J1 Tax Treaty for short-term scholar

[anne]

Hello,

I am now a full-time PhD student at UK. I will go to USA for an internship from 15 July 2008 to 15 November 2008, with a J1 visa of the "short-term scholar" category. I now have the following questions about the tax:

1. Am I exempt from US income tax for the 4-month intern period under the US-UK tax treaty 20(A)?

2. Suppose that I would, after my graduation in July 2009, go to USA again for a postdoc position with a J1 visa. Am I again exempt from the US income tax for the postdoc period, but this time under the US-China tax treaty Article 19 (I am a citizen of China)?

Thank you very much in advance!

[Visa Taxes Expert]

1. On your visit to the U.S. during 2008, you will be covered by the U.S. and China tax treaty and not the U.S. and U.K. tax treaty as you are a China citizen and your visa is on your China passport.

2. Your one year during 2008, will reduce or wipe out your 3-year tax free as researcher when you visit the U.S. in 2009. You must do more research about this.

Hope it helps!

[anne]

Thank you for your prompt answer, Visa Tax Expert!

I have done some research on this topic. I think the US-UK tax treaty will apply to me for the visit in 2008, because I am considered as a resident of UK according to the UK tax law (I paid tax in UK), and I am not liable to tax in China and therefore I am not a resident of China concerning the visit in 2008. Am I correct?

Will two tax exemptions under two different US tax treaties be considered as two separate one?

Thanks!

[anne]

To make it more clear, I will go to IBM T.J. Watson in New York for the internship. Does it mean that in this case I am not eligible for the exemption because the research will not be conducted in an academic institute?

[Visa Taxes Expert]

You said you will be in U.S. in 2008 as intern. Intern does not mean researcher and you can not get benefit as researcher.

Then you will be in U.S. in 2009 as researcher. As per treaty with China, a researcher does not pay income tax for 3-years. But your visit to U.S. in 2008 will reduce it to 2-years or to 0-years. Read about the tax treaty: Your U.S. Tax Return: U.S. Tax Treaties for Professors, Teachers and Researchers

Hope it helps!

[anne]

Thanks!

IBM Researcher's J1 visa program DOES NOT have a trainee/internship sponsorship category. So my understand is that my J1 visa category is short-term researcher, as indicated in the DS-2019 form.

The problem now is that IBM Research is a commercial company, which makes me not qualify for the tax exemption. Right?

The income for the 4-month at IBM Research in New York would be around $36,000. Could you please kindly give me a rough idea about how much will be deducted? This is my first visit to US and I don't know at all about the US tax.

Thanks again!

[Visa Taxes Expert]

The exemption allowed to researchers will NOT apply for you, because your research is being done for a for-profit organization.

You will be liable for federal and state INCOME taxes, but be exempt from FICA (Social Security and Medicare) taxes.

You will NOT be allowed to claim the standard deduction, but will itemize. The biggest itemized deduction will be the state income taxes withheld from your pay.

Your federal tax liability will be about $4,100.

Hope it helps!

[Atlanta Tax Guru]

VTE's postings are accurate and, of course, excellent.

However, he failed to note that you would file Form 1040NR as a non-resident alien.

Further, you will be able to deduct daily living expenses using the per diem rates specified in IRS Pub 1542 by filing Form 2106. These deductions will be itemized deduction on the Schedule A found in the 5-page Form 1040NR packet.

This is due to the fact that your stay in the U.S. is less than one year and is, by definition, a TEMPORARY work assignment. This assumes that you are not receiving tax-free per diem payments from your employer.

[tanwei]

I am in similar situation as anne. VTE said :
"As per treaty with China, a researcher does not pay income tax for 3-years. But your visit to U.S. in 2008 will reduce it to 2-years or to 0-years. Read about the tax treaty: Your U.S. Tax Return: U.S. Tax Treaties for Professors, Teachers and Researchers
"
So the 3-year-limit DOES starts to count during anne's first entry to US, even if in the first entry she does NOT apply for the treaty to take effect?

Thanks.

[Atlanta Tax Guru]

That is correct.

ALL previous visits under a J-1 visa counts against the three-year exemption period.