Hi,
I landed in US on L1 on 3rd June 2007 and willl be back on 30th Sep. My salary is being paid by the Indian counterpart, converted to $ and transferred to My US account. The company currently witholds tax from my salary based on the yearly projected salary. (yearly salary 60K, salary for 4 months 20K, tax deducted based on 60K).
1)since I will be returning back before 183 days, is my federal and state tax liability 0?
2) If yes, do I have to file a return to get back the tax witholded from my salary?
3) what forms do I need to fill in?
4) What documents do I need from my employer?
5) Can I file returns online.
6) do I need to file a separate return for state (VA)
I will be filling tax in India for the rest of the year. Thanks.

1) In my opinion, you will owe ZERO U.S. taxes. Ask your employer WHY they are withholding taxes. However, the state may have a different attitude.

2) If your employer generates a W-2, then the IRS will consider your salary taxable income. You need to address this with your employer to prevent that W-2 from being generated.

3) If you file, you will file as a non-resident alien (Form 1040NR or 1040NR-EZ).

4) See #2 above.

5) No.

6) No, if there is no W-2. If a W-2 is generated, then you will have to file a non-resident tax return with VA.

The treaty would exempt the income but only if the income is not borne by a permanent establishment that your employer has in the US. Your employer should have a good idea about whether the cost of your salary is being borne by the US operation. You should ask, however.

I agree with TTE. While I assumed that the salary was NOT borne by a U.S,-based permanent establishment, your initial posting is not clear on that issue.