Nonresident or resident alien with J1 visa and social years looking back period

[cp2022]

Hello, I am writing as I could not find an answer online in relation to my situation.

I arrived in the US with a J1 visa on 3rd July 2021 and will stay until 30 June 2023. 

For the year 2021, I used Sprintax as I was not considered resident for tax purposes. However, I have a doubt for 2022. I am familiar with the two-year exception (for trainees and teachers, which is my case), but in 2016 I was in the US with a J1 visa (from April to June- three months, the same trainee and teachers category).

Considering the six years looking back period, should I count as years of exemption 2016 and 2021, while in 2022 I will be considered resident for tax purposes?

In 2016, I had only a foreign income. This applies also for the current period. The exception is given only by the health insurance payments which are considered as fellowship and thus taxable US income (in other words I don’t have W2). Also, in the years 2017-2018 I spent in the US only a few days with ESTA.

If in 2022 I will be considered as resident for tax purposes should I start with the estimated tax payments now on my foreign income in order to avoid penalties?

Thank you very much for your help.

[DanielV01 · Accepted solution]

With several situations here, I'd like to address them separately.   The following link may assist you to make your final determinations:  Tax Residency Status Examples (See Example #9 as most applicable to you).

What is your filing status for 2022?  US Resident.  Because of the look-back provision, you were exempt in 2016 and 2021, even those periods were "partial years" that you were in the United States on J-1.   Since those years are within the 6-year lookback period, you are no longer exempt for substantial presence purposes.  After 183 days of substantial presence in the United States, you are a resident by substantial presence in 2022.  Based on your facts, you will be in the United States all of 2022 and will file a US Resident return in 2022.  This has advantages and disadvantages.

What does this mean for your 2022 return?  A US resident must report all worldwide income on their tax return.  This will, of course, include all of the income you are earning outside of the United States while residing here.  However, if you are married, you also qualify to file as married filing jointly with your spouse and have your spouse treated as a resident for tax purposes (an ITIN application might be necessary in that case if your spouse does not have a Social Security Number).  This is advantageous if your spouse has little or no income from outside the United States.  In this case, your tax liability will be lower because of additional deductions and a more favorable tax treatment afforded to married couples filing jointly.

Do you need to make estimated payments?  That depends.  While worldwide income is taxed in the United States, you also may claim a credit for tax you pay to your home country on that income (and there may be other tax treaty provisions that are available, depending on the country in question).  In general, if the amount of tax you pay to the foreign country is equal to or greater than the amount of tax the United States assesses on that income, then you are not going to see an increase in United States tax as a result, and it is at least likely that you will not have to make estimated payments as a result.  In general, you would be wise to make estimated payments towards your 2022 tax liability if you will owe $1000 or more at the time you file your 2022 return in 2023.

[cp2022]

Thank you very much for all explanations. I am really very grateful as this has solved many doubts I had before.