Tax residency for a researcher under H-1B

[echo0o]

Hello,

I am a newly arrived alien under H-1B visa (September 2020) with no immigration history in the US. I am French and I have been paying taxes in France up until departure. I am employed as a research associate by an American University.

My US financial institution requests that I fill in a W-9 form. I am puzzled by having to declare I am a US tax resident whereas I will not pass the substantial presence test for this year. Is W-9 the correct form in my case?

Furthermore, would I be eligible to the 2-year tax exemption under the Tax Treaty between the United States and France (article 20 - Teachers and Researchers)?

Thank you

[pk]

@echo0o , your employer needs the W-9 because you are employed by them -- that is what IRS requires  ( a Tax ID).  As far as the residency status and exclusion of  earned income -- these depend on your visa under which you were admitted.  Thus if you are a H-B visa holder   then you are generally not treated as a researcher  - you are an employee  thus you will get W-2 and your salary may not be  excludable.   Please consult with your school --- a researcher is usually under J- visa.  They may have to make sure that IRS will regard you as a researcher for  tax purposes.

[echo0o]

@pk thank you for your answer. The W-9 form is not requested by my employer, but my bank. Apparently, this is the way they want me to communicate my SSN.

For 2020, I still believe that I should be considered as a nonresident alien with a tax residency in France, as I will not meet the Substantial Presence Test (my presence in the US during 2020 will count 117 days on 12/31/2020). If that is correct, I do not feel confortable with signing a W-9 form this year.

For 2021, I have to admit that I am even more confused. I understand from your reply that it will depend on whether or not the IRS considers me as a researcher. In fact, it has become quite common for Universities to employ researchers under H-1B visa. Incidentally, it is a big issue under COVID-19 related travel restrictions as most exceptions for academics only apply to J-1 holders. H-1Bs are too often presented to the public as Big Tech visas.

On the IRS website "Taxation of Alien Individuals by Immigration Status – H-1B" under Section II.E, one can read:

If the H-1B alien is treated for U.S. income tax purposes as a resident of a country with which the United States has an income tax treaty, he or she may benefit from a reduced rate of U.S. federal income tax on certain types of U.S. source income.

On the IRS website "Tax Treaty between the USA and France" under Article 20, one can read:

An individual who is a resident of a Contracting State immediately before his visit to the other Contracting State and who, at the invitation of the Government of that other State or of a university or other recognized educational or research institution situated in that other State, visits that other State for the primary purpose of teaching or engaging in research, or both, at a university or other recognized educational or research institution shall be taxable only in the first- mentioned State on his income from personal services for such teaching or research for a period not exceeding 2 years from the date of his arrival in the other State. An individual shall be entitled to the benefits of this paragraph only once.

I would be really curious about how one can contest the eligibility of academics under H-1B visa to this tax treaty benefits.

[Opus 17]

The question of what "researcher" means comes down to whether you are performing work, or are a student.  US tax laws treat income differently whether it is "earned" (from performing a service) or "unearned" (which includes prizes and grants).  If you are in a learning or training position (such as graduate student or postdoc) then you are technically a student and you are not performing "work" in exchange for compensation.  It is unearned income, even though what you do "feels" like working (you go in every day, you perform experiments, write reports, and so on.  The student designation generally applies to graduate students and post-doctoral fellows.  The university can write you a check and all the tax consequences are on the student.  

In any position that is considered "working" (earned income, you are an employee and your employer sets the terms of your work) you will be treated as an employee.  The employer must report your pay on a W-2 at the end of the year, and withhold federal and state income taxes and social security and Medicare taxes.  This is true regardless of your residency status.  As an employee, your employer may also have additional responsibilities under state law, such as to provide certain mandatory minimum benefits, follow wage and hour laws, and so on.

I have been a technician, grad student, post-doc, research associate, and faculty in my career, and have a pretty good understanding of of the tax status of each.

"Research associate" is probably a staff position, not a student or training position, although you will need to check with HR if you are not clear.  As such, you should expect to have taxes withheld from your pay and to receive a W-2 at the end of the year with which to file your tax return.

Hope this clarification helps. 

I can't address your residency status or tax treaty status without doing a lot more research.

As a result of the Patriot Act after 9/11, US banks must verify the identity of their customers.  You can give them a W8-BEN instead of a W-9, if you think you are not a US resident for income tax purposes yet, but when you become a resident you will need to give them a W-9 anyway. 

[pk]

@echo0o , while agreeing with @Opus 17  on US banks requiring a tax id  for all accounts   and treating you as a tax resident ( because you have SSN and because you are actually living in the USA ) even if both your visa status  and the IRS taxing status is still "Non-Resident Alien".  The reason is  that with an SSN they will issue a 1099-INT for interests earned  ( and to be reported on form 1040 ), else they will  issue a 1042-S and you will report this on form 1040-NR.  Since you will meet the substantial presence in the future , it may be easier to leave your bank account as "Resident".  For filing 1040-NR , you still use the 1099-INT the same way.

The issue of being able to apply the article 20 of the US-France treaty  hinges on  definition of "researcher" --- the tax treaty does not define this , however, Title 8, USC, Chapter 12, 1101 defines  the  researcher  and issues a J visa.  If you had a J visa, we would be talking about this at all.  But because  you have H-1b and not J,  you are at a disadvantage here because your employer classed you as a special capability worker and researcher ( even if you are actually a researcher ) by applying for a  H1-b  rather than J-1 visa.   As I see it you have two options here :  (a) exclude the income for the two years  as if you were J-1 and let the IRS decide if  they agree with you  -- you may have to bolster this by being ready to argue your case with job description from your employer  OR (b) request help from your employer to get your visa adjusted.  My preference would  be to follow the latter path, so it is a clear determination by competent authority.

Good Luck 

[Opus 17]

The J-1 visa is a scholar visa for the exchange of ideas.  "The exchange of research scholars promotes the exchange of ideas, research, mutual enrichment and linkages between research and academic institutions in the United States and foreign countries."

The H-1b visa is a technical worker visa allowing someone to work in the US because they have skills or technical knowledge that, at least in theory, are not readily available among US workers. 

I agree that there can be overlap between the two.  But it the university brought you in under an H-1b visa, they have classified you as a technical worker and not a scholar.  The only way to dispute that is to ask them to reclassify you.  Otherwise, I suggest you seek qualified legal advice.

[es2023]

Hello, 
I know this post is 2 years old but I'm EXACTLY in the same situation. I'm a french citizen working in the US doing a research activity for public interests with H1B visa since my arrival for the first time last year. 

My Research Institution made me fill the form 8233 as soon as I got my SSN last year and I got the Form 1042-S early march this year. 

This particular and rare situation is extremely difficult to handle as online platforms don't consider H1B visa eligible for tax treaty while IRS says it's eligible under specific circumstances...

By any chance, if the author can reply, what happened to you? Does IRS tell you whether you were eligible or not after doing your tax return?

Thank you. 

[DaveF1006]

First of all, read Article 20 of the French/US tax treaty regarding teachers and researchers. It states that your income from personal services from teaching or research is taxable in France for a period not exceeding 2 years from the date of your arrival in the US.. An individual shall be entitled to the benefits of this paragraph only once. If you have already claimed, you cannot claim it again. 

As far as your H1B status, read this IRS source regarding H1B visa status and click on the section where it addresses non-resident aliens. If claiming treaty benefits, H-1B aliens must report both the income and the treaty benefit on Form 1040-NR, with Form 8833 (if required). Please refer to Claiming Tax Treaty Benefits.

If you are filing as a US resident, please read the the section regarding Interaction with Income Tax Treaties for further information a clicking on the source link in the previous paragraph,

@es2023 

[es2023]

Thank you very much @DaveF1006 , in view of these elements I assume that my employer was not wrong in making me benefit from the tax treaty between France and the US and H1B visa is eligible right?

[DaveF1006]

No, your employer was not wrong if you were eligible to claim those benefits as outlined in my previous post.

@es2023 

[es2023]

Great thank you for your reply!