J Exchange Visitors: Resident Or Nonresident
A foreign national's immigration status and countable days of U.S. presence over a three-calendar year period determine the foreign national's U.S. tax residency status. Foreign nationals' U.S. tax residency status determines the federal tax return that they must file as well as the withholding and reporting rules that their employers and payers must apply to their income payments. Residency status can also determine if income tax treaty benefits are lost or maintained.
Nonimmigrants are resident aliens if they are physically present in the United States at least 31 countable days in the calendar year in question, and their U.S. presence over a three-calendar-year period satisfies the 183-day residency formula (called the “substantial presence test,” or “SPT”), unless an exception applies. There are two exceptions that can apply to J Exchange Visitors.
J-1 Exchange Visitor Programs provide for various categories of exchange visitors and define the rules that apply to each category. For tax policy reasons, foreign nationals in J Exchange Visitor status do not count their days of U.S. presence for purposes of the 183-day residency formula for a specified number of calendar years, thus remaining nonresident aliens for U.S. income tax purposes longer than most other nonimmigrants. These foreign nationals are referred to as “exempt individuals” for the periods that they are exempt from counting days for purposes of the 183-day residency formula.
A J-1 Exchange Visitor's category determines which special exceptions apply for counting days. One rule applies to “students” and another rule applies to “teachers and trainees.” “Students” are J Exchange Visitors present in the United States in the student category. “Teachers and trainees” are J-1 Exchange Visitors in all other J categories. (You can find the category on the Exchange Visitor's Form DS-2019, Certificate of Eligibility for Exchange Visitor Status). For purposes of this article, “teachers and trainees” are referred to as J Nonstudents. The tax rules apply to spouses and other dependents in the United States in J-2 derivative status as well as to the J-1 principal.
5-Calendar-Year Rule for J-1 Students
A special 5-calendar year rule applies to maintain nonresidency status for J-1 Students. J-1 Students are exempt from counting U.S. days for purposes of the 183-day residency formula for 5 calendar years. J-1 Students in the United States for more than 5 calendar years must generally begin counting U.S. days for purposes of the 183-day residency formula. Just one U.S. day in the calendar year counts as one calendar year for purposes of determining exempt years. This is a once-in-a-lifetime test. J-1 Students who have been exempt from counting U.S. days for 5 calendar years (beginning in 1985, the first calendar year for which the 183-day residency formula was effective) must count their U.S. days for purposes of determining their U.S. tax residency status. In the typical situation, a J-1 Student must begin counting days in the 6th calendar year in the United States as a student. However, the individual must also take into consideration calendar years as an exempt individual in any F, M, J, or Q immigration status in the prior years as well.
The rules allow students to continue to be exempt from counting days for purposes of the 183-day residency formula if they can prove to the IRS their intent not to reside permanently in the United States. This extension is claimed on a supplementary statement that is filed with Form 8843.
2-out-of-7-Year Rule for J-1 Nonstudents
A special 2-out-of-7 calendar year rule exempts J-1 Nonstudents such as trainees and short-term visitors from counting days for purposes of the 183-day residency formula. Under this exception, a J-1 Nonstudent who has not been in the United States as an exempt individual at any time in the prior 6 calendar years is a nonresident alien for tax purposes. In the typical situation, a J-1 Nonstudent is a nonresident alien for two calendar years in the United States. J-1 Nonstudents in the United States for two years or longer become resident aliens in their 3rd calendar year when their U.S. days add up to 183 days. J-1 Nonstudents who have been in the United States as exempt individuals before, for example as F-1 or J-1 Students, will become resident aliens sooner if those years are in their prior six calendar years.
Paula N. Singer, Esq. chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA, has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: email@example.com.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.