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Subject Author Date
about Tax Treaty benefit ?? reaz 08-21-2007
Posted by reaz on August 21, 2007, 11:53 pm
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 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??

Thanks all you in advance.
I am looking forward to you guys.

REAZ

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Posted by reaz on August 27, 2007, 2:12 am
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> 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??
>
> Thanks all you in advance.
> I am looking forward to you guys.

Plz reply me.. thankx

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by A.G. Kalman on September 3, 2007, 10:13 pm
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reaz wrote:

> 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.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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