I entered US on 31st March 2006. According to the Tax treaty between India and US, my salary for two years is exempt from the taxes. My question is that to get this exemption I will have to fly back India within two years or it doesn't matter when I am flying back, this depends on my income for two years. If I get salary beyond two years, then I will have to pay taxes. Please let me know if my stay here after two years will cost me taxes, then I will try to fly back within two years. Thanks in advance. Kumkum

For J1 visa, from the tax treaty between the U.S. and India for Professors, Teacher or Researchers:

"If the individual's visit to the United States exceeds 2 years, the exemption is lost for the entire visit."

If you are in the U.S. under the J-1 visa and your work qualifies for the two-year tax exemption, then you must leave within a reasonable period after the two-year period ends. There is normally a waiting period (varies by treaty, but normally one year) before you can re-enter the U.S. under another visa.

If you violates the provisions of the tax treaty that authorizes this two-year exemption, then ALL income taxes for the two period are reinstated retroactively, which means you will pay the tax, plus penalties, plus interest.

Note that most states do not honor this two-year exemption, so, while you do not have to pay federal taxes or file a federal tax return, a STATE tax return will likely be required of you on money earned while under the J-1 visa.