Hi

I arrived in the US on August 20, 2012 and joined as a post-doc on a J1 visa starting September 1, 2012. According to the India-US tax treaty, I am exempted from tax for two years, but if I stay longer, then I need to pay taxes for the entire two years.

My work contract in the US is until August 31, 2014 after which I plan to move out. My confusion is because of the fact that it will be less than 2 years since I started working, but more than 2 years since I arrived in the US. Will I need to pay taxes for the entire two years or not?

Also, what will this situation be if I leave the US before August 20, 2014 but still get the salary until the end of August in exchange of working from home in India until the end of August?

Assuming the university agrees with your interpretation (many universities consider J-1 post-docs NOT to be interns, but rather students), you are fine with the 2-year tax exemption, since you probably did not get your first paycheck until after 1 Sep 212.