Can International Students Buy Stocks in the US?

International students in the US can invest in the stock market. This guide explores the rules and steps for investing, considering visa status and US tax regulations.

Eligibility and Visa Considerations

International students on F-1 and J-1 visas can invest in the US stock market. Investing is a “passive activity” and does not require work authorization from US Citizenship and Immigration Services (USCIS). This means it typically does not violate visa terms related to employment.

While passive investing is allowed, activities resembling active employment, like frequent day trading, are not permitted. Day trading, defined as four or more trades within five business days, could be seen as unauthorized employment and jeopardize a student’s visa. Students should focus on long-term investment strategies, not speculative, high-frequency trading.

US Tax Implications for International Student Investors

US tax implications are important for international student investors. Tax treatment depends on an individual’s tax residency status, which differs from their immigration status. F-1 and J-1 visa holders are typically “non-resident aliens” for tax purposes for their first five calendar years in the US. This is due to an “exempt individual” rule, which exempts them from counting days towards the “substantial presence test” for a specified period.

The substantial presence test determines tax residency based on physical presence over three years. If an F-1 or J-1 student exceeds the five-calendar-year exempt period and meets this test, they may become a resident alien for tax purposes. Resident aliens are taxed on worldwide income, similar to US citizens, while non-resident aliens are generally taxed only on US-sourced income.

Investment income taxation depends on residency. Non-resident aliens typically face a flat 30% tax on US-source dividends, usually withheld at the source. Capital gains from US stock sales are generally not taxable for non-resident aliens present in the US for less than 183 days during the tax year. If present for 183 days or more, US-source net capital gains may be subject to a 30% flat tax rate. This 183-day rule for capital gains differs from the substantial presence test.

Tax treaties between the US and a student’s home country can reduce or eliminate US tax on certain investment income. These agreements allow residents of foreign countries to benefit from reduced tax rates or exemptions. Students should consult IRS Publication 901, “U.S. Tax Treaties,” to see if a treaty applies and how it impacts their investment income.

For tax reporting, international students need a US tax identification number: either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). An SSN is for those authorized to work, while an ITIN is for tax purposes for those ineligible for an SSN. Brokerage firms issue tax forms like Form 1099-DIV for dividends or Form 1042-S for non-resident aliens reporting US source income subject to withholding.

All international students with US-sourced income, including investment income, must file an annual federal income tax return with the IRS. Non-resident aliens generally file Form 1040-NR, while resident aliens file Form 1040. Filing may be required even if no tax is due, to report income or claim treaty benefits.

Opening a Brokerage Account

Opening a US brokerage account requires international students to meet specific requirements and provide documentation. Applicants must be at least 18 years old and provide valid identification, typically a passport and an F-1 or J-1 visa.

Students typically need to provide Form I-20 (F-1 visa holders) or Form DS-2019 (J-1 visa holders). Proof of a US address, like a utility bill or bank statement, is also required. A US tax identification number (SSN or ITIN) is necessary for opening an investment account and for tax reporting.

Students can apply for an ITIN by submitting Form W-7 to the IRS, often along with their federal tax return. This process ensures compliance with IRS regulations for reporting investment income.

When choosing a brokerage firm, consider ease of account opening for non-residents and customer support for international clients. Many online brokerages serve international investors, but some have specific requirements. The application process typically involves an online application, submitting scanned documents, and funding the account via wire transfer or linked US bank account. Some firms may require original or certified copies mailed.