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Posted by A.G. Kalman on September 6, 2007, 4:10 am
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reaz wrote:
>> reazwrote:
>>> I am a J1 Scholar from Pakistan and getting my earnings,
>>> funded by Government of Pakistan as research scholarship.
>>> When I came here in USA, (in 2006), I filed the tax treaty
>>> exempt (form 8233) since Pakistan and USA has the treaty.
>>> After filing 8233 for the following two years (i.e., 2007
>>> and 2008), it seems in my earning statement that my salary
>>> wasnt dedcucted by the payroll for any tax. But when I got
>>> my earning statement in April 2007, it showed me that my
>>> salary was deducted for two kind of taxes, namely;
>>> Fed-Studying/Trng Tax Trty and IL - Studying/Trng Tax Trty,
>>> and after that until now every month my salary is being
>>> deducted by the same taxes. When I asked to my payroll
>>> office they replied me as following:
>>>
>>> "Fed-Studying/Trng Tax Trty and IL -Studying/Trng Tax Trty"
>>> are indicators that I am receiving tax treaty benefits for a
>>> portion of my income. Once the benefits have been used I am
>>> then taxed appropriately for my tax residency status,
>>> non-resident or resident alien".
>>>
>>> I have some questions:
>>> 1) what is tax treaty benefit?
>>> 2) If it's a BENEFIT, then why the amount is deducted and
>>> reducing my salary?
>>> 3) Should I get this deducted money back at the end of year
>>> through IRS as I got my taxes back last year?
>>> 4) How the way for filing this amount, to get back through
>>> IRS? I mean which form..?
>>> 5) Should I consider these two taxes same as the normal
>>> taxes which normally one's get back at the end of
>>> financial year??
>> First reply seems to have disappeared in the ether.........
>>
>> If you are asking what is a tax treaty benefit, then I have
>> to ask what did you enter in Part II of Form 8233 and what
>> statement did you attach to the 8233? This is the section
>> that identifies the tax treaty article and the amount exempt
>> from withholding.
>>
>> Given your statement, I have to assume that you invoked
>> Article XIII paragraph 1. This exempts $5,000 of personal
>> compensation from tax and it exempts from tax all the funds
>> you receive from abroad for maintenance, education and
>> training. As such, any amount in excess of $5000 of
>> compensation is subject to tax and tax withholding.
>>
>> J-1 visa holders are exempt from the substantial presence
>> test and are considered to be nonresident aliens. As such,
>> only your income effectively connected to a trade or
>> business in the U.S. is subject to tax. E.g., your
>> compensation for services is taxable.
>>
>> Lastly, you still have to file a federal 1040NR or 1040NR-EZ
>> tax return to report your income and claim any tax treaty
>> exemption. The tax treaty exemption gets reported on Form
>> 8833 that you attach to the 1040NR.
>>
>> As you reside in Illinois and have Illinois source income,
>> you are obligated to file an Illinois state income tax
>> return. I am not familiar with Illinois law as it relates to
>> federal income tax treaty exemptions. However, Illinois
>> starts with federal AGI. As your federal AGI would not
>> include the $5000 of exempt income, I am almost sure that IL
>> would not tax that income.
> Many Thanks for the reply, yes I do remember that in the
> form 8233 there was an exempts $5,000 of personal
> compensation from tax . I guess when I apply for the tax
> return then I should ask for this deduction too, right.?
When you file your tax return, you need to include Form 8833
in order to exclude the $5000. As a J-1 visa holder, you
must also file Form 8843 with your tax return.
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