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aotaxhelp · Jan 18, 2011, 08:49 AM

1. I started employment only from August 02, 2010. Before that I was pursuing MBA (which I graduated in May, 2010). For my MBA with Tulane University New Orleans, I took education loan from an Indian Bank (SBM) for which I pay around $300 as interest per month.
2. Currently I am on F1 (OPT), so I don't need to pay SSN and Medicare tax for this year. I need to get a refund of these taxes as well.
3. I recently got married (26th Dec,2010).

So am I a Resident/Nonresident Alien per US Tax Laws? Can I claim Student Loan Interest Deduction and exemption for my wife? Please advise.

Thanks,
Thripati

AtlantaTaxExpert · Jan 18, 2011, 10:12 AM

Thripati:

I assume you are an Indian citizen. If so, then you will file as a non-resident alien, filing Form 1040NR with Form 8843, AND claim your wife as a dependent.

Since you are claiming your wife as a dependent, you will need to submit Form W-7 to get her an ITIN.

You WILL be able to deduct the student loan interest IF the loan was exclusively for tuition and fees. If the loan was also used for daily living expenses (food, rentr, etc.), then it is NOT eligible to be deducted as a student loan.

You should FIRST go to your employer and request that the improperly-withheld FICA (Social Security and Medicare) taxes be refund to you. Most employers can do this reasonably quickyly by amending their quaterly Form 941. The IRS requires that you attempt to get the refund from the employer before submitting Forms 843 and 8316 to get the refund direct from the IRS. If your employer refuses to refund the money, then get a refusal letter and THEN submit the Forms 843 and 8316.

If you need professional help filing the annual tax return and/or Forms 843/8316, email me at [email protected].

aotaxhelp · Jan 18, 2011, 02:03 PM

Thanks ATE but I read somewhere that the interest on the education loan taken from an Indian bank is not deductible, unless the bank made payments directly to the school/college in US towards tuition fees. Is that true? Also, can I claim Standard Deduction? Please advise.

AtlantaTaxExpert · Jan 19, 2011, 08:54 PM

Yes, you WILL be able to claim the standard deduction.

What you heard is untrue. As long as you can show that the loan was used EXCLUSIVELY for tuition and fees, it IS deductible even if the loan originated from an Indian bank.

What trips up most of my Indian clients is that they get ONE massive loan for ALL of their expenses (travelk, rent, food, etc.), and that makes the loan NOT deductible.