India F1 Students

[Reviewed 2/6/2024]

Standard Deduction on the Federal 1040NR(EZ)

For the standard deduction amount, see Deductions (Federal Returns).

Standard Deduction on Federal Income Tax Returns of students from India

SUMMARY: If, as a nonresident alien from India, you claimed the treaty benefit of using the federal standard deduction, then any refund of state tax is not taxable the following tax year because you did not deduct the state tax on your 1040-NR federal form.

NOTE: Effective 2020, the 1040-NR-EZ is discontinued, and the 1040-NR has been redesigned
If you claimed the standard deduction, it would be claimed on the following lines/forms. 

• 2020 and later

  • 1040-NR, Line 12

• 2019 and before

  • 1040-NR-EZ, Line 11

  • 1040-NR, Line 37

For most nonresident alien F or J visa holders, they would enter on the 1040-NR the total amount of state taxes paid during that tax year (most often by withholding from paychecks, less often by payment directly to the state government). When the state tax is deducted, they are not paying federal taxes on that amount. So, if they get some of their state taxes refunded (which won't be known until the state tax return is completed) and they receive a refund, they must add that refund back in the following year so they can be taxed on that amount. 

By benefit of the treaty between the countries of India and the United States, F1 nonresident alien students from India can take the federal standard deduction (in the amount set for that tax year) instead of deducting the state tax on their federal return (1040NR or 1040NREZ).

If you are an Indian student and you are claiming the treating benefit (which is the ability to use the standard deduction): 

• you are not deducting the amount of state tax withheld (unless the amount of state taxes withheld minus the amount of state tax refund expected is greater the standard deduction for that year)

• you will make a note on 1040-NR Line 12 "Standard Deduction, India Treaty Article 21(2)"

• you will enter the amount of the standard deduction (the amount can change each year) in the box for Line 12

Because this is a "standard deduction" you will not "itemize" deductions (that is, individually list each deduction) unless the total dollar amount of items being itemized is greater than the amount of that year's standard deduction ($13,850 for 2023).  See "deductions" for a brief explanation of deductions, both standard and itemized. If deductions are to be itemized, you will use 1040NR, Schedule A.

Federal Standard Deduction and State Tax Refunds

If you are an Indian student and have claimed the treaty benefit for a tax year (for example, 2022), then for the following tax year (2023):

• you do not need to include on 1040-NR, Schedule 1, Line 1, any state tax refund from the previous tax year (2022) that you received during the following tax year (2023, when you filed the return for 2022 in 2023).

• when using any tax preparation software or website, if asked about state tax refunds, you do not have to report the refund since it is not taxable. No amount will be put on 1040-NR, Schedule 1, Line 1.

Oregon Income Tax Return and the Oregon Standard Deduction

March 2019: At this time, the issue of whether the Oregon standard deduction is allowed by Indian students because of their federal tax treaty may finally be put to rest: No, it may not. 

What follows is history.

There is the question of whether Indian students can take the standard deduction on the Oregon returns (whether Oregon 40, 40N, or 40P).

Update March 2019: sometime in March 2019, Sprintax revised their software to no longer put the Oregon standard deduction on the Oregon income tax returns of those students from India who claimed the federal standard deduction as a treaty benefit on their 1040NR(EZ).  While I wish they could take the Oregon standard deduction, I believe that is correct; students from India do not get the Oregon standard deduction.

If you are curious about that, you can read the following.

Note: in the following discussion, the amount of the standard deduction ($2,155) was for that year; the Oregon standard deduction can be changed each year.  

The federal standard deduction on the federal forms (1040NR and 1040NREZ) does not reduce the amount of income going to the Oregon tax forms. So, it would be beneficial if the Indian student could use Oregon's standard deduction on the Oregon form to reduce the amount of income taxed on the Oregon tax forms.

But Oregon OR-17 "Oregon Individual Income Tax Guide" (2018), page 94, states: “The standard deduction for nonresident aliens is -0-.”  

There is no mention in OR-17 nor any of the instructions for the Oregon forms stating that Indian students are eligible to take the Oregon standard deduction on the Oregon tax returns. Further in previous years, some Indian students putting the Oregon standard deduction on their Oregon tax forms had the deduction denied. University of Oregon also reports the same issue. In the past, we were told by an auditor with the Oregon Department of Revenue that the federal government's treaty with India does not affect whether they can take the Oregon standard deduction on the Oregon forms.

When Sprintax began producing Oregon tax forms for Indian students with the Oregon standard deduction, an inquiry was sent to the Oregon Department of Revenue. A response was received March 28, 2017. To be honest, I don't understand the discussion but the concluding statement in bold is very clear in meaning: the particular tax auditor who responded to my query feels Sprintax is correct in giving the Oregon standard deduction to Indian students (and, I would assume in using the 40N even though all income was earned in Oregon).  Following is the email from the Oregon Department of Revenue. However, continue reading after the email.

Please take a look at this page from University of Oregon's web site regarding Indian students and the Oregon standard deduction. See the very bottom, "Oregon Filing Tips," where it says:

"You should be able to claim the standard deduction on the Oregon state filing ($2155 in Form 40N, on line 40); however, in the past years, the Revenue Office has been rejecting this and sending the forms back – so, you should be prepared to receive a rejection notice, not panic, and be ready to resend the forms.

Most likely what would happen is you would received a notice that they have adjusted your return (and why) and that would adjust your refund (or tax due). It could be you would move from a refund situation to a tax due situation. The difference in tax is approximately $100 for lower incomes. It all depends upon your level of income.

Whipple vs Oregon Department of Revenue, 1990

An individual, who assists international students at another Oregon college, stated that a court case decided in 1990 established that the treaty benefits apply to the nations involved and not to state taxation.

"Finally, plaintiffs contend that the Oregon tax scheme violates the income tax treaty between the United States and Canada requiring both nations to allow tax credits or deductions for taxes paid to the other. The relevant treaty language, however, applies only to the nations involved, Canada and the United States, and not to state taxation. Plaintiffs received the full benefit of the treaty when they claimed their Canadian taxes as a foreign tax credit against their United States taxes. We find no support for plaintiffs' contention that the treaty imposes any constraint upon Oregon's treatment of foreign taxes."

Conclusion?????

It would seem that the most clear statements regarding this issue are in Oregon Publication 17 cited above: the standard deduction for a nonresident alien is -0-. There are no positive statements in Oregon publications that the Indian student is an exception to this statement. And the Oregon Supreme Count in the case cited above states that the treaty language in this instance of the treaty between the US and Canada does not apply to state taxation.