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-   -   Query on India-U.S. Tax treaty (https://www.askmehelpdesk.com/showthread.php?t=79925)

  • Apr 6, 2007, 05:20 PM
    prathyusha
    Query on India-U.S. tax treaty
    Hello,

    I have been in the U.S. since May 2006 with a J-2 visa, and my husband is a research scholar who has been in the U.S. since January 2006 with a J-1 visa. He is filling out 1040NR (in which one personal exemption and one spouse exemption allowed to J1 from India can be claimed), 8843, and the California state tax form, while I am filling out 8843 alone, since I did not have any income during 2006. Here are a few queries we had.

    1) According to Article 22 of the India-U.S. tax treaty, J-1's income is completely exempt from federal tax for the first two years, hence we have been encouraged to apply for a full refund while filling out the tax forms. However, in the event the J-1 stays beyond the 2 year period, he/she would have to pay taxes for the entire period of stay (which includes the first two years as well).

    (a) Can someone tell me if it's common for research scholars from India working on a J1 visa in the U.S. to avail the exemption the first two years, but end up paying huge amounts during the third year ?

    (b) Is there some other rule/clause I am not aware of which can help one avoid the huge payment during the third year even while having obtained full refund of taxes during the first two years ?

    (c) Or, Should one choose not to avail the total exemption during the first two years ?

    2) Could you tell us which form should be filled for the California state tax ? Based on our judgement, 540A seems to be appropriate, but I see from an answer to another query on this web site that 540NR short has been recommended for someone in a similar situation as ours. Please clarify.

    Any help and input would be greatly appreciated.

    Prathyusha
  • Apr 17, 2007, 08:12 AM
    AtlantaTaxExpert
    1a) There is no discernible pattern on this issue. It IS a issue to consider should he be offered the opportunity to stay beyond his original two-year period.

    b) None that I know of.

    c) That is a personal decision. He CAN pay the tax each year, then, if he decides to go home, amend the returns and ask for the refund.

    2) Use Form 540NR.
  • Feb 1, 2008, 10:14 PM
    friendsupport
    Quote:
    Originally Posted by prathyusha
    Hello,

    I have been in the U.S. since May 2006 with a J-2 visa, and my husband is a research scholar who has been in the U.S. since January 2006 with a J-1 visa. He is filling out 1040NR (in which one personal exemption and one spouse exemption allowed to J1 from India can be claimed), 8843, and the california state tax form, while I am filling out 8843 alone, since I did not have any income during 2006. Here are a few queries we had.

    1) According to Article 22 of the India-U.S. tax treaty, J-1's income is completely exempt from federal tax for the first two years, hence we have been encouraged to apply for a full refund while filling out the tax forms. However, in the event the J-1 stays beyond the 2 year period, he/she would have to pay taxes for the entire period of stay (which includes the first two years as well).

    (a) Can someone tell me if it's common for research scholars from India working on a J1 visa in the U.S. to avail the exemption the first two years, but end up paying huge amounts during the third year ?

    (b) Is there some other rule/clause I am not aware of which can help one avoid the huge payment during the third year even while having obtained full refund of taxes during the first two years ?

    (c) Or, Should one choose not to avail the total exemption during the first two years ?

    2) Could you tell us which form should be filled for the california state tax ? Based on our judgement, 540A seems to be appropriate, but I see from an answer to another query on this web site that 540NR short has been recommended for someone in a similar situation as ours. Please clarify.

    Any help and input would be greatly appreciated.

    Prathyusha
    Hi prathyusha,
    Can you tell me if you get more details about this issue..
    Rav
  • Feb 3, 2008, 04:26 PM
    AtlantaTaxExpert
    Agreed.
  • May 2, 2008, 09:15 AM
    drnr
    Hi,

    May be too late to answer, but at least better to know than none.

    Yeah! First two financial years on J-1 visayou can claim examption from paying taxes, but if you stay morethan two years in US you need to payback those taxes you didn't paid earlier.

    That means from January 2008 onwards your husband need to pay fed/state/FICA taxes and when you file tax return in 2009 for ending dec 31, 2008 year you may have to pay back those two years taxes.

    I was earlier in Massachusetts state, there I paid back two years taxes and this is not unique rule it varies state to state. In MA, some tax professioanls helped me filing, so hey have calculated howmuch I have to pay, so I paid that amount.

    But, If you don't have plans to stay in US more than two years then no need to pay.

    Hope this helps.

    Raghunath
    Quote:
    Originally Posted by prathyusha
    Hello,

    I have been in the U.S. since May 2006 with a J-2 visa, and my husband is a research scholar who has been in the U.S. since January 2006 with a J-1 visa. He is filling out 1040NR (in which one personal exemption and one spouse exemption allowed to J1 from India can be claimed), 8843, and the california state tax form, while I am filling out 8843 alone, since I did not have any income during 2006. Here are a few queries we had.

    1) According to Article 22 of the India-U.S. tax treaty, J-1's income is completely exempt from federal tax for the first two years, hence we have been encouraged to apply for a full refund while filling out the tax forms. However, in the event the J-1 stays beyond the 2 year period, he/she would have to pay taxes for the entire period of stay (which includes the first two years as well).

    (a) Can someone tell me if it's common for research scholars from India working on a J1 visa in the U.S. to avail the exemption the first two years, but end up paying huge amounts during the third year ?

    (b) Is there some other rule/clause I am not aware of which can help one avoid the huge payment during the third year even while having obtained full refund of taxes during the first two years ?

    (c) Or, Should one choose not to avail the total exemption during the first two years ?

    2) Could you tell us which form should be filled for the california state tax ? Based on our judgement, 540A seems to be appropriate, but I see from an answer to another query on this web site that 540NR short has been recommended for someone in a similar situation as ours. Please clarify.

    Any help and input would be greatly appreciated.

    Prathyusha

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