The IRS deems J-1 visa holders as “nonresident aliens” who are required to file 1040 tax forms and pay federal, state and local taxes. There are important exceptions to these rules, however for students, teachers, and trainees. These IRS defines these as:
- Student refers to any alien individual (and that individual’s immediate family) who is admitted temporarily to the United States on an “F” or “M” visa or as a student on a “J” or “Q” visa, and who substantially complies with the requirements of that visa.
- Teacher or trainee refers to any individual and that individual’s immediate family other than a student, who is admitted temporarily to the United States on a “J” or “Q” visa, and who substantially complies with the requirements of that visa. In general, the term includes any alien individual present in the United States on a “J” or “Q” visa for a purpose other than studying. For example, alien physicians, au pairs, short-term scholars, and summer camp workers in “J” visa status; and cultural exchange visitors in “Q” status are all within the definition of “teacher or trainee”.
There is also a limit on the number of years a J-1 alien can be considered an “exempt individual” student, teacher, or trainee and exclude U.S. days of presence for purposes of the Substantial Presence Test. The time limit depends on whether the J-1 alien entered the United States as a “student” for the purpose of studying at an academic or vocational institution or as a “teacher or trainee” for the purpose of teaching, conducting research, or receiving on the job training.
For Students there is the five calendar year rule:
A J-1 alien can exclude U.S. days of presence as a “student” for purposes of the Substantial Presence Test for up to five calendar years. The five-year limit is a lifetime limit that can’t be renewed but may be extended if certain conditions are met.
Teacher or trainee – two calendar year rule:
Generally, a J-1 alien cannot exclude U.S. day of presence as a “teacher or trainee” for more than two calendar years. There is a four year exception subject to certain conditions, the two-year teacher or trainee limit can be extended up to four calendar years.
However, unlike the student limit which is a lifetime limit, the teacher or trainee limit can be renewed.
- For examples of the application of the tax residency rules in various situations involving students, teachers, and another category of individual that is subject to U.S. tax obligations includes L-1 Visa holders. However, unlike a J-1 visa holder, Legal Permanent Resident or U.S. Citizen, an L1 visa holder must meet the substantial presence test (as defined above) before they are considered a U.S. person for tax and offshore reporting purposes. If they are considered a U.S. person, they may need to file a:
- U.S. Tax Return (1040) – See FAQ #4 below for additional details.
- FBAR (FinCEN 114) – See FAQ #6 below for additional details.
- FATCA Form 8938 – See FAQ #6 below for additional details.
- Form 8621 PFIC – See FAQ #7 below for additional details.
- Form 5471 – See FAQ #7 below for additional details.
- Form 8865 – See FAQ #8 below for additional details.