Hi - I recently started in a new company. I am a payroll asst. One of our employees is asking about OPT since she has received her first paycheck. And I'm left to research. As an employer am I supposed to exempt her from all taxes on the first $5000 earned? Or is she supposed to do that when she files for 2008? She is currently on F1 and I am not deducting FICA from her.

Thank you so much for your time!

AtlantaTaxExpert

If she files the appropriate paperwork, the first $5,000 of her income IS exempt from taxation. Form 1042-S should be prepared to document that fact. The rest of the income is reported on Form W-2.

If you failed to do this, she can claim the $5,000 treaty exemption when she files Form 1040NR or 1040NR-EZ.

She is NOT liable for any FICA tax.

MukatA

Every one of F1/OPT is exempt from FICA taxes for 5-years.
About $5,000 tax treaty deduction, I am not sure why should you as an employer worry about tax treaty of each and every country. Then you can always make a mistake. So may be without considering tax treaty, withhold the taxes.