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Old 04-01-2012, 04:43 PM
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How to get full refund on J1 visa thru tax treaty

I am in USA since November 2010 on a J1 visa (Postdoctoral researcher). I read the IRS publication 901, it states that Indians on J1 (students as well as researchers) can get a full refund, within first two years.
I will be leaving in a month and want to file for a full tax return.
Does anyone here know how to do that by citing the treaty with India (or any other country for that matter) ?
Most regular tax pros are not comfortable with this and may not know the paperwork.
I am married but will file separately. I'll really appreciate any help in this matter.

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Old 04-02-2012, 10:23 PM
Join Date: Oct 2010
Posts: 5,238
“Does anyone here know how to do that by citing the treaty with India (or any other country for that matter) ?”----> The J-1 visa holder who is a researcher can be totally exempt from all federal taxes for a period of time which is set by treaty. However, this exemption is NOT AUTOMATIC. It must be addressed in a tax treaty, which sets the conditions that must be met to qualify and also sets the time limit for the tax-exempt status.

It should also be noted that, in most states, the tax exemption does not apply to the state income tax. Hence, while your income may be exempt from federal income taxes and the FICA taxes, you must still pay the state income tax most of the time.Another provision to consider is 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. For example, assume that Dr. Patel, a noted Indian professor of computer science, arrives at the UCLA to begin a series of lectures and classes on the latest innovations of software engineering. His J-1 visa clearly shows a two-year time limit and expires on August 19, 2012. He arrives on August 21, 2010, and he intends to conduct his lectures and classes for the full two years. Under Article 22 of the U.S.-India Tax Treaty, his $85,000 annual salary from the UCLA is exempt from all federal income and FICA taxes, though he must file a CA state tax return for 2010, 2011 and 2012 and pay CA state income taxes. In early January, 2012, Microsoft offers Dr. Patel a position with their company and sponsors him for an H-1B visa. The visa application is approved effective 1 June 2010, and Dr. Patel terminates his employment with the UCLA in June, 2012 and moves to Redmond, Washington to begin working for Microsoft. In this case, Dr. Patel would have to file federal tax returns for 2010 and 2011, filing Form 1040NR or 1040NR-EZ and paying federal income taxes for both years. Additionally, he would be liable for the interest due on the late tax payments; this interest, by law, cannot be waived. He would also be liable for any late payment penalties the IRS may impose, but, due to the changing nature of his tax situation, he could request that these penalties be waived, and the IRS typically will waive these penalties if good cause is given.Since he was under a J-1 visa, he would still be exempt from the FICA taxes for two calendar years, 2010 and 2011, but he became liable for these taxes on 1 January 2012 (even if he had completed his J-1 visa and returned to India as originally planned). For income taxes for 2012, he would have to file a dual-status return, because he exceeded the 183-day Substantial Presence Test in 2012 when his H-1B visa took effect on 1 June 2012.Now, had he NOT accepted the Microsoft position, Dr. Patel could have returned to India and paid no U.S. federal income taxes on his UCLA salary for 2010 through 2012. Further, he could have delayed his return to India for several weeks while he completed his personal affairs (moved out of his apartment, sold his furniture and car, shipped personal effects back to India, etc.) without violating the two-year provision of his visa. In other words, he did NOT have to leave prior to the 19 August 2012 expiration date of his visa, just as long as his clear intent is to return to India in a reasonable amount of time.

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