Hi,

I am on H1 and came to US in Jan 2005. My wife came to US in April 2005 on H4. She changed her status to F1 in Aug 2005. She doesn't have an income in year 2005 and she has started getting scholarship starting Feb 2006. We paid $4000 as her 2005 tution fees. As I am a resident alien, I can show her as my dependent while filing returns for 2005. Filing Married jointly will turn out to be low tax for me, as well we can get tax credit (Life time credit) for her tution fees. So in total this will save $4000 for me year 2005.

Now my question is that if I show her my dependent in year 2005, will she need to pay Social security/medicare tax for year 2006 income. Rightnow her school is deducting only the federal tax. Do we need to pay social security/ medicare tax even if her school is not deducting? What will happen when she start working on OPT? Do she need to inform her employer that she is filing her returns as resident alien with me.

Or can she file separately for year 2006 income?

Please let me know which filing status will be more beneficial for us. Provided she doesn't have an income in 2005 and she will have income in 2006 and 2007.

Please reply.

Thanks
Rohit

AtlantaTaxExpert

Rohit:

Actually, you lucked out, as you will get the best of both worlds.

By filing jointly with you for 2005, she is being treated as a resident alien, which normaly means she would be liable for the Social Security and Medicare taxes regardless of her F-1 visa status.

However, all students (including your wife) who work for the university are normally exempt from Social Security and Medicare taxes. So as long as she works for the university, she will be fine.

Now, when she starts her OPT, she should begin paying the Social Security and Medicare taxes, as she has chosen to be treated as a resident alien. So when the employer asks, she must tell them about the joint tax return.

Further, once you file jointly, that choice cannot be rescinded.

I suspect that the Education Credits will probably offset the cost of the Social Security and Medicare taxes, so you will probably come out even in the long run.

AtlantaTaxExpert

Resubmitted twoce by accident!

rohitkumar_garg

Hi,

Thanks for such an early response.

Though I got 2 more questions:

1. In future, if she want to file her returns separately (as a resident alien) can she do that or she would always need to file the returns jointly with me.

2. We paid her tution fee in Jan 2006 for the spring 2006 session. Can I get tax credit for this tution fee on the returns of year 2005? Or I can include only the tution fee paid in 2005.

Thanks
Rohit

AtlantaTaxExpert

Rohit:

Already answered your private message.

1) She can file a Married Filing Separately resident alien tax return now that she has effectively chosen to be treated as a resident alien.

2) You can only claim tuition credits in the year you paid them. this information is tracked by the university and reported to the IRS on Form 1098-T.