topic J1 Research Scholar- Retroactive Tax- Repayment Advice in Deductions & credits

J1 Research Scholar- Retroactive Tax- Repayment Advice

sabya3112 — Mon, 28 Sep 2020 01:44:00 GMT

Hi,

Need some tax advice.

Need advice. I am an Indian citizen, currently on a J1 research scholar visa (since 2018) in the USA, working at a University. For the year 2018 and 2019, I had a tax treaty applied to my paycheck, which made me exempt from paying federal income tax. The tax treaty had a retroactive clause (pay back all of that federal tax if you stay in the US over 2 years, i.e., pay back the tax for 2018 and 2019 in my case). Now since I am in the USA for over 2 years, and planning to stay longer, I need to pay back the tax I owe as soon as possible. Does anyone have any experience with this, and please share it in that case? I assume I need to submit form 1040X but I'm not sure what else. Also, do I need to pay interest/penalty?

Many Thanks.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pk — Wed, 30 Sep 2020 16:38:44 GMT

@sabya3112 , the US-India tax treaty only allows a J-1 researcher to exclude certain US based income for up to two years and therefore be taxed as a US person. Note that since you are not an exempt person, you will be ( thereafter) taxed as a Resident for Tax purposes. The treaty does not have any retroactive clause ( in fact none of the treaties that I am aware of nor the model treaty docs ) and therefore there is no claw back of presumed taxes for the years that were excluded. Therefore I do not understand your concern -- please add more details as to why you think there is a claw back due .

Namaste ji

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pkm4 — Mon, 14 Mar 2022 16:19:01 GMT

The technical explanation of the Indo-US tax treaty says this in the fourth para of the article 22:

If a professor or teacher remains in the host State for more than the specified two-year period, he may be subject to tax in that State, under its law, for the entire period of his presence.

Although the article 22 of the tax treaty does not have any retroactive clause but its technical explanation makes this confusion.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

DaveF1006 — Mon, 14 Mar 2022 16:46:19 GMT

To clarify, have you been in the US for more than two years but never claimed an exemption from US taxation?

@pkm4

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pkm4 — Mon, 14 Mar 2022 16:59:02 GMT

@DaveF1006

I have been in the US for more than two years and claimed exemption from the taxation two times. Now, the question is related to this thread. Do I need to pay taxes retroactively for the previous years also?

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

DaveF1006 — Mon, 14 Mar 2022 17:24:13 GMT

To clarify again, where you a J1 scholar?

@pkm4

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pkm4 — Mon, 14 Mar 2022 17:26:03 GMT

@DaveF1006

yes, J1 research scholar

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

DaveF1006 — Mon, 14 Mar 2022 20:17:11 GMT

Although there isn't an official IRS document that makes this clear, according to this website, in India, If your visit to the United States exceeds two years, the exemption is lost for the entire visit. This seems to be in accordance with article 22 of the tax treaty that you have listed above.

You may need to amend previous year's returns to claim your US taxable income in accordance to these rules. To clarify, please let me know what day you entered the US to begin your studies?

@pkm4

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pkm4 — Mon, 14 Mar 2022 20:21:35 GMT

Thank you @DaveF1006 . I got the reply. Amendment of the previous year's return is the answer.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pk — Tue, 15 Mar 2022 03:53:04 GMT

@pkm4 , the reason for @DaveF1006 's question as to when you entered the country under J-1 visa is that depending on exactly when you entered / admitted with J-1, one hopes that you are just shy of two years and therefore can leave the country for a reasonable period of time, enter with a NEW visa and thus avoid the retroactive bite. This is two years and not two calendar years ( if my memory serves me right ). Just a thought

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

Gourav039 — Mon, 04 Apr 2022 02:54:53 GMT

@DaveF1006 @sabya3112 @pk @pkm4

I am also in a similar situation and couldn't find any official IRS doc regarding the loss of the US-India tax treaty exemption for the entire visit after 2 years.

My Case:

I am on a J1 visa (research scholar category, started in April 2019) and file tax for 2019 and 2020 as a non-resident. In my previous tax filings (1040NR), I claimed tax treaty benefits on my income under the US-India tax treaty. The treaty benefit ended in 2021 (2 years completed in the US, now a resident alien for tax purposes), and I am still in the US and continuing my program.

Now, as per the tax-treaty doc, ARTICLE 22 (Payments Received by Professors, Teachers, and Research Scholars), "If a professor or teacher remains in the host State for more than the specified two-year period, he may be subject to tax in that State, under its law, for the entire period of his presence."

Does it depend on the payer's wish, or do we have to pay it according to the law (no official docs)?

Can you please suggest?

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pk — Mon, 04 Apr 2022 03:57:18 GMT

@Gourav039 , while I recognize that this "cautionary note " is only in the technical explanation and NOT in the body of the treaty, it is not mentioned in the IRS language regarding J-1 aliens. There is no mention of this claw back anywhere that I can find except for the ref'd technical explanation. Additionally if indeed IRS chooses to exercise " may clause" and wants all the excluded income taxed, whom is going to pay the penalties and interest charges --- so it is going to be a can of worms. Thus I think this is moot point i.e. there is no claw back. As a J1-Alien you file a 1040 from the day you pass the Substantial Presence Test and after passing the two year tax holiday under the treaty, just pay the normal taxes and go forth. So I would NOT worry about the possibility of claw back.

Does that help ? Is there more I can do for you ?

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pkm4 — Mon, 04 Apr 2022 08:56:52 GMT

@pk @Gourav039 This case is discussed in the following webinar https://www.irsvideos.gov/Webinars/TaxTreatyBenefitsforNRANonResidentAlienIndividuals?l=en-US

There is no scope for confusion now.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

siddharthbhandari — Mon, 01 Jan 2024 22:16:42 GMT

Hi @pkm4

I am in a similar situation. I have stayed in the US past the intially planned two years (2021-22).

How did you amend your taxes? Did you have to pay interest or other penalties?

Did you wait for the IRS to give you a notice?

Appreciate the help.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

DaveF1006 — Thu, 11 Jan 2024 22:38:11 GMT

To clarify, did you arrive in 2021 as a J1 research scholar and are still living here? Did you file a 1040 NR for years 2021-2022?

@siddharthbhandari

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

Narayan — Tue, 23 Jan 2024 04:58:23 GMT

Hi @sabya3112 , @pk, @pkm4, @Gourav039,

I was looking for an explanation for the same question. I arrived in the USA on a J1 visa in the year 2021. I availed the treaty benefits for tax years 2021 and 2022. Now, I am filing taxes for the year 2023 (third year), I tried to get a straight answer but it is not very clear if I need to return those benefits or not, and if yes, then how? Is there a specific timeline, would there be any penalty or interest?

I would greatly appreciate any sort of advice on this, based on your experience.

Thank you.

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

DaveF1006 — Tue, 23 Jan 2024 20:19:22 GMT

J-1 Research scholars/Professors are considered “exempt” from the substantial presence test as they do not count days of presence in the United States for the first 2 calendar years of presence.

Based on the information given, you do not need to return those benefits.

@Narayan

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

pk — Wed, 24 Jan 2024 21:13:10 GMT

@Narayan , as I read the tax treaty between US & India ( specifically article 22 ) and its technical explanation thereof, I conclude that the choice of "may" with respect to teachers and professors whom had taken advantage of article 22 ( untaxed income for two years ) and actually overstayed the two year period, implies that it is at the discretion of the "host" country. Thus first two years of tax holiday is mandatory while the "claw back" option if the person stayed more than two years being at the discretion of the host country ( USA in this case ),, to me implies that there is NOL NEED for an amended filing for the previous two years. Just file the current year as normal -- let IRS tell you that they want to "claw back" earlier benefits. Let the sleeping dog ....

That is my view and I hope this puts to rest this thread

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

Narayan — Thu, 25 Jan 2024 01:13:00 GMT

Thank you so much for the advice @pk @DaveF1006

Re: J1 Research Scholar- Retroactive Tax- Repayment Advice

siddharthbhandari — Thu, 25 Jan 2024 06:36:04 GMT

Hi @DaveF1006

Sorry for the late reply. Yes, I arrived in 2021 and filed a 1040 NR for the years 2021-2022.