Resident alien with 1042-S form

[dgdyif94]

As an international student, I hold a J1 visa and commenced my contract at Stanford University in September 2021, marking my initial employment in the USA. Up until August 2023, I qualified for tax exemption under the Italy-US tax treaty, for which I submitted a Form 8233, "Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual."

Consequently, I received a  Form1042-S ("Foreign person US source income subject to withholding") covering the period from January to September 2023. The form specifies my tax rate as 0%, with exemption code 3a as 04 and exemption code 4a as 16.

In previous years, I successfully utilized Springtax for my tax filings, which included the inclusion of my 1042-S form. However, this year I encountered an issue: Springtax is recommending that I use TurboTax due to my classification as a resident tax alien.

It appears that TurboTax does not support the inclusion of the 1042-S form. Consequently, I am seeking guidance on how to proceed with submitting my 1042-S form using TurboTax, or if there is an alternative method to ensure the accurate filing of my taxes.

[pk]

@dgdyif94 , I need to read up US-Italy tax treaty just to refresh my memory.

But in the meantime can you  clarify what you mean by "student" and " contract with Stanford Univ" ---- J-1  recipient can be "student/ trainee" or "teacher/researcher" --- and the tax treatments are different .  Which are you ? or was there  a change  during 2021 ?

I will circle back once I hear from you --yes ?

[dgdyif94]

I am a “research scholar” and I have always been a research scholar since when I have arrived in the US in September 2021. I am a postdoc at Stanford.

Thank you very much for the help.

[pk]

@dgdyif94 , the issue as I see it stems from  two separate / disparate time definition. 

Generally when a  J-1 teacher/researcher enter the country  , he/she is exempt from counting days present ( towards Substantial Presence Test) for a period of two CALENDAR years.  Thus is your case, you entered  in 2021 and therefore  you will start counting days present  from  Jan 1st, 2023.  And therefore you would meet the SPT and be a resident for tax purposes sometime  around end of June or early Jul ( depending on whether you stayed here everyday or were abroad  for a few days ) of 2023.  Also generally you would be treated as a resident for tax purposes for the whole year ( with all its benefits like standard deduction etc. )

On the other hand  the US-Italy treaty , like most   tax treaties, provide tax holiday  ( i.e. zero tax rate  ) on income of a teacher/researcher ) for two years from the date of entry.  Thus  in your case  ( and assuming that you entered the country  on Sept.1 2021 ), your salaries/ remuneration  will be excludable  ( from  US tax )  till  Aug. 30th 2023.  You do this by using form, 8233.  However form 8233 tells you right at the top  " If you are a Non-Resident Alien who is ....."  This is the quandary.

In my view  therefore 

  (a)I will use the treaty primacy, use the  generic definition  ( immigration Services' def )  of  "Non-Resident Alien"  ( i.e. one whom is in the USA temporarily,  a resident of a treaty country, closely connected  to that other country), and take advantage of the treaty benefits by using form 8233, treaty article 20 of  US-Italy tax treaty.  I will still use  form 1040 for filing my return and pay taxes for income beyond the two year mark.

OR

(b) use the safer and probably more literally correct path  of declaring myself as dual status  taxpayer-->

(1)  file form, 1040-NR covering the  Jan1st through  the day passing the SPT and include 8233  along with 1040-NR ( excluding  that portion of income from US taxation) --- note that TurboTax does not support form  1040-NR ( SprinTax does support this );

(2) file 1040  covering the residual months  of the year ( post passing the SPT   and not recognized  on form 1040-NR) and pay taxes on that portion of the income.

Note that this may mean you have to file by mail. Do not have any experience with SprinTax but I thought that they do support dual status filing.

Does this make sense ?   Is there more I can do for you ?

pk

[dgdyif94]

Thank you very much!

Do you know any websites (despite TurboTax and Springtax) that could be helpful in my situation? What you would suggest doing in my situation?

[dgdyif94]

@pk, for your info, “Sprintax supports tax filing obligations for nonresident aliens only. They do not support dual status aliens or residents for US tax purposes.”

How should I proceed with TurboTax? Is there any other good website for my situation?

Best,

Jacopo

[pk]

@dgdyif94  as I see it your two options are :

(a)  Prepare  your 1040-NR  using SprinTax -- i.e. is the bulk of your  tax return --- choose file by mail, print, sign/date  and then on the first page write in   "  DUAL  STATUS ".   Then download and  prepare by hand the  1040 -- covering the  period  once you passed the  SPT.     OR you can also use TurboTax to prepare this portion of the return .  Again choose  file by mail, print sign/date  and mark on top of first page as for 1040-NR.   Collect the whole package and mail to the IRS.

This is of course you follow the path of treating yourself as dual status.

(b)  Else  you can go to tax preparer  in your local area  ( whom is familiar with  international tax filing ).  This would be more expensive but the easiest .

Is there more I can do for you ?

Also if this has answered your query, please consider accepting this and thus close the thread.   Even then you could always add to this , if you have more  items I can help you with.

pk

[dgdyif94]

@dgdyif94 thank you very much!

What about the State taxes? As far as I understand the tax treaty works only for federal taxes. Should I only file the state taxes as a resident alien?

[pk]

@dgdyif94 , state tax does  not recognize treaty benefits --- it generally  gives credits only for taxes paid to another state.  Also state  residency is based only on state laws -- they are varied  and  one should consult the  state  Dept. of Revenue ( DoR) for the particular state.    Don't know what more to add to this.