avocadinho

OK, slightly technical but here goes:

I am a brit employed in the US. For most of 2003 I've been exempt from witholding of US taxes on my current salary due to a US-UK tax treaty provision applying to academics (I'm a researcher on a J1). Colleagues in the same situation say they simply don't file, because they don't have to!

My problem is I need to file because for part of 2003 I did pay taxes, because I had a non-exempt job (non-academic institution) for part of 2003 (and for 2002 too) I've no idea how I fill in the standard tax form (1040) because there's no place to include deductions attributable to tax treaties. One IRS document I read seemed to say that I just don't mention the tax-free income at all! Could my life really be this simple?

Anyone with any experience on this matter? (Oh! and before someone suggests contacting the IRS...I already tried that! It's too specialised a question for their helplines. And another thing, my earnings aren't enough to justify $100's worth of professional advice)

dunroving

How long have you been here? I'm not sure you should even file a 1040, but a 1040-NR (if you've only been here a short time, you may well be a non-resident for tax purposes).

Sorry this doesn't answer your question, but you may want to look into this also...

avocadinho

It'll be 2 years (total) when I leave: It seems clear that I'm definitely "resident" for tax purposes...basically, this is the case if you reside in the US for more than 183 days in the tax year.
(confusingly this is an entirely different definition of "resident" from that used by the immigration people)

It's obviously a pretty complicated situation if even the IRS doesn't know the answers!

avocadinho

oops, this doesn't make sense unless you happen to know that I'm leaving in April (which you presumably didn't know!!?)

Pulaski

I know that this isn't what you want to hear but you need professional advice, not because you earn big bucks, or owe big bucks in taxes, but because if you don't get it right you may end up inadvertently committing tax fraud.

Unless you plan to leave the US and there is no possibility of you ever wanting to work in the US again then you really should bite the bullet and stump up for some advice from someone who really knows what you need to declare.

avocadinho

I see your point, but I was concerned that even tax professionals won't know what box to fit me in. Unless you know of any that specialise in foreigners. I'm pretty sure that H&R block round the corner won't be able to help.

cbone

avocadinho

I am using a company called Global Tax Network. I spoke to them today and they were very helpful. Most of them haved worked for the big 4 so they know their stuff. My company's paying my bill but it's only $275 which is probably well worth it even if I had to pay myself.

If you're interested PM me and I'll give you their number. They will help you over the phone with advise before you have to committ or pay anything.

Chris

dbj1000

I'm using H&R Block Premium, who know how to deal with complicated foreign tax situations. However, they're more expensive than cbone's company at around $500.

Pulaski

Like Cbone and Dbj said, there are good, professional tax services available, and ones that know their stuff when it comes to foreigners. I have no doubt that one of those would be able to help you you - they will not only be very familiar with most "unusual" situations, but even if not they will know exactly where to go to get the information they need to ensure that your tax return is per the tax regulations.

I would not trust H&R Block, or any of the other "tax prep" businesses to do anything but a basic "earned income, residential mortgage, and stock dividends" tax prep for me - the people that do the tax preps there are generally not tax professionals. For example H&R block runs an annual "class" that last six weeks (I think) and they take pretty much any Joe Soap who is prepared to sign up and they "train" him to do tax preps for H&R Block during "tax season" (January - April).

acer rose

I suggest you refer to a professional for advice before acting on any information given here. Your situation sounds very complicated.


I am in not a tax expert. I do not work in the tax business. The following is my own personal opinion and should not be regarded as advice in any way.


In 2000 this was how my s.o. and I read the rules (I stress, things change, so THIS MAY NO LONGER BE CORRECT). It was horrifically complicated but this is what we worked out.

J1: Assuming a person is an exempt individual (defined in the tax return bumpf - basically teachers, trainees, students, which I think also covers postdocs and academics, and a few other categories), and if covered by a tax treaty, earnings may be exempt from FEDERAL taxes. For the UK-US tax treaty in 1998 - 2000, this was the case for the first two 365 day periods in the US (irrespective of whether this occurred over two tax returns or three tax returns), provided it had not been claimed during a previous visa. We needed to submit an additional form to claim exempt status. I don't think it could be done retrospectively. State tax law differs (at least in CA) and a person may be liable for state income tax whatever one's federal status.

Note that being an exempt individual refers to being exempt from the substantial presence test NOT being exempt from tax. Tax exemption is governed by the treaties.

J2 (and J1 stuff not covered by a tax treaty): a person can file as a non-resident for the first two FEDERAL tax returns (ie NOT the first two 365 day periods one has been in the US but the first two tax years one was present) if that person is an EXEMPT INDIVIDUAL (see above - certain J visa holders plus spouse and dependent kids) who has substantially complied with their visa (and if anybody is doing work on the side, they should probably check they are not in breach of the terms of their visa!). A person in this case files the non-resident tax return and pays tax only on US income but doesn't get any deductions other than a single personal allowance. A person may also elect to be treated as resident if certain conditions apply (but not I think if a tax treaty is in force) and files a regular tax return. After the first two tax returns, a person will no longer be an exempt individual, and if that person passes the substantial presence test (183 day rule, including counting back for previous years according to the given formula in the IRS tax guide), that person will be taxed as resident. This means an individual will be taxed on WORLDWIDE income, as all US residents are, and does get the various deductions applicable on the standard form. There are some more complicated rules about exceptions to the substantial presence test that were all explained in the IRS guidelines for foreigners.

The rules for no-resident aliens and resident aliens should be available in IRS publications, including the website.

dbj1000

Absoulutely right, which is why I'm using H&R Block Premium. When I phoned H&R Block locally (knowing nothing about tax prep businesses) they politely told me that they couldn't do a return as complex as mine. They then gave me the number of the local Premium office. There I met with the lady who is now preparing my return - she deals with nothing by International and "high complexity" returns, and has so far found me deductions I would never have dreamed of.

But as I said, the service is likely to work out more expensive (at $300-500) than some alternatives. Personally I'm happy to pay for someone with so much experience relating to my particular situation.

avocadinho

Sorry, but I don't trust any business with 'premium' in its the title, more often than not, in the 'States, it's just a meaningless superlative. There's a Hershey's ice-cream parlour near me, their moto: "It's premium..." bollocks it is!

However, that there's certainly a premium price, so hopefully you're getting something for it.

I guess I'm going to look into this but, to be honest, I resent having to pay someone at all...yes, I am scottish. I just want to know what form to fill in after all! I don't want to track down a tax-professional for them to just say " Oh yes, you want to fill in form IRS-1040-blah-blah. That'll be $300 thankyou"

My financial situation is dead simple other than the treaty thing: 1 job, no house, no kids, no stocks/share/bonds. simple. I just need to know which form is relevant to record tax exemption.

acer rose

If you are set on doing things yourself, get hold of the relevant tax treaty to find out whether or not it applies to you. It is given in the IRS non-resident notes. If the tax treaty does apply to you, the notes given in publication 519 might help you find the relevant forms.

http://www.irs.gov/publications/p519/index.html

is for 2002 and has links to follow to determine whether you are resident, non-resident and desc ribes how you can claim tax treaty benefits (somewhere near the bottom of the list of links). I don't know where the 2003 information is.

sibsie

The Inland Revenue has a really easy walk through page for the treaty but it does depend on where you claim residence for tax purposes.

http://www.inlandrevenue.gov.uk/cnr/usdownload_2002.htm

avocadinho

Cheers, I'm just reading it at the moment...and starting to get cold feet already. The problem is I was a 'resident' in 2002 (so the IRS told me), but on Jan 5th 2003 took a new job covered by the tax treaty. However, the tax treaty seems to only apply to non-residents. Treaty definitions of residency override other definitions, so I don't know if it "switches off" my residency or if (maybe) the treaty just doesn't apply anymore. (I hope not, because my employers haven't withheld any tax in 2003, and this would mean I'd have to cough up about 10k to the IRS!)