", then go to Part "8. Paying Tax Through Withholding or Estimated Tax", then to section entitled "Social Security and Medicare Taxes" you will see where this is explained.

As far as filing either form 1040NR or 1040, this has to do with whether you pass the "Substantial presence test". See the below taken from the same website (Part 1. Nonresident Alien or Resident Alien?)

Substantial Presence Test
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for calendar year 2007. To meet this test, you must be physically present in the United States on at least:
31 days during 2007, and
183 days during the 3-year period that includes 2007, 2006, and 2005, counting:
All the days you were present in 2007, and
⅓ of the days you were present in 2006, and
⅙ of the days you were present in 2005.


Finally, if you file the regular form 1040 there are additional deductions benefits as you are essentially filing as a resident in the United States. This also means if you pass certain criteria in Canada you can file to NOT be a resident in Canada for taxation purposes while you are on TN status in the United States. Got to Revenue Canada's website and look up form NR73 (Determination of Residency Status (Leaving Canada)) to find out if this works for you.

I hope this helps!

If he's F-1 he'll never meet the substantial presence test, that's what filing the 1040NR and 8843 are for, so that you don't. Otherwise you become subject to tax on your worldwide income, which means if your parents send you money to pay tuition, it's subject to US income taxes. If you're a foreign student you should file Form 8843 every year. You cannot retroactively file it, either. And the benefit is for a maximum of five years, i.e. you can only file the form five times.

If you don't pay the social security tax, you don't receive the benefit of it either, which is what the totalization agreement is for. You can't switch status and claim it back.

If you're on TN-1 you file 1040NR and Form 8840 or 8833 every year to claim a closer connection to Canada (depending on the circumstances). And a T1 for the place that you reside in Canada (which you should have been already doing anyway as a student). This is explained in that CRA document I linked to.

Basically to cut a long story short if you file an 8843 with your 1040NR you don't have to pay social security tax or medicare, if you file an 8833 you do (which is an oversimplification because it depends on certain things but that's the gist of it).

I never get too worried about "withholding" taxes because at the end of the day you can claim that back if the employer withheld it incorrectly, but I think in your situation it's probably too late because you've already entered on a TN-1 and started work. But at the end of the day you will get the benefit of paying the tax - but not medicare unless you become a citizen, pretty much.

Hi Steven, I'm still confused. read the section under Social Security here: http://www.irs.gov/publications/p519/ch08.html#d0e9874

as far as I understand that it is saying that you must pay social security.

Read the second to last paragraph of my post. 8843 is the form you file to declare that you are a student so they can determine you are exempt from paying it. But not paying it means you don't get the benefit of it. (Which may or may not be a big deal).

My original point was (perhaps not clear) is that it sounds as though he's never filed Form 8843 ever, so he's buggered anyway, because now he's on TN-1. He never told the IRS he was a non-resident alien.

you can still be considered a 'resident alien' for tax purposes even if you're on an F-1 . just so that you know. if you're here for your undergrad AND grad, you will end up meeting the substantial presence test .

The difference is the form you fill in. International students never meet the substantial presence test if they file the right paperwork. You can file Form 8843 for up to five years (not five full years, five tax years, so if you arrive on December 30th, you're looking at four years plus a day) and this exempts you from Social Security and Medicare withholding.

If your course of study is longer than that you can file Form 8833 instead to claim a closer connection to Canada. However you are subject to FICA withholding on earnings.

But the major advantage is that if you are receiving funds from Canada to pay your tuition, it remains exempt from US income tax because it is not US-source income and you remain a resident of Canada for tax purposes.

Hi Steven and Ifen - thank you both so much for you replies. I apologize for taking so long to reply - I wasn't receiving any more notifications and wasn't aware any more responses existed - but thank you!

So, to repond to Steven - in fact I have filed both 8843 and 1040NR since I arrived in the US as a F-1 student in 2005-06. I have an update on my situation for which I would love your thoughts. Since my advisor gave me bad advice about getting a TN visa rather than applying for my OPT with my F-1. So, my employer has offered me to re-classify me as a J-visa. If I left the country and re-entered as a J, would I be exempt from FICA once again? I think I would be - but I think I would have to classify as a non-resident alien. Is this right? Since I was an F-1 up until the end of June 2008, I think I can fall under 183 days substanial present test this year (including a winter vacation back in Canada). As for next next, I think I can do the same, since my fellowship ends in June.

I am only a bit nervous that I might not be considered a non-resident alien. Steven - you seem confident that people can claim another tax home pretty easily - is that right? Also, am I right in thinking that switching to a J-visa from a TN will save be FICA - even if I am considered a non-resident tax purposes?

THANK YOU!