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Payment of incomes taxes after 2 year J1 period

Payment of incomes taxes after 2 year J1 period

Old Oct 15th 2009, 4:56 pm
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Default Payment of incomes taxes after 2 year J1 period

Hi all
I know there has been some talk on this topic on this forum before but I heard there had been a recent change in the rules but I haven't been able to track down the details.
I am postdoc from the UK working in the US on a 2 year contract. I arrived in September 2008. I currently do not pay income tax. I know that it used to be that after the two years if I were to stay I would need to pay the back-tax. I see this as a bit silly on the part of the US government as it encourages young highly qualified people to leave again...
Anyway I heard that it had changed, that if I stay I will not have to pay the tax. Can anyone confirm or deny this and point me in the direction of the small print please?
Thanks, John
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Old Oct 15th 2009, 6:19 pm
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Default Re: Payment of incomes taxes after 2 year J1 period

Originally Posted by JinMaine View Post
I heard there had been a recent change in the rules...
First rule of research... verify your source.


I currently do not pay income tax.
Why? AFAIK, all non-resident J-1 aliens pay local, state, and federal taxes unless they don't earn enough to qualify them. If you come from a country that has a tax treaty with the US, you don't get double taxed... but that's not the same as not filing a return. Further, getting a refund of the taxes you have paid isn't the same as not needing to bother paying them in the first place!


Can anyone confirm or deny this and point me in the direction of the small print please?
Try here: IRS Publication 519, “U.S. Tax Guide for Aliens". If there's been any changes to the law, it'll be on the IRS site.

Ian
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Old Oct 15th 2009, 7:32 pm
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Default Re: Payment of incomes taxes after 2 year J1 period

Originally Posted by ian-mstm View Post
First rule of research... verify your source.



Why? AFAIK, all non-resident J-1 aliens pay local, state, and federal taxes unless they don't earn enough to qualify them. I
Actually Ian, there is some strange J loophole for this. User caleyjag and one other fellow have been discussing it in the USA forum.

OP, I am moving your question to the USA forum where the tax questions go. You'll find the user named above has started a thread on it in the past; he has to pay it back, so read carefully.
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Old Oct 16th 2009, 12:22 am
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Default Re: Payment of incomes taxes after 2 year J1 period

Originally Posted by ian-mstm View Post


Why? AFAIK, all non-resident J-1 aliens pay local, state, and federal taxes unless they don't earn enough to qualify them. If you come from a country that has a tax treaty with the US, you don't get double taxed... but that's not the same as not filing a return. Further, getting a refund of the taxes you have paid isn't the same as not needing to bother paying them in the first place!


Ian
WRONG WRONG WRONG.


J1 scholars from the UK are exempt under Tax Treaty Article 20A. They are completely exempt from paying federal income tax for two full years from the date of arrival.

They are also exempt from paying medicare and social security on the first two calendar years out of the last six that they have worked in the US (eg if they came out for summer camp 5 years ago, that would knock out one of those 2 years).


They MUST file tax returns for both years (1040NR-EZ etc), but they just claim exemption for the full amount. Quite easy really.


Now, the part where it gets tricky is what happens to the federal tax when the 2 years are up.

If you stay ONE DAY over the 2 year period on a J1, the treaty becomes invalid, and the taxes are all owed retrospectively with fines and interest. The fines can apparently be negotiated, the interest cannot.

Normally, one is suppose to return to the UK and live there for 2 whole years before they can return to the US as a scholar without invoking the penalty.


HOWEVER

It gets even more confusing. Leave before 2 years are up, bugger about in the UK for a little bit (in my case 4 months) then return to the US in a totally unrelated role as an industrial worker rather than an academic, on a totally different visa. According to my conversations with the IRS, by doing this I do not violate the treaty and do not have to pay back the unpaid federal taxes. Apparently if I had come back as a scholar or a teacher, I would. So there you go.

Now, we'll see what really actually happens when I submit my tax return next year..... it may get interesting (and expensive) then. My perception is the advice I got from the IRS is potentially incorrect, but what else can you do? I couldn't find a tax specialist who knew what to do in this case either, so it's a case of wait and see, to some extent. In any case, it's an interesting little experiment.

Last edited by caleyjag; Oct 16th 2009 at 12:25 am.
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Old Oct 16th 2009, 12:31 am
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Default Re: Payment of incomes taxes after 2 year J1 period

I had not heard that they have updated the rules so that nobody has to pay it back. That wouldn't make much sense. Why allow exemption from taxes in the first place?

The whole reason is to make you bugger off, so that they get the best out of you when you are young and in your prime, and so that you bugger off before you start competing for the tasty tenure track junior lectureships.

Remeber that US postdocs get paid the same as you, but yet still have to pay taxes. If you never had to pay, that would hardly be fair, would it?

With this in mind, I expect to have to pay mine back at some point, so we'll see.
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Old Oct 18th 2009, 10:12 pm
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Default Re: Payment of incomes taxes after 2 year J1 period

hi all
thanks for the info and your thoughts

Ian: my source was hearsay, if I had a reliable source I wouldn't need to be asking the question

caleyjag: yep, I've been here over a year now and I submitted my state and federal tax returns having not paid any and am yet to receive any complaints. I'm not really sure why we don't pay tax and I'm not convinced it is a device to get rid of us at some point.
Which type of Visa are you using now, is it a B1?

I have a friend who left the US after having worked for about 2 yrs 4 months. They did a tax return (after the 2 years were up) having not paid any and it bounced, the IRS wanted more information about the nature of the tax treaty. They didn't reply to this request and left the country... I wonder how long it will be before it is written off...
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Old Oct 19th 2009, 4:55 am
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Default Re: Payment of incomes taxes after 2 year J1 period

Originally Posted by JinMaine View Post
hi all
thanks for the info and your thoughts

Ian: my source was hearsay, if I had a reliable source I wouldn't need to be asking the question

caleyjag: yep, I've been here over a year now and I submitted my state and federal tax returns having not paid any and am yet to receive any complaints. I'm not really sure why we don't pay tax and I'm not convinced it is a device to get rid of us at some point.
Which type of Visa are you using now, is it a B1?

I have a friend who left the US after having worked for about 2 yrs 4 months. They did a tax return (after the 2 years were up) having not paid any and it bounced, the IRS wanted more information about the nature of the tax treaty. They didn't reply to this request and left the country... I wonder how long it will be before it is written off...
Nothing will happen until you are over the two years, if you submitted your tax return. If you overstay on a J1, you are supposed to submit an ammended tax return and set up a payment plan.

So, if you stay over 2 years in your current position you will have to pay it back. No way around that.
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