Hello,
I am an italian citizen and I was here as a PHD researcher on a J1 visa from jan 2004 to nov 2006 (I am on an H1B now). I know that I was entitled to a 2 years exemption form taxes. When in January 2006 I noticed that the institution I used to work for didn't detract taxes from my paycheck I asked them to do so, but I was told that I was still exempt (event if the 2 years where over) as long as I was on a J1. But I didn't get any further explanation. In August I changed job, but not visa status, and had to start paying taxes, so what will happen when I file my next tax return?
Thank you very much
Giulia

Giula:

Probably nothing. The IRS is NOT omnipotent and all-knowing, so they will not figure out that something was done incorrectly unless they have reason to go looking for it.

However, if you decide to apply for a green card, the IRS will have a reson to review your returns and your visa status at that time, and THEN they will figure it out.

My reading of the law is that you retroactively forfeited your tax-exmpt status when you stayed past two years. If you do not take action to fix it, and then apply for a green card, your failure to fix the tax problem could be grounds to deny your immigration application.

Thought you should know!

The US -Italy treaty is written in such a way that you don't retroactively owe tax. You should owe tax on income earned after the two year period.

Great assist, TaxSearcher!

Thank you very much for the feedback!
Does it mean I should retroactively pay the taxes from January to August 2006?
I tought the lady of my former job (whom I'm having a hard time to contact) was referring to some other specific treaty when she told me I was exempt for longer than 2 years. Does anybody know of anything like that?
Thanks again!
giulia

Some treaties permit a longer period. If you are talking about Art 20 of the US-Italy treaty, my understanding is that it permits only 2 years.

You will owe tax on any income earned after the end of the 2 year period. Since you have not yet filed your 2006 taxes, you will just end up owing tax on your 2006 return.

That's what I tought, too
Thank you giulia