Authored by Veronica Rhodes from TFX
An exchange program in the United States can be a life-changing experience. You get the opportunity to gain valuable skills and knowledge and get a taste of the American way of life. But there’s also one thing you shouldn’t forget: your J-1 visa tax return.
The Exchange Visitor Program has allowed millions of people from every corner of the world to work, study, and live in the United States. Visitors who enter the U.S. through this program, also known as J-1 visa holders, are subject to federal and state laws – including taxes.
Here’s a quick guide to taxes for J-1 visa holders, including what taxes to pay, what forms to file, and everything in between.
4 Tax Tips for J-1 Visa Holders
What’s My Tax Status as a J-1 Visa Holder?
The Internal Revenue Service, the U.S. government agency responsible for collecting taxes and enforcing the federal tax code, uses the Substantial Presence Test to determine the tax status of resident and nonresident aliens.
As a J-1 visa holder, you can exclude up to five calendar years of U.S. days of presence for purposes of the Substantial Presence Test. That means the IRS considers you a nonresident alien for tax purposes for the first five years of your stay.
What Taxes Do I Need to Pay as a J-1 Visa Holder?
Unlike resident aliens, who are taxed on their worldwide income, nonresident aliens only pay tax on U.S.-sourced income.
You are required to file a J-1 visa tax return, but your tax liability depends on how much you earn and where you live and work, as tax rates vary by state. Nonresident aliens are required to pay federal and state income taxes on:
- Employment income (salaries, wages, fees, and gratuities)
- Interest and dividends
- Awards and prizes
- Scholarships, fellowships, and grants
The American federal income tax rate is progressive, with 7 tax brackets ranging from 10% to 37%. Here are the tax brackets for tax year 2021:
- 10% on incomes up to $9,950
- 12% for incomes over $9,950
- 22% for incomes over $40,525
- 24% for incomes over 86,375
- 32% for incomes over $164,925
- 35% for incomes over $209,425
- 37% for incomes greater than $523,600
You may also need to pay state income tax in addition to federal income tax. The rate depends on what state you live in. Some states charge an income tax while others do not.
Finally, as a nonresident J-1 visa holder, you are exempt from Federal Insurance Contributions Act (FICA) tax. FICA taxes fund federal Social Security and Medicare programs. If your employer deducts this from your paycheck, you should apply for a tax refund.
What do I Need to Start Working in the U.S.?
As a general rule, J-1 visa holders are only allowed to work for their program sponsors. In some cases, however, you may be allowed to work outside the program if you meet certain requirements.
Either way, you will need a Social Security Number (SSN) or an Individual Tax Identification Number (ITIN) if you are interested in working in the U.S. All tax-related documents, including your tax returns, require a taxpayer identification number.
If you are not eligible for an SSN, and expect to receive an income from scholarships, fellowships, or grants, you will need to apply for an ITIN. You will also use your ITIN when filing a tax return, claiming a refund, or claiming a tax treaty benefit.
What Forms Do I Need to File My J-1 Taxes?
Nonresident aliens are required to file a Form 1040-NR, or a U.S. Nonresident Alien Income Tax Return, if they earn income while living in the United States. It’s important to remember that Form 1040-NR-EZ has been discontinued for tax year 2020 and later.
If you have received a salary or any other form of compensation from your program sponsor or employer, they should provide you with a Form W-2. You may need this document when filing your tax return.
If you didn’t earn any money during your stay in the United States, file a Form 8843, also known as a Statement for Exempt Individuals, instead.
If your country of origin has a tax treaty with the United States, you may be eligible for certain federal tax exemptions or rate reductions. Make sure to do your research to reduce your tax liability.
A Final Word
J-1 tax obligations are a complicated matter and mistakes on your tax forms can lead to penalties, fines, or worse.
If you need a consultation about J-1 taxes, or if you need help with your tax return, consult TFX (Taxes for Expats), your tax professionals, so you can get back as much money as possible.