Hi, my basic information is as follows,

1. Married (My spouse is H1B status and resident alien)
2. Currently OPT (expired next February) and non resident alien (F1)
So far, I had no income in the US except for small interests in bank
accounts
3. Going to enter into contract as Independent Contract until next Feb.
4. Last year, I and my spouse filed jointly.

My concern is that
1. During OPT period as Independent Contractor, what do I have to do
In terms of tax?

Is it possible for me to just use the 1040NR for 2006 instead of joint filing?
Otherwise, Do I have to pay FICA, Medicare, and estimated income tax
Quarterly as US citizen self employer because I will be a Independent
Contractors until my OPT expiration?

2. As far as I know, since the joint filing last year, my status was
Automatically converted to a resident alien from a non resident alien.
In order to reverse my status, what kinds of tax forms should I submit and
Where I can find a reference related to the issues?
In addition, by when do I have to file the forms?

I will deeply appreciate it if you could give me some tips.
Thank you.

gunisone

1) Since you filed jointly last year, you are being treated as a resident alien regardless of your F-1 visa status. This means you are liable for self-employment taxes (15.3%).

2) However, filing as a non-resident IS an option by REVOKING the choice to be treated as a resident alien. See IRS Pub 519, page 10-11 for details, which can be downloaded from www.irs.gov.

Dear Atlanta Tax Expert,

Thank you for your consideration. Your comments are so helpful.

I have a quick question. If I revoke my choice of resident alien, can I use 1040NR form for the Independent Contract. As far as I know, because the client will not withhold federal and state income tax. I will be responsible for all taxes. In this regard, what kinds of taxes except for income tax do I have to consider?

Thanks again.

Gunisone

I don't think that you can legally be self-employed under OPT. You might want to look into that.

TaxSearcher:

No, I have dealt with a number of cases where the OPT trainee is treated as a independent contractor. I do not think it's right morally, but there is, In my opinion, nothing illegal about it.

Gunisone:

Yes, you can file Schedule C with the Form 1040NR. Other than income taxes (state and federal), you should have to pay no other taxes.

ATE,

I'm no immigration expert (actually I am not sure there is such a thing!) but note the following from the University of Washington international student website. I think technically being self-employed is not permitted:


**************************************************
2. Practical Training

There are two types of practical training available: Optional Practical Training and Curricular Practical Training. Practical training provides an opportunity for you to supplement academic work with employment directly related to your field of study. You may be eligible if you have been enrolled at a college or university on a full-time basis for at least nine consecutive months and are currently in F-1 status. (An exception to the nine-month rule is provided for graduate students who require immediate participation in Curricular Practical Training.) Practical training authorization is automatically terminated if you transfer to another school or resume studies in a full-time degree program. Self-employment does not qualify as practical training. Students are considered to be in F-1 status during any authorized periods of practical training.

I believe the citation you extract deals with students who go out and start their own businesses. They in fact are self-employed, and the starting of a business DOES violate the provisions of the F-1 visa.

However, many employers do not want the expense associated with using foreign students under OPT as employees, so they decide to treat them as independent contractors and issue Form 1099-MISC instead of W-2s. Under the strict definitions of the IRC, independent contractors are also self-employed, but they have not started their own business in the strictest sense of the definition.

ATE, I think it is splitting hairs! If you hire someone as an "independent contractor" then the presumption is that the contractor is in business for themselves and is merely coming in to provide a service. If not, then the person should be hired as an employee.

I'm not saying that people can't and don't get away with this arrangement but it seems to me to be in conflict with the intent of the OPT (to provide practical training and experience in the field following the formal education process under the guidance of someone more experienced --- which implies an employee relationship). I don't think it would stand up to scrutiny to call these people independent contractors, if it came down to it.

Agree that it is splitting hairs. I also agree that it would not stand up to scrutiny if the branch of Homeland Defense that has replaced the INS begins to look at it carefully.

Still, once they look at all the facts, I believe the federal officials who investigate the situation would find in favor of the visa holder, as he/she has no choice but to work under the conditions specified by the employer.

Thank you guys for your advice and concern.

According to my understanding, the contents of Independent contract are generally focused on the professionals who want to reduce their taxes using some advantages on purpose. Therefore, IRS tries to more specify the distinction of employee and IC. In my case, I believe that I won't have any intention to do that and I am planning not to report any business expenses for Schedule C. In this regard, I hope that everything will be O.K.

Thanks again,

Gunisone

Glad to help, and good luck!