J1 researcher extending past 2 year tax treaty exemption - retroactive taxation

[Danielvaneker93]

Hi,

I’m currently working as a post doctoral researcher at a university in the states. I’m currently exempt from federal income tax as well as FICA tax as per the US-UK tax treaty article 20a. I’m likely to extend my contract with the university past the 2 year mark and therefore will be extending past the 2 year exemption from the tax treaty. My question has a few parts and I would be helpful if any experts could help.

1) Once past the 2 year mark for the tax treaty, will the IRS look to recover the unpaid income tax? Other posts on this topic have cited that the tax treaties use the term “May recover” when discussing this situation, and I’ve not been able to find anything solid on what constitutes a situation/scenario in which the IRS would actively look to recover the unpaid income tax.

2) non-resident aliens on J1 visas are exempt from FICA taxes for a period of two years. It seems that if I stay past the 2 year exemption that my filing status will change to resident alien (as per the substantial presence test). My question is whether or not I will be liable for FICA taxes for the first two years during which period I was initially exempt? In addition, can anyone clear up whether I will be liable for FICA taxes going forward past the two year mark, given that I am ordinarily a permanent resident of another country and covered by the social security system of that country

3) I’ve seen some people talk about certificates of exemption from the workers original country of residence stating that they are covered/pay into a social security system of their country of permanent residence (issued by HMRC of the UK in my case). If I am not exempt from FICA taxes in the US as per question 2, is there any situation in which this certificate of exemption may apply in my case?

4) Finally, if I am liable for back dated federal and FICA taxes for the initial period of two years in the US, how do I determine how much tax I am liable for and how do I pay it?

If anyone can help with this, I would be grateful.

Thanks in advance,

Danny 

[pk]

@Danielvaneker93 ,  see the quote from the technical explanation of the current tax treaty between US and UK ------ NOTE there is reference  as to how to avoid retroactive taxation of remuneration should one exceed the two year ( from the date of entry and no tolling for away on vaca etc. ) -----

Article 20A (Teachers)
Paragraph 1
Paragraph 1 of Article 20A provides that a professor or teacher who visits one of the
Contracting States for a period not exceeding two years, for the purpose of teaching or engaging
in research at a university, college, or other recognized educational institution in that Contracting
State, and who is immediately before that visit a resident of the other Contracting State, will be
exempted from tax by the first-mentioned Contracting State on any remuneration for such
teaching or research for a period not exceeding two years from the date he first visits that State
for the purpose of teaching or engaging in research. Since this two year period is determined
from the date he first visits the Contracting State, periodic vacations outside the first-mentioned
Contracting State, or a brief return to the other Contracting State will not toll the running of the
two year period. Like the existing Convention, if the two-year period beginning from the date of
his arrival is exceeded, the exemption will be lost retroactively. Thus, if a person comes to a
Contracting State for the purpose of teaching and stays for a period in excess of two years, the
exemption will not apply for the first two years.
A person who meets the qualifications for this exemption may again claim its benefits if
he first re-establishes his residence in the other Contracting State. In such case, the person
claiming these benefits on a subsequent occasion must first satisfy the competent authority of the
first-mentioned Contracting State that he had become a resident of the other State for a
substantial period of time (normally at least one year).
Paragraph 2
Under paragraph 2, the Contracting State in which the teaching or research is performed
may apply this exemption either to current payments to a professor or teacher in anticipation of
fulfillment of the requirements of paragraph 1 or by way of withholding and refund. Thus, the
recipient may be required to report and pay taxes on such income on a current basis and seek a
refund of taxes paid upon fulfillment of the requirements of paragraph 1.

I have underlined the requirement assuming you choose to continue work in the USA and still wish to avail of the  US tax exemption on US remuneration.

On your question about FICA ---  since there exists a totalization agreement between US and the UK, all you have to do is get a certificate of  participation from National Health and lodge it with your US employer.

See here -->  International Agreements | International Programs | SSA    

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