Hi,

I called the IRS help desk to clarify issues on interest, div and capital gains
while on F-1 and H-1 in the same year and filing 1040NR

The answers I got seem to be exactly opposite of what I have been reading.

1) Dividend while on F-1 is effectively connected
2) Dividend on H-1 is not effectively connected

3) Interest on F-1 is effectively connected and taxable
4) Interest on H-1 is not effectively connected and so non taxable

5) Capital gain on ESPP while on H-1 is not effectively connected and goes on pg 4 of 1040NR

Do the tax experts agree??

Thanks, Tanya

IntlTax

Your use of the term "effectively connected" and "not effectively connected" is confusing in the context of your questions.

1. Dividends are subject to 30% (or lower treaty rate) while not a resident (the taxation is determined based on residency status and not on visa status - although visa status can impact residency status).

2. Dividends received while a resident are taxable as ordinary income and qualified dividends are subject to a maximum federal tax rate of 15%.

3. Bank interest income is not taxable while not a resident.

4. Bank interest income is taxable while a resident.

5. If not treated as a resident of the U.S. but you are present in the U.S. for more than 183 days during the year, with exempt days of presence being included in the counting of days, capital gains are taxable in the U.S. at a 30% rate. If treated as a resident of the U.S. long term capital gains are taxable at a maximum federal tax rate of 15%.

tttanya

Thanks,

So if I do not meet the substantial presence test and file form 1040NR,
would all the interest be non taxable, or would I look at the bank
statement and determine the portion of the interest on H-1 and pay taxes on it??

Tanya

IntlTax

If you are a nonresident alien for the entire year and it is bank interest income, none of it is subject to U.S. tax.