Hi,

I am an international student on an F1, doing an MS from Georgia, US. I had taken a leave of absence from my company back home to do this MS. My responsibilities in the company, including programming and technical analysis primarily include backend work which can be done from anywhere in the world. Now, my company wants me to do some project for them for which they are willing to pay me (in local currency, but can also be in USD). I should also mention, that my company still pays me a retainer in local currency, not in USD and I am shown on their payroll, even though I may not be working for them.

I want to understand - if I can do the project as an Internship or Practical training and what will be the tax/legal implications on me and the company. My current salary in USD equivalent is approx $ 350 per week.

I would like everything to be correct legally and my company wants me to do this project. Hence any advice will be appreciated.

Thanks

Since you are on a F-1 visa, you are a non-resident alien, so income from your home country is NOT subject to U.S. taxes. This will continue to be the case for the five calendar-year period that you are exempt from the Substantial Presence Test, as long as you are paying taxes on this income in your home country.

Since you are working in the U.S. it may be considered U.S. source income and may be taxable in the U.S.

Income from sources within the United States: Compensation for labor or personal services performed in the United States; except... There is exception, is amount is $3000 or less and period is maximum 90 days.

Income from sources without the United States: compensation for labor or personal services performed without the United States.

From the US/India treaty

ARTICLE 21
Payments Received by Students and Apprentices
1. A student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in that other State principally for the purpose of his education or training shall be exempt from tax in that other State, on payments which arise outside that other State for the purposes of his maintenance, education or training.

2. In respect of grants, scholarships and remuneration from employment not covered by paragraph 1, a student or business apprentice described in paragraph 1 shall, in addition,be entitled during such education or training to the same exemptions, reliefs or reductions in respect of taxes available to residents of the State which he is visiting.

One may argue that the compensation connected with the assignment mentioned is part of maintenance or training and perhaps a letter from the employer to that effect could be helpful.

On the other hand, the terms of remuneration for dependent personal services is quite clear and all must be satisfied:

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a
Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the
Aggregate 183 days in the relevant taxable year;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the
Other State; and
(c) the remuneration is not borne by a permanent esta "blishment or a fixed base or a
trade or business which the employer has in the other State.

But really, we are quibbling here. The rules clearly state:
"Nonresident alien students and exchange visitors present in the U.S. under F, J, or Q visas can exclude from gross income pay received from a foreign employer." (Pub. 519)

Yes, as AtlantaTaxExpert and Five Rings explained nonresident F1 students can exclude foreign income.