“I was just notified by the J1 Visa holder that she became a resident effective April 29, 2011. Due to her J1 status, she was exempt from FICA taxes. Do I have to refile Form 941 for quarters 2 and 3 to include her taxable FICA/MHI wages?”---->I do not think you need to refile Form 941 for the second and third month. As a J1 visa holder who became a US resident under the US Tax law, I guess, she needs to pay US taxes, federal and state tax; after her tax exempt years in J1 ends and she needs to pay Federal and FICA Taxes after April 29, 2011 as a US resident for tax purposes under the tax law or as a US resident under the US INS rules. She doesn’t need to pay taxes , federal and FICA taxes( but perhaps she needed to pay state income tax, depending on her J1 status as long as she was a J1 researcher; The J-1 visa holder can generally be categorized in one of three categories. she is either a student attending a college or university, usually as a graduate student: A trainee of some type, either for a foreign business who sent her here to receive specialized training with a U.S.-based corporation, or as an individual undergoing some type of post-college training.)for previous exempt years. Yu need to include her on Form 941 in the second quarter, beginning Apr 1 and ending June 30, submit by July 31. Everyone on J1 visa is exempt from residency for 2 years. J1 students, just like F1 visa holders, are exempt for 5 years. During the exempt period, J1visa holder’s income is not subject to FICA taxes and he/she must file non-resident tax return Form 1040NR or 1040NR-EZ. Based on the tax for many countries the J1 Researchers, Professors and Teachers are exempt from federal income tax for two year, and for many countries the exemption is lost if the visa holder over stays. It should be noted that, in most states, the tax exemption does not apply to the state income tax. Hence, while J1 visa holder’s income may be exempt from federal income taxes and the FICA taxes, he/she must still pay the state income tax most of the time.
“Her "back-taxes" are substantial, and I don't think she can give us the money right now to include in the payments we will be out of balance due to adding her taxable wages, but no employee tax. How do I show that on the Form 941? It will be out of balance. Or, do I wait until I file the 4th quarter Form 941 and include her taxable wages and tax?”---->As said above, she doesn’t need to pay her taxes for her exempt tax years( or months). There is a provision to consider; the retroactive tax clause that is contained in many of the tax treaties. This clause declares that, if the J-1 visa holder EXCEEDS the specified tax exemption time limit, then the tax exemption is void and all federal income taxes become due retroactive to the date of arrival. I do NOT think she is in this situation.