[mailmegaby]

Hello,
I am going to USA for a postdoctoral position next year (2010). I am Egyptian and I know that there is a taxes treaty between Egypt and USA. I opted for H1B visa since I heard it is possible to apply for immigration while on H1B visa unlike the J1 visa which is the alternative possible visa. But now I was told that H1B visa holders have no exemptions according to the treaty, is that correct?

Yours
Gaby

[AtlantaTaxExpert]

Gaby:

There IS a tax-exemption provision in the U.S.-Egypt Tax Treaty that is good for two years from the date of arrival, i.e. 24 consecutive months. There is NO retroactive tax provision if you stay beyond 24 months.

Under that treaty provision, you would be exempt from federal and probably state income taxes for that 24-month period.

Under U.S. tax law, you would be exempt from FICA (Social Security and Medicare) taxes for two calendar years (2010 and 2011).

All this pre-supposes that your post-doctoral position qualifies for this exemption! That is something you should verify with the provider of the position, because not every post-doctoral position qualifies. Many are considered to be student positions, which would qualify for the two-year FICA tax exemption, but you would be liable for federal and state income taxes.

If you enter under an H-1B visa, you are under a work visa, and all of the taxes (federal and state income plus FICA) would apply.

[mailmegaby]

Thank you very much. What is a retroactive tax provision? I will stay beyond 2 years, would I have to pay the taxes that I didn't pay in the exempted 2 years?

[AtlantaTaxExpert]

Yes, that is exactly what I mean. Great Britain has such a retroactive provision in its treaty, and so did Germany until about two years ago.

But there is NO such provision in the Egyptian treaty, so you need not worry.