I'm wondering what happens if a company fails to withhold income tax for its J1 Trainees and/or J1 Interns? Can the company still issue a W2 to those interns, or is there a different form that must be filled out? Can the company issue 1099s instead of a W2, even though the trainees/interns don't live in the country for more than 6 months?

Thanks so much for any help!

The company SHOULD withhold income taxes (but NOT Social Security or Medicare taxes) on the federal and state level to make sure the intern files a tax return.

If they do not, and the intern fails to file to "settle up" with the IRS, the compay may face some fines.

If the intern does file, it is a "no harm, no foul" situation.

What files would the intern have to use?

Form 1040nr & Form 8843 plus Schedule C if he got a 1099.

If he got a W-2, replace the Schedule C with Form 2106.