[astrat]

I am a research associate employed by a university to work at NASA. I am on a J-1 visa in the category research scholar/associate. I am now lost how to get the most out of my tax return.

I entered the US on Aug 2006 to do research at a different university. This was on a J-1 visa as well in the category research scholar. I received no money for that position from the US side, since I was still enroled in a UK university on a postgrad program which financed me completely during this year. In Aug 2007 I accepted a postdoc employment at my current university to work in an agreement with NASA. So the university pays, I work at NASA. From Aug 2007 on I got paid a salary/wage from which federal and state taxes were withhold (filed as single, tax exemptions for federal and state: 1, although I am married (german wife, no income,J-2 visa) with child (us citizen,baby)). Now I found out that as german resident there is a tax treaty between the US and Germany, which obviously exempts me from federal tax if I stay no longer than two years in the US. But I will stay till August 2009 for sure. So my first question is from which point on do the 2 years count? (You see, if only the time I work counts I get the 2 year period with my leaving in 2009)

Depending on the outcome of this question I am then totally lost what to do... thinking the answer will be: it counts from day of entry: Aug 2006

A) Claim the tax treaty federal tax exempt until Aug 2008? But what happens then after Aug 2008... Of course here I would get the most money out of it. Can I stay longer and claim just the first 2 years?
B) Try to smuggle myself through the substantial presence test for 2007 and file as resident, since I am married (german wife, no income, J-2) with child (us resident since born in the US,baby)?. here I would think to get the most taxes back. Smuggle since J-1 researcher... not teacher, trainee or student as necessary for exempt individual...
C) Swallow the bitter pill to file as non-resident in single status with no child since I am not allowed to claim dependents as german resident?. thats horrible since I'd pay the most here I guess... Isnt there a way around it if this is the only solution that's left?

Thank You

[AtlantaTaxExpert]

Okay, filing as a resident alien for 2007 is NOT an option, as you are only 16 months into your J-1 visa. To file as a resident alien would be to file incorrectly.

If you claim the tax-exempt status, In my opinion you must use the Aug 2006 date as your starting point UNLESS your current J-1 visa specifically states that you are eligible for the 2-year tax exemption starting in August 2007.

Without that specific statement, if you are planning to stay in the U.S. past August 2008, then you should NOT claim tax-exempt status AT ALL, because going beyond the two-year limit makes you liable for all income taxes retroactive to the date you first entered the U.S.

If you have NO U.S.-source income for 2006 (that appears to be the case), then no tax return is required for 2006 to begin with, though you should have file Form 8843.

For 2007, you received NO U.S.-sourced income for seven months (January through July), then started getting paid. Hence, you would file as a non-resident alien (Form 1040NR or 1040NR-EZ). The tax for 2007 probably will not be that bad on only five month's worth of income.

Now, there IS a $5,000 treaty exemption which you MAY or MAY NOT be eligible to claim when you file you 2007 Form 1040NR. I should ask the university Human Resources department to investigate that for you, as they should know whether you meet all the qualifications for that exemption. If you DO qualify, the $5,000 treaty exemption is good for four years.

[astrat]

Thank You! May I ask where you found the 5000$ treaty exemption specifically?

[astrat]

And may I ask why the substantial presence test failed w.r.t time since I thought I just need 183 days in the tax year to be present...

[AtlantaTaxExpert]

The $5,000 treaty exemption is in IRS Pub 901 (Tax Treaties).

While you are on J-1 visa, you are EXEMPT from the Substantial Presence Test. That is covered in IRS Pub 519.

[MukatA]

For Professors, Teachers, and Researchers: the German U.S. treaty exemption is for 2 years
Students and Apprentices: the German U.S. treaty exemption is for 4 yrears.
Publication 901: The Tax Treaties.

[AtlantaTaxExpert]

Agreed, but it is NOT clear which category Astrat is in. I would need to actually examine the visa to be sure.

[astrat]

Thank You so much so far. Before I can conclude this issue, and show my appreciation, I need to ask and add:

I am in the category *research scholar*.

Why is the substantial presence test not valid for me? Since I have 365 days presence in 2007 and 150 days presence in 2006... meaning 2007 alone gives me the requested 183 days.

Further I am not in the category *teacher,trainee,student* which would make me an exempt individual. So strictly following the rules I claim to be a US resident for tax purposes..!

[AtlantaTaxExpert]

When you are under a J-1 visa, the number of days in the U.S. are irrelevant because they do not count; you are in an exempt status.

The "exempt status" is defined by the J-1 visa, NOT whether you are a research scholar or student/apprentice.

Since you are choosing NOT to take advantage of your total tax exempt status (a msart decision, as you would be come liable for taxes when your two-year period ended), your J-1 status would dictate that you file as a non-resident alien (filing Form 1040NR or 1040NR-EZ) for 2007. In 2008, you would start accruing days for the Substantial Presence Test, and you could opt to file jointly with your wife and CHOOSE to be treated as resident aliens for all of 2008.

So, as noted earlier, for 2006, you need file NO tax return as you have NO U.S.-sourced income.

For 2007, you would file as a non-resident alien, probably filing Form 1040NR-EZ, because, unfortunately, you CANNOT claim your wife or child as dependents.

In 2008, you can file jointly with your wife and you BOTH choose to be treated as resident aliens, because once you hit the two-year mark on your J-1 visa, the exempt status no longer applies and you can begin to accrue days under the Substantial Presence Test (SPT). Once you hit 31 days under SPT, you are eligible to file under the First Year Choice.

That is how I interprete the rules in your case. I invite any arguments to the contrary from the other experts, because, as you noted in (C), this way results in you paying the most.

[astrat]

That's a very interesting point with the substantial presence test

If all in J-1 are exempt.. then I would expect to read in the Publication 519

"Exempt individuals are individuals who entered the United States in J-1 visa status"

But that's not there... what's written:

(roughly) "Exempt individuals are teacher or trainees in J-1 status and Students in J-1 status"... If you read that word by word there are categories WITHIN the visa that are exempt but NOT the visa itself... thats my guess... And there are at least four distinct categories within the J-1 visa: teacher, trainee, student, researcher, clearly marked on the DS 2019. So if I am marked as "research scientist" I occupy one category... funnily the one that is not named in Publication 519.

The other way round... if you claim the tax treaty as researcher, you exploit a hole in the US-German tax treaty in my eyes... namely you declare yourself teacher since at an university with an educational target. So you redefine "teacher" from visa category to work related... since indeed teacher is just there without explanation what teacher really means... category or work status... so you may do as well redefine researcher to be not teacher or trainee according to DS 2019 classification :)

So, that's my completely wicked sense of understanding of bureaucracy... influenced by german accuracy in bureaucracy... you may slaughter me now with contra or discussions... :)

Complicated...

[AtlantaTaxExpert]

Wrong pub; try IRS Pub 901 (Tax Treatues).

If you read any of the synopses of the various treaties, you will find that many countries have negotiated that visiting academics and researchers are TOTALLY exempt from U.S. taxes as long as they only stay for up to 2 years.

But you are correct in stating that these are SUB-categories within the J visa.

Regardless, I stand by my analysis. Maybe another tax expert, Like Texas Tax Expert, will find a flaw in my analysis.

But I doubt it.

[The Texas Tax Expert]

I think this will answer the question and clarify the confusion on the part of the OP. It's all in the definition.


Exempt Individuals: Teachers and Trainees

"A teacher or trainee is an individual, other than a student, who is temporarily in the United States under a "J " or "Q " visa and substantially complies with the requirements of that nonimmigrant status. You are considered to have substantially complied with the requirements of that nonimmigrant status if you have not engaged in activities that are prohibited by U.S. immigration laws and could result in the loss of your nonimmigrant status. Any nonimmigrant temporarily present in the U.S. in "J" or "Q" status who is not a student is included within the definition of "Teacher or Trainee." For example, alien physicians, au pairs, short-term scholars, and summer camp workers temporarily present in the U.S. in "J" nonimmigrant status are included within the IRS definition of "Teacher or Trainee." In addition, cultural exchange visitors in "Q" nonimmigrant status are also included withing the IRS definition of "Teacher or Trainee".

[AtlantaTaxExpert]

TTE:

Please review and critique my analysis of astrat's tax position.

[The Texas Tax Expert]

ATE is correct about the OP being an exempt individual for the SPT. That was also my point of the above post -- to say that the OP's attempt to get around the definition of the J categories will not work.

From what I recall of the German treaty, ATE is also correct that the 2 year treaty exclusion is retroactive. However, there is a new German treaty and I have not looked to see if there are changes there that would affect the situation.

[astrat]

I thank You allf or Your help! I now know what the confusion was, and how to deal with it. Indeed I now accept the fact that I am a non-resident for 2007 who cannot claim the tax treaty :(..

But I thank in particular ATE for the hint with 2008, that from this year on I can claim residency, and for analysing in detail my situation.

I thank TTE for doublechecking here. You should enable a support button yourself :)

[AtlantaTaxExpert]

Glad to help, and THANKS for the tip!