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For tax year 2004, the return you file will be determined by whether you are a resident or nonresident for income tax purposes. You are a resident if you meet either the green card test or the substantial presence test. Publication 519, U.S. Tax Guide for Aliens, pages 4-7, discusses being a resident for income tax purposes under the green card test and the substantial presence test (SPT).
The green card test is being a lawful permanent resident of the United States at any time during the calendar year. You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant.
Under the SPT, you will be considered a resident for tax purposes as long as you are not exempt from the SPT if you are physically present in the U.S. at least 1) 31 days of the current year, and 2) 183 days during the three-year period that includes all the days present in the current year, 1/3 of the days present in the first preceding year, and 1/6 of the days in the second preceding year. However, there are exceptions for counting the days of presence. One of the exceptions is that you do not count as days of presence in the United States for the SPT if you are an exempt individual. An exempt individual is anyone in the following categories:
1. An individual temporarily present in the United States as a foreign government-
related individual.
2. A teacher or trainee temporarily present in the United States under a "J" or "Q"
visa, who substantially complies with the requirements of the visa.
3. A student temporarily present in the United States under an "F", "J", "M", or "Q"
visa, who substantially complies with the requirements of the visa.
4. A professional athlete temporarily in the United States to compete in a charitable
sports event.
A student under an "F", "J", "M", or "Q" visa is exempt from counting the days of presence under the SPT as long as he or she has not been exempt as a teacher, trainee, or student for any part of five calendar years. The five calendar years need not be consecutive and once a cumulative total of five calendar years is reached during the student's lifetime after 1984, he or she may not be an exempt individual as a student again during his or her lifetime.
A teacher, researcher, scholar, or trainee under a J or Q visa is generally exempt from counting the days of presence under the SPT as long as he or she has not been exempt as a teacher, trainee, or student for any part of two of the six preceding calendar years.
You also do not count the days of presence for days you commute from a residence in Canada or Mexico if you regularly commute from Canada or Mexico, days you are in the United States less than 24 hours when you are in transit between two places outside the United States, days in the United States as a crew member of a foreign vessel, or days you are unable to leave the United States because of a medical condition that develops while you are in the United States. Even if you meet the substantial presence test, you can still be treated as a nonresident if you are present in the United States for less than 183 days during the year, maintain a tax home in a foreign country during the year, and have a closer connection during the year to one foreign country in which you have a tax home than to the United States.
In your situation, you are a resident alien for tax year 2004. Under the substantial presence test, you are exempt from this test for years 2002 and 2003, and in 2004 you begin counting the days. Your 183rd day would have been July 1, 2004 and you would be both a nonresident alien and a resident alien during the same tax year. But if you meet the substantial presence test for a calendar year, then your residency starting date is generally the first day you are physically present in the United States during that calendar year (Publication 519, page 8). With the assumption that you were in the United States on January 1, 2004 and generally remained in the United States for the entire year, then you are considered to be a resident alien for all of 2004. As a resident alien, you would file Form 1040. You would have to include worldwide income on your Form 1040 as a resident.
Generally you would not be able to utilize the benefits of a tax treaty as a resident alien. Article 1 of the United States - Italy Income Tax Treaty contains the saving clause of the treaty, which normally acts to nullify the tax treaty's benefits once a resident of Italy has become a resident of the United States. However, one of the exceptions to the saving clause specified by Article 1 is Article 20 on Professors and Teachers. This means that even though you have become a resident alien under the substantial presence test, you may still claim the benefit of Article 20 of the United States - Italy Income Tax Treaty. This is an election made by you on your tax return. You would file Form 1040 as a Treaty-Based Return Position and attach Form 8833, Treaty-Based Return Position Disclosure, to your return.
If you want to utilize the benefit of Article 20 of the treaty, you need to show all of your wages earned in 2004 on line 7 of Form 1040. Enter any other income you may have on the appropriate lines of Form 1040 such as bank interest, dividends, sale of stock (capital gains), etc. On line 21 on the dotted line, put "See attached Form 8833" and on the amount line enter the amount of your wages excluded by the treaty (January 1 - September 2, 2004) as a negative number. On Form 8833, Line 5, you would explain your history of your visit and how the treaty applies to your situation.
As for the social security and Medicare taxes, you are exempt from these taxes under Internal Revenue Code (IRC) 3121(b)(19) while you are a nonresident alien under the residency rules of IRC 7701(b). Because you are exempt from the substantial presence test for two years under J-1 status as a teacher researcher and a resident for income tax purposes in your third year (2004), then your wages are subject to the withholding of social security and Medicare taxes (Publication 519, pages 45 - 46). The University is correct in refunding these taxes for year 2003 and not refunding them for year 2004. The income tax treaty with Italy and the United States only exempts income tax withholding and does not apply to social security and Medicare tax withholding.
IN CONCLUSION, you will need to file Form 1040NR-EZ along with Form 8843 for tax year 2003 to obtain a refund of the income tax withheld. For tax year 2004, if you haven't returned the Form 1040EZ that was sent back to you because of a missing Form W-2, which means that no return was processed for you for 2004, then you need to file an original Form 1040 along with Form 8833 to file a treaty-based return position disclosure. If your 2004 was processed, then you need to file Form 1040X and attach a Form 1040 and Form 8833 to the amended return to be used as worksheets for Form 1040X. You are a nonresident alien for all of 2002 and 2003 and a resident alien for all of 2004, based on the information you provided. Again, your wages are exempt from withholding and taxation because of Article 20 of the tax treaty with Italy and the United States for a period of two years from your date of arrival - September 3, 2002 through September 2, 2004. You are exempt from social securit
y!
and Medicare tax withholding for 2002 and 2003, your years as a nonresident alien, but you are liable for these taxes in the year you become a resident alien, 2004, with your residency starting date of January 1, 2004. You should not be filing Form 843 to obtain a refund of the social security and Medicare taxes for 2004.
Publication 519 along with forms and related instructions referenced in the above response are available at
www.irs.gov under Forms and Publications. You can also order these items by calling toll-free 1-800-829-3676. Please allow 10 business days for delivery.
I hope this information has been helpful. If we have misinterpreted your information, you have additional questions, or you need further clarification, please contact us again.
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