F-1 Tax Residency After Year 5: Indian Students’ Worldwide Income

(UNITED STATES) A quiet but important tax shift is catching many F-1 students at the start of their sixth calendar year in the United States: the end of their five-year exemption from counting days of presence for tax purposes. That change triggers the Substantial Presence Test (SPT) and, for many, full U.S. tax residency with reporting of worldwide income.

Updated guidance compiled by VisaVerge.com on November 1, 2025 underscores that the Internal Revenue Service treats most F-1 students as nonresident aliens for their first five calendar years in the country. Beginning January 1 of year six, days in the United States start to count toward the SPT, and students who meet that test become U.S. tax residents who must report income from all countries, not just U.S. sources.

How the five-year exemption works — and what changes in year six

• During the first five calendar years:
  • F-1 students are typically exempt from counting U.S. days toward tax residency.
  • They do not pay Social Security or Medicare taxes on authorized work.
  • They are generally taxed only on U.S.-source income.
  • For Indian nationals, passive income such as bank interest is often ignored by the IRS during this window.
• Starting January 1 of the sixth calendar year:
  • The exemption ends and days in the U.S. begin to count toward the SPT.
  • If the SPT is met, the student becomes a U.S. tax resident and must report worldwide income.
  • That can include Indian rental income, interest in NRE/NRO accounts, and capital gains from sale of Indian property, according to VisaVerge.com analysis.

Calendar-year timing — a common pitfall

The rule operates on calendar years, not academic terms or visa issuance dates, which is where many students get tripped up.

• Example: If a student arrived in late August, that entire calendar year still counts as year one.
• After five calendar years pass, the clock turns on January 1 of year six.
• From that date forward, every day in the United States counts toward the SPT unless an exception applies.

The Substantial Presence Test (mechanics)

• The SPT is mechanical:
  1. Present at least 31 days in the current year; and
  2. At least 183 “weighted” days over the current year and the two preceding years (current year counted fully, prior years counted fractionally).
• Once an F-1 student is no longer “exempt” (starting year six), their days are immediately included in this calculation.

A real-life example: Akhil’s story

• Arrived: August 2020 for a master’s program.
• Exempt years: 2020–2024 (five calendar years).
• From January 1, 2025, his days began counting for the SPT.
• Because he stayed and worked throughout 2025, he met the SPT and became a U.S. tax resident for 2025.
• Consequences:
  • Had to report worldwide income, including interest from Indian bank accounts.
  • Needed to consider foreign account reporting: if the total across foreign financial accounts exceeded $10,000 at any time, he had to file the FBAR (FinCEN Form 114).
  • FinCEN’s filing details: fincen.gov.

“Year 6” can be a practical shock: the student who thought they were “exempt on F-1” discovers the exemption was time-limited.

Why Indian students are especially affected

• The impact on Indian students stands out because of scale and common financial ties to India.
• Thousands of Indian students arrive yearly and many remain through OPT and onward to H-1B.
• During the exempt years, Indian passive income (e.g., bank interest) is often outside the IRS’s scope.
• After the exemption ends and the SPT is met, those same funds must be disclosed and may be taxed in the U.S.
  • Examples: interest in NRE/NRO accounts, rental income from Indian property, capital gains on sales.

Limited options to remain nonresident

• Few avenues exist to stay a nonresident beyond five years; they are narrow:
  • Claim a closer connection to the home country if you do not meet the SPT and maintain strong ties (home, immediate family, intent to return).
  • If you meet the SPT, the closer connection claim is not available.
• Practical consequence: Many on OPT quickly accumulate days and “typically do meet SPT,” per VisaVerge.com, so residency often begins as soon as year six starts.

Reporting obligations and double taxation basics

• Becoming a U.S. tax resident triggers the duty to report worldwide income to the IRS.
• The India–U.S. tax treaty seeks to avoid double taxation but does not eliminate the requirement to report worldwide income once you are a U.S. tax resident.
• Record-keeping is essential in the first resident year:
  • Gather foreign bank interest summaries, property rent statements, and sale deeds if assets were disposed.
• Where taxes are paid in India, foreign tax credits or treaty provisions may reduce double taxation, but those are applied after you report the income.

FBAR (FinCEN Form 114) — separate information filing

• Trigger: If a U.S. tax resident’s combined highest balance of all foreign financial accounts exceeds $10,000 at any time in the year.
• The FBAR:
  • Is filed electronically with the U.S. Department of the Treasury (FinCEN).
  • Is not an IRS tax form; it is an information filing with steep penalties for noncompliance.
• Many students have NRE/NRO accounts or family-linked accounts that briefly cross the threshold (scholarship disbursements, property proceeds, currency conversion).
• Missing the filing because funds were “back home” does not excuse the requirement.

Practical challenges and timing

• Administrative pain points are often about timing, not complexity:
  • Indian bank interest certificates can arrive after U.S. W-2s.
  • Rent receipts may be fragmented across months and tenants.
• Once the SPT is met:
  • U.S. tax returns must include foreign income figures.
  • The FBAR, if required, must reflect the highest balances accurately.
• VisaVerge.com emphasizes early checks of account balances to avoid a last-minute scramble.

What the first five years still provide

• In the exempt window:
  • F-1 students do not pay Social Security or Medicare taxes on authorized employment.
  • They typically owe U.S. tax only on U.S.-source income.
• The policy reflects an intent to treat short-term students as temporary visitors.
• The modern student pathway (long programs, OPT, visa changes) often extends stays beyond five years, so the tax clock can outpace visa labels.

India-specific filing resources

• Indian students should monitor domestic rules and filing procedures via the Income Tax Department of India:
  • Portal: incometax.gov.in
• The portal provides filing tools and notices to help manage Indian obligations while meeting new U.S. reporting duties.

Key takeaways and recommended actions

• The five-year exemption is finite; the SPT starts on day one of year six.
• Once the SPT is met, worldwide income reporting follows.
• Recommended steps before January 1 of the sixth year:
  1. Review day counts to estimate whether you will meet the SPT.
  2. Confirm likelihood of becoming a U.S. tax resident.
  3. Organize records for any non-U.S. income and all foreign account balances.
  4. Check foreign account highs to determine FBAR obligations.
  5. Consider consulting a tax professional familiar with international student and India–U.S. tax issues.

Preparing early does not change the law, but it significantly reduces the risk of a surprise when the exemption ends and the resident rules begin.