What J-1 Participants Need to Know This Tax Season (Part II)

Filed in J-1 Regulation Explainers by on February 19, 2015 1 Comment

1. Why do I need to file taxes in the U.S.?

As J-1 trainee or intern, you are required to pay U.S. income taxes on all income that you received from your host company from January through December. If you are on the payroll of the U.S. host company, the compensation (pay) you are receiving is taxable income. If you are being paid by a foreign entity—such as your employer or university in your home country—you do not need to pay U.S. taxes on that income

2. What are the deadlines and timelines for filing taxes?

The deadline for filing U.S. income taxes is Tax Day in April. As you will remember from our last article about the two W’s, you should have filled out a W-4 Withholding Allowance Certificate when you began your training program or internship and enrolled in the company payroll. Sometime before January 31, you should have received a W-2 Wage and Tax Statement from your host company, which lists your taxable income and any deductions that were taken out of your gross annual income.

3. What is my tax rate and filing status?

Before your file your income tax returns, you need to know two things: your marginal tax rate and your filing status.

Your tax rate is the portion of your annual income that you must pay in taxes to the U.S. government. Tax rates are expressed as a percentage of your gross income. As your income increases, so does your tax rate. As a taxpayer, you are assigned to a tax bracket based on your income level and your filing status.

Filing status refers to whether you are married, single, have dependents, etc. Those J-1s who have J-2 dependents as well should make sure to read the IRS website carefully to determine their filing status. Most J-1 participants are considered to be single even if they are married unless they are from a country that has a specific tax treaty with the U.S. allowing them to claim dependents in the tax calculations. An explanation of this is found in IRS Publication 519.

A tax bracket is basically a group of taxpayers who have incomes within a similar range. This table lists the tax brackets for federal taxes. Each state has slightly different tax rates and tax policies, and these vary widely. You should refer to your state government’s website to determine which tax bracket you belong to, which brings us to our next point…

4. What are the differences between a state and federal income tax?

The IRS website published an excellent explanation of the differences between federal and state taxes.

Federal taxes are:

“Imposed on all citizens and residents of the U.S., regardless of the State in which you live. If you make your home (and/or business) in one of the fifty states, you are subject to income tax by the Federal government.”

State taxes are:

 “Separate from the Federal tax laws enforced by the IRS. State taxes are levied by each individual State’s government ― there is no system that encompasses the separate taxes for all fifty states. For this reason, State taxes will vary depending on where you live, work, shop, invest, etc. State taxes may be administered by a State department of revenue, department of taxation, state treasurer, or state comptroller.”

The important thing to note is that there are often different forms, laws, rules, timelines, and deadlines for state and federal taxes. It is the responsibility of individuals to educate themselves in regards to the applicable laws and procedures.

5. What are deductions and exemptions?

Certain expenses can be deducted from the amount of income you have to pay taxes on, which effectively lowers your tax rate. Additionally, you may be exempt from paying certain taxes if you meet certain criteria. The common examples of tax exemptions for J-1 visa holders are Social Security and Medicare taxes, which do not need to be paid under certain conditions.

The rules regarding deductions and exemptions are complex. For example, even though J-1 trainees and interns do not pay Social Security or Medicare taxes, J-2 visa holders who earn income do need pay these two taxes. Also, J-1 visa holders who change from a nonimmigrant visa status to an immigrant visa status during a calendar year do need to pay Social Security and Medicare taxes for the full year.

Like we keep saying, the rules are complicated! Never assume anything and only rely on trusted resources, such as the IRS website, which offers free tax help.

6. Should I use a tax preparation service?

There are benefits and disadvantages to using a professions tax preparation service to file your taxes, and there are a broad range of tax services available on the market. These services include actual people who perform tasks like accounting and preparing documents, and software programs that assist individuals by finding them ways to save money and by providing an easy step-by-step template for submitting tax returns.

The main benefit of using a tax preparer or software program is that they tend to minimize errors (not always, but usually!). Software programs and professional accountants are much more knowledgeable than the average citizen about the complexities of tax law and they can often help you save money. However, most tax software programs are not programmed to consider the special considerations for the J-1 taxpayer. If you decide to use a tax preparer, carefully question their knowledge of regulations that pertain to nonresident aliens, specifically J visa holders.

The main disadvantage of using tax services is that they cost money, and may not always be necessary for people whose tax situations are relatively uncomplicated. Electronic tax software companies usually offer to file Federal Taxes for free, but then make the user pay to file State taxes, or they charge a flat fee for both. We cannot recommend one tax service over another, but we do recommend reading the IRS website’s great article, Ten Tips to Help You Choose a Tax Preparer, before making a choice that could cost you money.

7. How do I file my taxes using form 1040NR?

For Federal Income Taxes, the form that J-1 and J-2 visa holders must submit is called the 1040NR (NR: nonresident), and it is available to download with detailed instructions on the IRS.gov website. If you have a single source of income in the U.S., you may be able to use the simpler 1040NR-EZ form. The Federation of Tax Administrators maintains a great interactive map that contains links to state revenue/tax departments various tax forms that must be filed for residents of each state.

As we mentioned above, there are different rules depending on which state you reside in, but there are also different rules depending on if the U.S. has a tax treaty with the government of your home country (have we mentioned how complicated taxes are in the US?). The IRS website publishes too many regulations to cover in detail in this article, but a great place to start is their U.S. Tax Guide for Aliens. For tax filing purposes, most J-1s are considered “nonresident aliens” by the U.S. government unless they have been in J status previously during the last six years.

8. What happens if I make an error?

Sometimes people make mistakes. On your income tax returns, those mistakes can cost you money, so it is always best to double- and triple-check the information on your 1040NR or 1040NR-EZ and state tax forms before you submit it to the IRS. If the IRS finds errors or mistakes on your taxes, they will probably charge you penalties, interest, or worse.

The American Immigration Council cannot provide advice on specific tax situations, so we hope the resources above are helpful in providing a good starting point for J-1’s and J-2’s who are filing taxes.

Remember to read our Tax Assistance for J-1 Participants page for more helpful assistance, and if you have not read it yet, then check out the first article in this series on taxes.

Additionally, the IRS website should be the most visited website in your browser history over the next couple of weeks. Good luck and happy tax season!

Tags:

  • sophiamary

    Good article.Xpress Debt Relief providing excellent services in USA. I highly recommend them for any tax related help. For more details http://www.xpresstaxrelief.com

    Thanks

    Sophia