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Old 01-25-2018, 09:24 AM
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Applicability of US-German tax treaty, Article 20, paragraph 4

Dear all,

I'm a German researcher and I'll start working for an american university in March 2018.
During my planned two-year stay in the US, I'll be a resident in Germany for tax purporses and I'll be fully taxed in Germany.
Therefore the US-German tax treaty, article 20 (Visiting Professors and Teachers; Students and Trainees) should apply to me.

I'm now trying to understand which paragraph of article 20 applies.

One half of my salary will by paid directly by the university and the other half comes from a scholarship.
The human ressources deparment of the university is now arguing that paragraph 4 of article 20 should apply to me. However I think that their interpretation is wrong.
I would appreciate your help in interpreting the paragraph. Also suggestion to more specialized discussion boards are welcome.

Paragraph 4 of article US-German tax treaty says:

Quote:
A student or business apprentice within the meaning of paragraph 2, or a recipient of a grant, allowance, or award within the meaning of paragraph 3, who is present in a Contracting State for a period not exceeding four years shall not be taxed in that State on any income from dependent personal services that is not in excess of $ 5,000 (five thousand United States dollars) or its equivalent in Deutsche mark per taxable year, provided that such services are performed for the purpose of supplementing funds available otherwise for maintenance, education, or training.
According to my understanding, this paragraph applies to income that is not received for work as a researcher or teacher
but instead refers to any income from dependent personal service regardless of the type of work.
(E. g. it would apply to student who receives a scholarship for university studies and works as a barista to improve his or her pocket money.)

For income from work as a researcher or teacher, I think paragraph 1 takes precedence. According to paragraph 1, taxes for such work are fully exempt from US taxation.

It my interpretation correct?

Thanks,
Fabian



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Old 01-26-2018, 05:27 AM
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Posts: 5,081
I'm a German researcher and I'll start working for an american university in March 2018.
During my planned two-year stay in the US, I'll be a resident in Germany for tax purporses and I'll be fully taxed in Germany.
Therefore the US-German tax treaty, article 20 (Visiting Professors and Teachers; Students and Trainees) should apply to me.====>Since you are a scholar/teacher, You would be a non-resident alien for the first 2 calendar years.You are not subject to FICA (social security/medicare) for payments you received for work related to your visa. As a German citizen, you can use the German tax treaty which would exempt you from federal income taxes for the first 2 years. However, if you stay longer on the J1 visa, you would have to pay those back retroactively, so if you know you will be staying longer, please dont use the treaty exemption since you would have to pay interest if you pay them back after 2 years. This does not affect your exemption from FICA, you wont have to pay those for the first 2 years.If you would go back to the germany after 2 years and come back on a different visa,i.e, L1 or H1 or etc, you would not have to pay the taxes back. Some Universities offer access to tax preparation for their alien staff for free, so ask in your student/international office.furthermore, Some states ,i.e., MA, do honor the federal tax treaties, but some ,i.e., CA, don't. You do not file Form W-9 or W-8BEN with the IRS. You identify your taxpayer status by filing a tax return. I am not sure if this is your case, just for reference, however, if your bank is asking you to send such a document either W9 or W8-BEN and saying that if you don't precise your status you may subject to to back-up withholding at 28%.then, You would provide Form W-8BEN to your bank;I guess you still need to pay your state tax as a full year resident of your home state.



I'm now trying to understand which paragraph of article 20 applies.

One half of my salary will by paid directly by the university and the other half comes from a scholarship.
The human ressources deparment of the university is now arguing that paragraph 4 of article 20 should apply to me. However I think that their interpretation is wrong. =============>>as mentioned above; since you are on a J-1 visa, you will be exempt from the Substantial Presence Test for the first 2 calendar years that you are in the US. This means that you are considered a non-resident aliens for US tax purposes. HOWEVER, If you are exempt, you are considered a nonresident alien are you are only required to file a US tax return for income from US sources. If you are required to file a tax return, you will file a Form 1040NR.

I would appreciate your help in interpreting the paragraph. Also suggestion to more specialized discussion boards are welcome.

Paragraph 4 of article US-German tax treaty says:

Quote:
A student or business apprentice within the meaning of paragraph 2, or a recipient of a grant, allowance, or award within the meaning of paragraph 3, who is present in a Contracting State for a period not exceeding four years shall not be taxed in that State on any income from dependent personal services that is not in excess of $ 5,000 (five thousand United States dollars) or its equivalent in Deutsche mark per taxable year, provided that such services are performed for the purpose of supplementing funds available otherwise for maintenance, education, or training.
According to my understanding, this paragraph applies to income that is not received for work as a researcher or teacher
but instead refers to any income from dependent personal service regardless of the type of work.
(E. g. it would apply to student who receives a scholarship for university studies and works as a barista to improve his or her pocket money.)

For income from work as a researcher or teacher, I think paragraph 1 takes precedence. According to paragraph 1, taxes for such work are fully exempt from US taxation.

It my interpretation correct?=====>As mentioned previously.



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