W4

Hi, Alex333,

You may be eligible for lower withholding rates if there is an applicable tax treaty and you fill out and turn in the required form.  I am excerpting info from the IRS below.

Note:  Even if you don't get the withholding right, you can work it out when you file!

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Here is that information from the IRS:

If the J-1 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. For treaty benefits involving personal services income, the J-1 alien should submit a signed Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, to the payor of the income. For treaty exemptions involving types of income other than personal services income, the J-1 alien should submit a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to the payor of the income. Such income is reported to the IRS on Forms 1042 and 1042-S by the payor of the income after the end of the year.

Note: J-1 aliens who do not timely submit the Form 8233 and/or Form W-8BEN to claim treaty benefits for purposes of an exemption or reduced rate of withholding from the payor of income may still claim the treaty benefits when filing their individual U.S. income tax return. Please refer to the Form 1040-NR, Schedule OI, Instructions for more details.

Hello @Alex333,

In order to determine the amount of taxes that should be withheld, you must first determine your alien status as a J-1 Visa Holder.   A J-1 Visa holder is either a resident alien or a nonresident alien for United States tax purposes.   In order to determine if a J-1 Visa holder is a resident alien, the IRS applies the substantial presence test.  You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

31 days during the current year, and
183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
All the days you were present in the current year, and
1/3 of the days you were present in the first year before the current year, and
1/6 of the days you were present in the second year before the current year.

However, as a J-1 Visa holder there is an exemption that allows you to disregard certain days you were physically present in the United States for the substantial presence test.  An exempt individual is a certain category of individual whose days of physical presence in the United States do not count for purposes of the Substantial Presence Test.  Included within this category are students, teachers, and trainees.  A J-1 alien can exclude U.S. days of presence as a “student” for purposes of the Substantial Presence Test for up to five calendar years. 

For nonresident aliens, an employer must withhold federal income taxes on the wages of the nonresident alien employees. In most cases, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States.  J-1 alien who is a nonresident alien for tax purposes and is paid wages in exchange for personal services performed within the United States is exempt from paying U.S. Social Security and Medicare taxes on such wages under Section 3121(b)(19) of the Internal Revenue Code, as long as the employment is authorized by USCIS and the services are performed to carry out the purposes for which the J-1 visa was issued to them.

For resident aliens, they are taxed in the same manner as U.S. citizens on their worldwide income.  You are responsible for social security and medicare taxes as well.  Under certain circumstances, a J-1 alien who fails to meet the Substantial Presence Test may be able to choose to be treated as a U.S. resident for the tax year.  If you do not meet the substantial presence test for 2020 or 2021and you did not choose to be treated as a resident for part of 2020, but you meet the substantial presence test for 2022, you can choose to be treated as a U.S. resident for part of 2021. To make this choice, you must:
1. Be present in the United States for at least 31 days in a row in 2021, and
2. Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2021. For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.

In order to determine if you can reduce the withholdings, you will need to determine your alien status.  Also, you will need to determine if your home Country of residency has a tax treaty with the United States. (if you are a nonresident)  Also, if you are a nonresident, you may want to weigh your options to determine if claim residency may be more beneficial using the First-Year choice explained above.  In summary, it all depends on your specific circumstances.    From your post, it would appear you are being taxed as a resident alien.  That may be your best option because a nonresident alien is taxed at a 30% base tax amount unless there is a treaty present.  I would review your situation, specifically any tax treaties, and determine the best option.  Please find below links to all of the information referenced above.

Link: https://www.irs.gov/individuals/taxation-of-alien-individuals-by-immigration-status-j-1#:~:text=J%2D1%20aliens%20who%20are%20U.S.%20resident%20aliens%20for%20the,eligible%20for%20foreign%20tax%20credits.

Link: https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

Link: https://www.irs.gov/pub/irs-pdf/p519.pdf

Link: https://www.irs.gov/pub/irs-pdf/p515.pdf

Link: https://www.irs.gov/pub/irs-pdf/p15.pdf

Link: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

Thanks, 

Taylor, Tax Attorney, 12 Years