Hello,
I am a new member. Its nice to see so many people here who can help. Here's my situation:

My status in 2004: Student on F1
My status in 2005: Graduating and going on H1
Have not worked on OPT.
My nationality: Indian

I have one W-2 from school (I was a T.A.)
One 1099-MISC from my employer (I was working as an independent contractor)

My withholdings on the W-2 are fine. But there was no withholding on the 1099-MISC. I made USD 2500 as an independent contractor and paid NO taxes on it. They put that amount in box 7, under "Nonemployee Compensation".

My employer is in California and I am a resident of Pennsylvania. The job involved online research and I was not in USA during the period under consideration. I worked from India and submitted reports via email.
My questions:
1. Am I liable for PA State taxes on the 1099-MISC income?
2. My employer tells me that I need not file any state tax for California. Is that correct?

Thanks and regards.

TopGun:

If you can prove you were in India while the Form 1099-MISC income was earned, you do not have to claim that income on either Form 1040-NR nor on the Pennsylvania state income tax forms.

However, the burden of proof is on you. Both the IRS and the PA tax authority will assume the money was earned in the U.S.

You do not have to file any California tax returns.

Dear Mr. Tax Expert,

I really appreciate your quick and helpful advice. I have a few follow-up questions, which are-

1. I have already filed my federal tax return, so is there anything to be done now in this matter? I would be willing to drop it right here to avoid any trouble.

2. I used a web based tax software called Cintax (formerly NRAware) and it did not generate a Schedule C, because I did not claim any expenses. I read on one of your previous replies to someone else that a Schedule C might be needed! Can you clarify?

3. Would passport stamps be considered sufficient proof of my presence in India at the time the money was earned? Would I need to send a copy of the relevant passport pages to the PA state tax authority or is there some other form I need to fill in this matter.

Thanks a lot for your wonderful and timely help.
Regards.

TopGun:

The passport stanps is adequate proof, provided you can show with the e-mails and funds disbursements that you earned and received the money during the time reflected on the passport.

Get these documents together, because sometime next year, both the IRS and Pennsylvania will contact you regarding the Form 1099-MISC that, if I understand what you said, is not reflected on your tax return.

Right now there is nothing more you can do.

Thank you. The 1099 MISC has been reported in my Federal Tax filing and I am trying to figure out how to include it in my PA state tax filings which are yet to be done. Any suggestions?

Regards,
Saurabh

Saurabh:

Normally, the state return uses the Adjusted Gross Income (AGI) from the federal return as a starting point.

If that is the case for PA, then you do not have to report the Form 1099-MISC separately. I will be factored into the AGI.

However, I am confused. Did you not say you earned this income while in India? If that is the case, then you should NOT include it in your federal and state tax returns.

Hello Mr. Tax Expert,

Well, as it turned out, my web based software included the income from 1099 Misc on my federal tax return and I sent it off a couple of days back. I won't make the same mistake with the state tax. I determined that I paid $250 extra :( in my federal tax return.

Is there any way to file an amended tax return or maybe claim this amount later or next year?

Thanks.

TopGun:

You need to amend the federal return using Form 1040X to retrieve the $250 overpayment of taxes.

Hi Mr. Tax Expert,

What would be the best time to file the amended return. Immediately or next year?

Regards.

Whenever you have time.

The absolute deadline is three years from the original due date, which would be 15 April 2008.

Regardless of when you file, it will take the IRS about 6-8 weeks to get your refund back to you, as the Form 1040X has to be reviewed by a live IRS employee.