What US Exchange Visitor Program participants need to know about Trump’s Tax Cuts and Jobs Act
President Donald Trump introduced the Tax Cuts and Jobs Act in November 2017. The new tax law has implications for interns, au pairs, Summer Work Travel participants, trainees and other participants of the US Exchange Visitor Program who have earned money while working in the US and are considered non-resident aliens.
Prior to the 2017 Tax Cuts and Jobs Act, non-resident aliens, such as those working temporarily in the US under the Exchange Visitor Program, could earn up to $4,050 without paying tax. However, as of January 2018 (and up to 2025) the personal tax exemption was reduced from $4,050 to $0.
“Taxable income has increased for those earning money while participating in the Exchange Visitor Program in the US,” said Eileen Devereux of Taxback.com, a global tax refund specialist and member of WYSE Travel Confederation. “Failure to comply with US tax law can result in fines and complications for future entry to the country, therefore it is vital for Exchange Visitor Program participants, and the travel professionals who assist them, to understand their tax obligations.”
How much will tax Exchange Visitor Program participants pay?
Participants of the Exchange Visitor Program who earned money must pay both state and federal government taxes in the United States. Exactly how much state tax depends on the salary and location the participant works, as income tax varies by state. Federal tax rates are applied by income brackets, with the first $9,525 earned subject to 10% tax. The tax rate can be as high as 32%.
For example, Summer Work Travel participant, Fiona, visits Miami, Florida and secures work in an office for the summer. During her time in Florida, Fiona earns $9,000, which is considered the average income for about 50% of Summer Work Travel participants, according to Taxback.com.
Had Fiona earned this income in 2017, her federal tax bill would have been $495:
$9,000 – $4,050 = $4,950
10% of $4,950 = $495
However, if Fiona earns this income in 2018, her federal tax bill will be $900:
$9,000 – $0 = $9,000
10% of $9,000 = $900
Filing federal and state tax returns
Participants of the Exchange Visitor Program who earned money must file both state and federal tax returns in the US. The removal of the personal exemption for non-resident aliens means that most participants will receive less of a federal tax refund. However, participants may still be entitled to a state tax refund.
“The average state tax refund for Sprintax users is $175,” said Devereux. “Those are valuable funds for a student, so obviously worth collecting.”
Failure to file may result in penalties and interest due.
“The late filing penalty is 5% of the additional taxes owed for each month a filing is late. If a tax return is filed more than 60 days after the due date, the minimum payment is $205 or 100% of any unpaid tax; whichever is less,” said Devereux. “Plus, participants failing to comply with their tax obligations may also be denied future entry to the country.”
There are different ways to prepare and file a tax return. One of these is preparing the paperwork yourself and filing directly with the US federal tax authority, the Internal Revenue Service (IRS). It is also possible to utilise specialised tax preparation software, online tax preparation and filing services, or a tax advisor.
Sprintax, a product of Taxback.com, is one such self-prep tax software specialised for Exchange Visitor Program participants who earned money during their stay in the US. Users create an account, answer questions related to their stay in the US, and then have a completed 1040NR form (non-resident tax return form) ready to submit to the IRS.
“Sprintax is purpose-built software that serves non-resident aliens. It has prepared over 500,000 tax returns since 2013 and is used by institutions such as New York University, Cornell University, and Columbia University,” said Devereux.
You can learn more about the Tax Cuts and Jobs Act and how to assist your Exchange Visitor Program participants with their tax obligations from Eileen Devereux of Taxback.com at the World Youth and Student Travel Conference (WYSTC) in Edinburgh, 18-21 September 2018.