After two years of tax exemption, does a J1 visa holder consider as a resident with the possibility to fill a jointly tax return when married?

[lp540]

I am a J1 research scholar and I have been exempt from federal tax for two years (Tax treaty with France). This two year exemption will end this december. I wonder if I will be consider as a resident next year (For 2018 tax)? And will I be able to fill a jointly tax return with my husband (J2 visa)? Thank you.

[chambrlnp]

There are two exemptions here: #1 your exemption from counting days for the substantial presence tests, which has allowed you to file as a nonresident alien for 2016 and 2017.  #2 your exemption from tax on your fellowship income, due to the tax treaty with France, article 20, for two years from the date of arrival.

Assuming you arrived in 2016, on 1 January 2018 you start counting days for purposes of the SP test.  If you count 183 days or more in 2018, you will be taxed as a resident and must file form 1040.   See IRS publication 519, section on "Substantial Presence Test"

Assuming you are still a resident as of 31 December 2018, yes, you and your husband can elect to file a joint return.  See the same publication, section on "Nonresident Spouse Treated as Resident". 

Note that the exemption for your fellowship income ends on the day before your arrival date two years before.  For example, if you arrived 18 August 2016, fellowship income received through 17 August 2018 is exempt from federal income tax, because this is a benefit that can be taken by a US tax resident who is not a US citizen or green card holder (ref. US-France tax treaty, article 29, paragraph 3(b)).  See same publication, section titled "Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens" for how to report.

Be aware that since you will be taxed as residents, you have to report your worldwide income from all sources on your US tax return, including any income from investments outside the US.  You also may have to report any financial accounts held outside the US.

[Jesse4]

Thanks a lot for this valuable information.
We are in a very similar situation and we have a question if you don't mind.
Do you know how to use the US-France tax treaty, article 29, paragraph 3(b) that you mentioned in IRS form 1040?
Because of the non-exemption of days of presence after 2 years, we can't file with form 1040NR anymore, but still, a big part of our third year falls into the 2 years period after our arrival as J1/J2.

[chambrlnp]

You have to calculate the amount of the fellowship money that you actually received before your 2nd anniversary date.  The institution paying the fellowship may do this for you, or you may have to do it yourself, based on your bank statements or statements from the institution.  Second, you have to report the result on form 1040.  For instructions on how to do this, see the instructions in publication 519, section titled "Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Become Resident Aliens", subsection "How to report income on your tax return."  In the 2017 pdf of the publication it's on page 48. Hope that's helpful.

[newbrenner]

I have a similar question:
I have been on a J1 since January 1 2016 (PhD student). I graduated in Oct. 2017 and I currently work under J1 technical training at a high tech firm. I bought a house, have paid mortgage interest and have paid property taxes. I would like to file resident taxes to take advantage of some of the homeowner's tax benefits. Is there any possibility to file resident taxes?

[chambrlnp]

The situation described in my original answer applies to you, except for no tax treaty benefits. As described above, you started counting days of presence on 1 Jan 2018, and if you were present 183 days or more in 2018, you must file as a resident using form 1040.  See IRS Pub 519, "Substantial Presence Test."  Take note of the warning in the last paragraph of my original answer - on form 1040 you must report your worldwide income, including any income from investments in your home nation or elsewhere. Filing as a resident, you can deduct property tax and mortgage interest on your residence.

[newbrenner]

Were the rules changed? I.e. I thought exempt time-frame used to be 5 years for J-visa students. Is it now 2 years?

[newbrenner]

Btw: thanks for your prompt response!

[chambrlnp]

You are right.  That will teach me to read questions more carefully and not make assumptions.  
I would analyze your case as follows: when you were a student on a J visa (up to Oct 1017) you were not counting days under the substantial presence test  - IRC 7701(b) (5)(D)(II).  When you became a trainee, you started counting days because you had already been exempted as a J visa holder for parts of two calendar years (IRC 7701(b)(5)(E)(I), namely 2016 and 2017.  In 2017 you would thus have had about 90 days of presence, not enough by itself to qualify as a resident.  In 2018, however, you counted all the days and thus qualified as a resident.
Note that if you qualify for 2018, you may be able to qualify for 2017 under the "first-year election" rules; see Pub 519 for details.  Whether it is worth amending your 2017 return would depend on your circumstances.

[ckalun]

I am reading publication 4011 - Were you exempt as a teacher, trainee, or student for any part of 3 (or fewer) of the 6 preceding years, AND Did a foreign employer pay  all your compensation during the tax year in question, AND Were you present in the U.S. as a teacher or trainee in any of the preceding 6 years, AND Did a foreign employer pay all your compensation during each of the preceding 6 years  you were present in the U.S. as a teacher or trainee? what does it mean specifically? As J1 scholar, do i consider tax resident after 2 years calendar or 3 years?

[chambrlnp]

By default, individuals who enter with J visas as teachers/trainees are exempt from counting days for the substantial presence test for 2 calendar years: the year of entry and one more.  This is regardless of the date of entry, so the number of exempt days can be anything from 366 to 761.

So a J visa holder who stays 183 days in a third calendar year will normally become a tax resident in that year.  He starts counting days on January 1.

However, the writers of this law foresaw that some people might try to exploit the system ("exploit the system" here means "avoid paying US taxes", something the government strongly disapproves of ) by closely spaced visits on separate J visas.  So here is what the code says, IRC 7701(b)(5)(E)(i):

(i) Limitation on teachers and trainees

An individual shall not be treated as an exempt individual by reason of clause (ii) of subparagraph (A) for the current year if, for any 2 calendar years during the preceding 6 calendar years, such person was an exempt person under clause (ii) or (iii) of subparagraph (A). In the case of an individual all of whose compensation is described in section 872(b)(3), the preceding sentence shall be applied by substituting “4 calendar years” for “2 calendar years”.

An example will help.  Suppose X was first present in the USA as a student with an F visa in the years 2015 and 2016.  She was exempt from counting days during those 2 years because she was a non-resident alien student, exempt under IRC 7701(b)(5)(A)(iii).   Liking the experience, she returned in 2018 on a J visa for a 2-year teaching position.   She starts counting days the day she arrives in 2018, just as though she were here on a work visa (for example H or L), because her 2 days of exemption under the J visa were used up in 2015 and 2016, which are within the preceding 6 years.

A further example: for tax year 2018, the past 6 years are 2012-2017.  Let us suppose X had been here as a student in 2011-2012, not 2015-2016.  Only one of her past years of exemption would fall in the past 6 years, so she would retain her exemption from counting days in 2018.  Then, in 2019, the past 6 years will be 2013-2018, so she will be exempt in 2019 too.

The reference above to section 872(b)(3)  refers to a situation where a non-resident student or teacher receives income from outside the US - usually a stipend from a government or university in his home country.  Section 872(b)(3) exempts that income from US taxation.   In that case different rules apply for determining exemption,as seen in the flowchart in Pub 4011, but the basic idea is the same.

I hope that is helpful. If you post a follow up please provide the details of your situation, in particular dates of visits to the US, visas you held, and your nation of citizenship.

[Titanbrave]

I had a question a long the same lines. I'm a teacher on a J1 visa, I arrived in August 2018. I have 3 children and I am married. It makes financial sense for me to actually be taxed as a resident alien for deductions. Am I allowed to "opt in" to be a resident alien or do I just have to wait until my 3rd calendar year? 

[lposa]

Hi, I have a similar situation, I hope you can help me. I've arrived in US on June 2021 under J1 visa working in Maryland and my employer applied the federal tax exemption under  traty US- Italy, article 20. I've filled my 2021 taxes and on March 2022 I moved to Massachussets always under J1 visa.  Here my new employer is not able to apply the exemption since my visa last 2 years and since I've alredy been in US for 10 months their system does not recognize me as eligible for the treaty benefits. Moreover, the new employer claimed that, even if I were entitled, I have to be careful to leave the country within the end if the second year in US, otherwise I will have to reimburse the total amount  of tax I was exempted during the first 2 years to the INR. Can someone help me to understand this? Tbh I don't trust the info I got from my new employer.  Thank you

[MarilynG]

Are you able to renew your J-1 Visa status?

From the IRS:

"There is a limit on the number of years a J-1 alien can be considered an “exempt individual” student, teacher, or trainee and exclude U.S. days of presence for purposes of the Substantial Presence Test. The time limit depends on whether the J-1alien entered the United States as a “student” for the purpose of studying at an academic or vocational institution or as a “teacher or trainee” for the purpose of teaching, conducting research, or receiving on the job training.

Teacher or trainee – two calendar year rule:
 

• Generally, a J-1 alien cannot exclude U.S. day of presence as a “teacher or trainee” for more than two calendar years.
  • Four year exception: Subject to certain conditions, the two-year teacher or trainee limit can be extended up to four calendar years.

However, unlike the student limit which is a lifetime limit, the teacher or trainee limit can be renewed.  For detailed information, see Exempt Individuals in Teachers and Trainees."

Click this link for more info from the IRS.

This link has detailed info on Tax Tips for Resident and Non-Resident Aliens. 
 

@lposa

[lposa]

Thank you. Of course I can renew my J1 up to 5 years, but this is not my question: in case, should I give back the entire amount of federal tax I was exempted for the first 2 years?