International Visitors & Employment Issues
"Self-employment" means carrying on a
"trade or business". It excludes such things as an occasional lecture
honorarium, occasional gambling income, occasional trading in financial
securities, selling a house you've fixed up yourself, etc. Any of these
items of income can rise to the level of self-employment if they "are
carried on by" (occur regularly for) the taxpayer. (For more
information, see IRC, Title 26, Subtitle A, Chapter 2, §1402 and Regs
Various activities can be construed to be
business income and subject to self-employment (FICA) tax if they are
done frequently enough to constitute a business. Such same activities
would be exempt from self-employment tax if they were "occasional".
(Note that the taxpayer may choose to make the activity a business under
§162 in order to deduct all expenses related to generating the taxable
income. The same expenses are not deductible unless the activity is a
"trade or business").
While the tax law permits what has just been
described in the previous paragraphs, the visting student
present in the U.S. under F-1 or J-1 immigration status
(including OPT) is explicitly prohibited by USCIS law from
Consequences of Being Classified An Independent Contractor
As long as your proposed type of work is permitted
by your CPT, OPT, or economic necessity authorization, you can do that
work as an employee or as an independent contractor. It is legal and
without adverse immigration consequences to work as an independent
contractor during summer or other off-campus employment.
An independent contract amount means any
payment for services that does not flow through Payroll. Such payments
include honoraria, awards, lottery winnings, and contract payments.
These are not self-employment in essence and they have to avoid
occurring so frequently that they take on the appearance of a trade or
A search for 'independent contractor' on the IRS
web site provides the following information:
Under common law rules, anyone who performs
services for an organization is an employee if the organization can
control what will be done and how it will be done. This is so even if
the organization gives the employee freedom of action. What matters is
that the organization has the right to control the details of how the
services are performed.
To determine whether an individual is an
employee or independent contractor under the common law, the
relationship of the worker and the organization must be examined. In an
employee-independent contractor determination, all information that
provides evidence of the degree of control and degree of independence
must be considered.
A general rule to determine that a person is
an independent contractor is that the organization, as the payer, has
the right to control or direct only the result of the work done by an
independent contractor, and not the means and methods of accomplishing
Facts to establish the degree of control and
independence fall into three categories: Behavioral control, financial
control, and the type of relationship between the parties. Refer to IRS
Publication 15-A, Employer's Supplemental Tax Guide, for additional
It is critical that the organization, as the
employer, correctly determine whether individuals providing services are
employees or independent contractors. Generally, the organization must
withhold income taxes, withhold and pay Social Security and Medicare
taxes, and pay unemployment tax on wages paid to an employee. The
organization does not generally have to withhold or pay any taxes on
payments to independent contractors.
If you find that you are eligible to be an
independent contractor, ask: "Is it to your advantage to be treated as
an employee or as an independent contractor?" You also need to know an
employer’s intention. In other words, are you being asked to be an
employee or an independent contractor?
When determining answers to the questions above,
consider these important facts and issues:
Payers of independent contractors frequently pay
them with no withholding of income or payroll taxes at all. This can
happen because independent contractors are usually paid via the accounts
payable system and not by the organization's payroll system, which is
designed to handle withholding of taxes.
An employer who illegally treats an
employee as an independent contractor passes to that contractor taxes
the employer is legally bound to pay. If the employer is
acting legally, then you as an independent contractor and resident
alien for tax purposes are bound to pay these taxes.
If you do agree to work as an independent
contractor and wish to have income taxes (federal and state) withheld
from your pay during the summer (so that you won't have to pay a large
amount of taxes at the time of filing your tax returns), then you should
plan on asking your hiring organization to agree to withhold
these taxes at the time of your job interview.
- If the hiring organization is not willing to withhold the taxes for you, then you must set aside a portion of your earnings during the summer
to deposit with the federal and state governments. The TAP suggests that you reserve approximately 18% (12% federal + 6% Indiana) of your earnings for this purpose. These
estimates may result in having to make a small payment at the time of filing your tax returns or they may result in a small refund. Following this suggestion
should reduce the risk of having to pay a penalty for under-withholding of income taxes.
If you wish to discuss immigration-related
aspects of off-campus employment, please email the Immigration Services Office.
If you wish to discuss any tax aspects of the
message above, please email the Tax Assistance Program.
For any/all other summer employment questions,
please email International Student Services and Activities.