Hi. It has been a fight to understand US foreign tax system. I`m a Portuguese citizen, student in Switzerland but doing a 6 month internship in Palo Alto. I earn $5400 a month and $1000 are withhold monthly for tax purposes. I will be in CA until middle of December 2010. What should I do to maximize my tax return? How much should I expect to have returned?
Every kind of feedback is very much appreciated.
Thanks,
Ricardo

Ricardo:

Most internships are NOT considered to be that of a research scholar, but more like an trainee or apprenticeship.

That being the case, you are liable for INCOME taxes (both federal and for California) on the income earned while under the internship, but you are EXEMPT from FICA (Social Security and Medicare) taxes. Your employer may NOT be aware of the FICA tax exemption, so you need to ask him about that.

Because your J-1 tour is LESS than one year in length, you can claim daily living expenses (travel costs, rent, food, miscellaneous expenses) as itemized deductions when you file Form 1040NR. These expenses will go a LONG way in completely offsetting any taxes owed.

If you need help preparing this return, contact me at [email protected].