I was on OPT from Jan 2005 to May 2005 and on H1B from June 2005 onwards. My husband is on H1B and we have a 12 year old son who is my dependent in papers. What is the best way for us to file our taxes and what are the deductions we can claim. I am an Indian citizen. Do we file a join return or should we file separate returns as married filing separately. Can I claim a deduction for my son. My employer has not deducted SS or Medicare for my OPT period. Please advice what to do.

Bansal:

Both you and your husband meet the Substantial Presence Test (assuming your husband was on H-1B all year). Therefore, you both must file as resident aliens.

You can file a joint return and claim your son as a dependent. More than likely, you will pay the least amount of taxes that way. However, the only way to know for sure is to prepare your return both separately and jointly. A good tax professional will do that as a matter of routine.

As for the Social Security and Medicare taxes not withheld during OPT, as long as you were under a F-1 or J-1 visa while on OPT, you have nothing to worry about.

Thank you very much for answering my question. I have another problem. My employer is located in NJ and I live in CT. My employer has deducted state taxes for NJ and I have never lived there. How and where should I file for my state tax. Do I pay tax for both the states? What am I supposed to do?

You must file for both states: NJ to get your money back and CT to pay taxes. Explain to CT what happened with a cover letter and they probably will not assess an under-wthholding penalty.

Tell your employer to withhold only CT taxes.

Thank you for all the useful information. Just want to clarify something. On my paystub apart from State W/H NJ I see things like NJ:SDI, NJ: EE SUI and NJ: Workforce. What are these and how do they factor into my taxes?

Bansal:

These are special withholdings that are unique to NJ. To be frank, any guidance I would give you would be an educated guess at best.

If you have read my other postings, you have seen that I am modifying my guidance about filing refunds for improperly-withheld Social Security and Medicare taxes. The new guidance is that if you file as a resident alien, you forfeit your right to request a refund of improperly-withheld Social Security and Medicare taxes.

This should NOT affect you, however. I know of no case where the IRS has tried to collect Social Security and Medicare taxes that were not withheld when the exempt person filed as a resident alien. It will, however, affect your exempt status henceforth.

BOTTOM LINE: You will have to pay Social Security and Medicare taxes starting in 2006 and beyond.

So how can I get refund for NJ:SDI, NJ: EE SUI and NJ: Workforce. What columns these withholdings belong to while filing for a refund?

Bansal:

In my opinion, you will not get any refund of these NJ-unique taxes. In NJ's eyes, you are a NJ resident just like everyone else.