Tax Basics for New Students and Scholars

When you arrive in Austin, taxes are the last thing on your mind. However, you soon face terms and forms you never knew existed. International Student and Scholar Services (ISSS) is here to get you started making sense of this complicated topic. 

Different Tax Types

• Sales Tax

  This will probably be the first kind of tax you encounter when you arrive.

  In Texas, the state sales tax is 6.25%, which is applied to most goods and services purchased. Local jurisdictions can add up to 2% more, making the maximum possible sales tax rate 8.25%. This tax is collected at the point of sale and helps fund state and local services.

• Federal Income Tax

  Federal income tax is a tax imposed by the U.S. government on the income earned by individuals and businesses. The amount of tax you pay depends on your income level and filing status, with higher earners paying a higher percentage of their income. 

  If you earn income in a year (January 1-December 31), you must file a federal income tax return the following year during tax season (January-April).

  The deadline to file a federal income tax return is April 15 or the following weekday if April 15 falls on a weekend.

• Social Security/Medicare Tax (FICA)
  Social Security tax helps fund benefits for retired people, disabled individuals, and survivors of deceased workers. Medicare tax helps fund health insurance for people aged 65 and older, as well as some younger people with disabilities. 

  If you are employed, you will find a field for these taxes or FICA on your paycheck stub. 

  • Nonresidents for tax purposes: not required to pay FICA taxes
  • Residents for tax purposes: must pay FICA taxes even if they are not eligible for Social Security benefits or Medicare
  • Employed J-2 dependents: required to pay FICA taxes
  • FICA is approximately 8% of your total wages
     
• State Income Tax

  Texas does not have a state income tax.

  However, if you work in a different state (with proper authorization!), you might be required to pay state income tax. State income tax is a tax imposed by individual states on the income earned by residents and sometimes nonresidents who earn income within the state. The rates and rules for state income tax vary from state to state, with some states having a flat rate and others having a progressive rate based on income levels. 

  It is your responsibility to determine if you are required to pay state income tax. 

Tax Treaties

• What is a tax treaty?

  Tax treaties are agreements between two countries that determine how income earned in one country by residents of the other country is taxed. For international students and scholars, these treaties can provide tax benefits on scholarship or salary income.

  Note that tax treaties are based upon residence, not citizenship. So if you did not live in your native country before coming to the U.S., you will be subject to the tax treaties of the country you were living in immediately before beginning your studies. 

• How do I know if my country has a tax treaty?

  You can go to the IRS website for a list of tax treaties.

• Can I Claim a Tax Treaty Right Away?

  That depends on whether you are employed by UT Austin or are receiving a scholarship or fellowship from UT Austin. 

  Tax Treaties and Employment

  If you are employed at UT Austin, you must complete a Glacier Tax Compliance profile. Through Glacier Tax Compliance, UT Payroll will use this information to determine whether you are a nonresident for tax purposes and eligible for tax treaties. Your paycheck then will reflect your tax residency status and tax treaty eligibility. 

  Tax Treaties and Scholarships/Fellowships

  If you receive a scholarship from UT Austin, then 14% of your funds will be taken for taxes. You will determine your eligibility for tax treaty benefits and any refund owed to you when you file you U.S. income tax return during tax season (January-April).

  Before filing your income tax return, you must obtain Form 1042-S, which reflects your scholarship income. UT Austin generally releases the 1042-S forms in late February, but has through March 15 to do so. 

First Tax Steps

• UT Employees: Complete Your W-4

  When you arrive in the U.S. and begin a job, the first tax document you must complete is the W-4 Form. All employees must complete this form. This form determines the amount of tax that will be withheld from your paycheck, not including tax treaty benefits.

  • Answer the form to the best of your ability.
  • ISSS cannot help you answer the questions

  You might also find this Sprintax blog post useful. Sprintax is a service that we provide to students every tax season to help students complete their federal tax return. 

• UT Employees: Complete Your Glacier Tax Compliance Profile

  UT Payroll will ask you to complete a Glacier Tax Compliance profile. This software will determine if you are exempt from paying taxes based on the country of your tax residence. If you have questions about completing your Glacier profile, you may contact UT Tax Services.

• Apply for an SSN or ITIN if you're eligible

  If you are employed by UT Austin, you should apply for a Social Security Number (SSN) as soon as possible. Please follow the instructions on the ISSS SSN page for further instructions. 

  If you are not employed and have a scholarship or fellowship and do not already have an SSN, you should apply for an ITIN as soon as possible. ISSS provides guidance on how to apply for an ITIN.

  IMPORTANT: Once you receive your SSN or ITIN, you must report it to UT Austin Tax Services immediately. The University will need it to properly report taxes and issue tax documents.