J-1 Visa: Tax Exemptions and Tax Treaties

It might take some time to adjust to life in the U.S. as an exchange visitor. You have to pick up new skills in your training or internship program, meet new people, and navigate cultural differences. Plus, there’s the work of learning how to get around a new place, adjusting to its rhythms and sounds, and hearing a new language constantly.

All that to say, you have enough to manage without worrying about figuring out your exchange visitor J-1 visa taxes, tax returns, etc. etc… you get the idea.

We’ll help you understand J-1 visa taxation in the U.S. There’s a lot to cover, but we’ll break it down into clear, understandable pieces so you don’t have to find and choose answers across the web. 

Some questions we will answer are:

• How do I know if I’m a J-1 visa resident alien or J-1 visa nonresident alien?
• Are all holders of a J-1 visa exempt from federal taxes?
• How can I figure out if I receive a J-1 visa federal tax exemption?
• What is a J-1 visa tax treaty?
• Are J-1 visa holders always exempt from federal taxes? (hint: no)
• What are some basics of tax filing for J-1 visa holders?
  

We will also cover some important terminology for figuring out taxes as an exchange visitor in the U.S. So stick around for our ultimate guide to tax filing for J-1 visa holders. 

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Taxes and Substantial Presence 

So, what is tax for J-1 visa holders? It depends on the circumstance.

A starting point for finding out whether or not you must pay U.S. taxes is discovering whether you had “substantial presence” in the country in recent years. If you had “substantial presence,” this means that you were physically present within the United States for a significant number of days, are now considered a “resident alien,” and therefore must pay taxes. 

So how many days is substantial? 183, but there’s more to it than that.

First, you must be physically in the U.S. during the current year for at least 31 days. Please note that physical presence in the U.S. includes the country’s 50 states, D.C., its territorial waters, and its adjacent submarine areas. However, it excludes airspace. 

All days that you are present during the current year go towards the 183 count. This would include time spent in the U.S. on a J-1 visa extension. However, the two years before the current year also count. You must include:

• ⅓ of the days you were in the U.S. last year
• ⅙ of the days you were in the U.S. two years ago
  

But wait, not every day of physical presence counts! When you are tallying up how many days you were in the U.S. before the current year (to later divide this number by three), do not include days when:

• You commuted to work from your home in Canada or Mexico (if you do so regularly)
• You were present for less than 24 hours during transit from one outside country to another
• You were in the U.S. working as a crewmember for a foreign company
• You could not leave the U.S. because of a health condition that began during your stay in the country
• You were an exempt individual
  

Again, let’s pause before counting so we can discuss who is an exempt individual. These are:

1. A foreign government-related individual temporarily in the U.S. on a “G” or “A” visa. This does not extend to those traveling under “A-3” or “G-5” visas. 
2. A teacher or trainee in the U.S. temporarily under a “J” or “Q” visa. This individual must comply with their visa requirements
3. An international student temporarily staying in the U.S. under an “F,” “J,”, “M,” or “Q” visa. Again, this individual must comply with their visa requirements.
4. A professional athlete who is staying in the U.S. temporarily to compete in a sporting event for charity.
   

Now that you have all of the J-1 visa tax information, you should be able to calculate whether or not you established a substantial presence in the U.S. Here’s an example:

Daniel is currently in the U.S. in 2021 under a J-1 visa. He is completing an internship with a local company. Daniel has been here for 60 days. In 2020, Daniel spent 15 days in the U.S. visiting friends. In 2019, he spent 200 days in the U.S. However, 150 of those days were spent as a student. Therefore, only 50 days count from that year. To calculate his substantial presence, Daniel will add: 

1. 60 days from 2021 (total number of days)
2. 5 days from 2020 (⅓ of 15 days)
3. 8 days from 2019 (⅙ of 50 days)
   

Daniel ends up with 73 days. Currently, he has not had substantial presence in the U.S. and therefore is exempt from paying taxes.   

Tax Exemptions for Students

If you are unsure whether or not you count as a student (now, or in the past), we’ll help you sort it out. Students are in the U.S. under “J” (exchange visitor) “F,” “M,” (student: academic or vocational)  or “Q” (international cultural exchange visitor) visas. These individuals are in the country to study at an academic institution or vocational school.

They also must be complying with their visa requirements. This means that they are not doing anything that is illegal under U.S. immigration laws. 

If your family is staying with you while you are studying in the U.S., then they are also exempt from paying taxes. These family members include your spouse and unmarried children under 21 who live in your house and are not part of another family. 

Teachers, Trainees, and Taxes

As we mentioned earlier, teachers and trainees in the U.S. under J-1 visas are also exempt from paying taxes. The IRS includes many different roles in its definition of teachers and trainees. These are:

• Non-resident physicians
• Au pairs
• Short-term scholars
• Summer camp workers
• Any nonimmigrant in the U.S. on “J” or “Q” visa who is not a student
  

However, there are situations where fulfilling one of the above roles does not exempt you from paying taxes. In many cases, J-1 visa holders cannot be exempt from paying taxes multiple years in a row. If you were in the U.S. as a nonimmigrant exchange visitor for any part of 2 of the 6 preceding calendar years, and you were exempt during those stays, you will not be exempt again.

If that’s a bit difficult to digest, here’s an example to help:

Ana was in the U.S. as an au pair for a month in 2016. She was exempt from paying taxes. In 2019, she returned to the U.S. on another J visa as a student. Again, she was exempt from paying taxes. Now, in 2021, Ana is beginning a training program for a U.S. company. She will not be exempt from taxes during this stay. 

However, an individual may still be exempt from paying U.S. taxes during a third stay within 6 years if a foreign employer is paying them. In this situation, the U.S. will not be able to tax your income. Let’s talk more about J-1 visa tax exemptions due to foreign employers.

Foreign Employers and J-1 Visa Tax Exemptions

As an exempt exchange visitor, you are a nonresident alien individual in the U.S. This label affects whether or not you must pay taxes. Generally, this means that you will not be required to pay taxes on compensation you receive from a foreign employer while you are in the U.S. completing a training or internship program. 

Who qualifies as a foreign employer? This could be a nonresident alien individual, as well as a foreign corporation or partnership. It could also be a business or office located in another country, which is operated and/or owned by a U.S.-based corporation, partnership, or individual.

Are You a Dual-Status Alien?

You are a dual-status tax payer if, within the same year, you spend time both as a resident alien and nonresident alien. This means that J-1 visa tax rules about what you must pay are different throughout the year. You must figure out your J-1 visa resident status to determine your J-1 visa tax status.

First, let’s cover when you are considered a resident alien. You are a J-1 visa resident for tax purposes if you meet the substantial presence test (again, that’s 183 days or more), or if you meet the green card test. To pass the green card test, you have received lawful permanent residency in the U.S. (often in the form of an alien registration card, also called a green card).

However, there are some exceptions to being considered a resident alien, even if you pass the green card test or the substantial presence test. One of these exceptions is establishing a closer connection to a foreign country, which we will cover in-depth below. Another is through tax treaties. We will also discuss this more later.

When you are a resident alien, you will be taxed on all income sources. This includes income from a foreign employer, so long as you receive it while living in the U.S. as a resident alien.

During the parts of the year when you qualify as a J-1 visa nonresident alien, you will only be taxed on income coming from U.S. sources. 

If you become a resident alien during the tax year (and still are on the last day of the year), then you will need to file form 1040. This is a standard tax form for U.S. citizens. Since you have dual-status, write “Dual-Status Return” across the top of the page. Make sure to also include forms reflecting the parts of the year when you were a nonresident alien. You can do this using form 1040NR-EZ or 1040NR with your J-1 visa. Include “Dual-Status Statement” across the top of these supplemental pages.

If you have nonresident alien status at the end of the tax year, then you must file a 1040-NR. Again, write “Dual-Status Return” across the top of the form. To account for income received while a resident alien, J-1 visa holders can attach a 1040 with “Dual-Status Statement” across the top.

Tax Treaties and Exemptions

Depending on what country you came to the U.S. from, a J-1 visa tax treaty may affect the taxes you must pay here. You will need to look at the specifics of your country’s particular treaty with the U.S. to find out what applies to you (find that information here), but we will provide two examples.

1. If you were a resident of India before visiting the U.S., read on. Because of the India U.S. tax treaty, J-1 visa holders are exempt from taxes on income from research and teaching at recognized academic institutions. However, this exemption does not apply to researchers or teachers who stay in the U.S. for more than two years. You are also not exempt if your research is mainly for private benefit, rather than public benefit.
2. If you were a resident of China before visiting the U.S., and are a student, business apprentice, or trainee, then you are exempt from tax on certain income sources. These apply only to individuals who come to the U.S. to receive education, training, or other special expertise. They will not need to pay  J-1 visa income tax on: 

1. Payments they receive from abroad funding their education or training 
2. Grants or awards from tax-exempt organizations (ex: government)
3. Income (up to $5,000 per year) from performing personal services
   

Once you establish that you receive treaty benefits, it’s time to claim them. You can do this by filling out form W-8BEN. Aliens, students, teachers, trainees, and researchers may use form 8233. Sometimes, individuals will need to fill out form 8833. If you are struggling to figure out which J-1 visa tax form you must file, talk to your J-1 visa employer or the university where you are studying. Someone will be able to help you.

Please note that we are not tax experts at Intrax Global Internships. While we do our best to help you find accurate information to file your taxes, we are not professional accountants and cannot provide detailed tax advice. 

Instead, we partner with Sprintax, specialists in tax return prep for non-residents. If you come to us with a question we are unprepared to answer, we may redirect you to them to gain access to expert advice.

What Taxes Do I Not Have to Pay?

As a nonresident alien, the taxes you may have to pay could differ from those required by U.S. residents.

For example, you may be exempt from paying taxes on certain services. Because of rules by the IRS, J-1 visa holders receive certain exemptions. Specifically, nonimmigrant students, trainees, au pairs, counselors, researchers, interns and other foreign workers who qualify as exchange visitors are not liable for the J-1 visa social security tax or medicaid taxes.  

However, this exemption only exists for nonresident aliens. If you become a resident alien during your stay, then you will be liable for paying social security and medicaid taxes.

‍Exemption Through a Closer Connection

Let’s say that you are still not exempt according to any of the criteria laid out above. There is still another way you may be exempt from paying taxes. This is called the “Closer Connection Exception to the Substantial Presence Test.” At its core, it is used to demonstrate that an individual does not intend to immigrate to the U.S. and maintains closer ties to one or two foreign countries than to the U.S.

There are a few things that prove that you have a closer connection to countries besides the U.S. To prove you have a closer connection to one foreign country the IRS will take into account the country of residence you enter onto forms and documents as well as which documents you fill out. They will also take into consideration the location of your:

• Permanent home (or apartment or furnished room, so long as it is available for your use at all times)  
• Family 
• Belongings (cars, jewelry, etc.)
• Social, political, religious, and cultural ties
• Business activities outside of your tax home (more on that later)
• Driver’s license
• Voting registration
• Charitable organizations to which you donate   
  

You can also prove a closer connection to two foreign countries at one time if the following are all true for you:

• You maintain a tax home in a foreign country (starting on the first day of the current year). 

1. Note: the term “tax home” could mean owning an actual home where you regularly live if you do not have one consistent place of work. However, “tax home” could also refer to your main area of business. If there is no one place where you consistently live or work, then your tax home is located wherever you currently work.

• You moved your tax home to a second foreign country during the year and maintained it there for the duration of the year.
• You had a closer connection to both foreign countries 
• You had to pay taxes in either foreign country during the time where you conducted your business there
  

A huge condition of establishing a closer connection is that you have not tried to gain permanent legal residence in the United States. You are not eligible for the Closer Connection exception if you applied for or took steps to become a Lawful Permanent Resident at any time during the year. For example, if you received a J-1 visa waiver to avoid the two-year foreign residency requirement and pursue citizenship, you would not be eligible for the closer connection exception.

So long as you have not done so, you should be able to qualify for a J-1 visa tax exemption.

Next Steps on Your J-1 Visa Journey

We hope that the information above helps you sort out any questions you had about paying taxes, J-1 visa holders! Your time and energy are valuable to us and we are happy to help you apply them to your exchange visitor program rather than administrative details. 

If you’d like a more hands-on approach to getting your questions around taxes, exemptions, and treaties answered, consider registering for one of the following webinars:

• An Introduction to Nonresident Tax in the USA Monday December 13th @ 12.30pm EST – Register here
  
• An Introduction to Nonresident Tax in the USA Tuesday February 1st @ 1pm EST – Register here
  
• An Introduction to Nonresident Tax in the USA Monday March 21st @ 12pm EST – Register here
  

We want to connect you with quality tax resources so that you can focus your energies on cultural exchange and professional growth during your program.
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At Global Internships, our goal is to connect bright minds and quality employers across the globe. Come back to our site again for more in-depth information about visas and other fine points of your program. Let us work out the details so you can make the most of your program!

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