Au Pair Income Tax Filing, by Jean Mammen, EA

An au pair in the U.S. on a J1 visa is participating in a cultural exchange program sponsored by an organization authorized by the State Department Bureau of Educational and Cultural Affairs. The au pair experiences life in an American family while providing child care for up to ten hours a day, not to exceed 45 hours a week.

The au pair must be enrolled in at least six semester hours of classes at a post-secondary institution. The au pair is not a full-time student. The DS 2019 issued by the sponsor is for a cultural exchange program participant (or trainee), not a student.

The au pair must receive a cash stipend.

The au pair will need to file a U.S. income tax return reporting the stipend, even if they do not receive a W-2 reporting the stipend amount. The tax and filing rules are the same for all J visa holders.
The usual au pair income tax reporting form will be a non-resident tax form. A non-resident form must be filed if a non-resident has any U.S. source income, whether or not any income tax will be due. ( IRC 1.6012-1(b)(1)(i)). Often the two-page Form 1040NR-EZ is suitable. The first page is the tax return. The last page, Schedule OI, or Other Information, asks about the foreign status of the filer.
The new tax law effective 2018 – 2025, the Tax Cuts and Jobs Act, eliminates the personal exemption and some deductions that a non-resident might have claimed. Thus, an au pair who files for 2018 on an amount of income similar to the 2017 income will have more taxable income, and likely pay higher taxes, even when the tax brackets and tax rates are more favorable in 2018.

The IRS has stated that Form 1040NR-EZ and Form 1040NR will not be updated for 2018. Thus, there may be lines on the income tax filing form that cannot be used, such as the personal exemption line.

Filing a State tax return. Check to see which filing form to use for the state, a non-resident form or a resident form. Some state rules say anyone who files a non-resident federal tax form also files a non-resident state form, if their income meets the filing requirement. Other states use their own residency rules to determine which form a foreigner should use. When you know which state form would be appropriate, check to see if taxable income by state rules meets the state filing requirement.

First Ever Visit to the U.S. by the J1 Visa Au Pair
A J visa holder who is a first-time visitor to the U.S. will file on a form for non-residents, Form 1040NR-EZ or Form 1040NR, for the first two calendar years. They will be a tax non-resident of the U.S. because they will not meet the Substantial Presence Test (SPT). They are eXempt from counting days spent in the U.S. as days of presence for SPT purposes for any period during those first two calendar years in the U.S. on a J visa. An au pair‘s placement might span two successive calendar years. It might run from June through May of the following year.

Preparing the forms: Gather the information and documents that will be needed
-Income information
-Passport
-Visa or visas
-Form DS-2019 issued by the sponsor agency
-Dates you were physically in the U.S. in the tax year and the two prior calendar years
-Print from the I-94 website all available information, especially the dates you entered and departed the U.S.

Form 8843 (Statement for Exempt Individuals…) is completed and attached to the Form 1040NR-EZ, or Form 1040NR, for each tax year where any days are eXempt from being counted for the SPT. Treas. Reg. 301.7701(b)-8(a)(2); 301.7701(b)-8(b)(2)

Form 8843: Complete it before starting on the income tax return itself. Its results show whether the correct income tax filing form is a non-resident or a resident tax form.

Find Form 8843 on the IRS website, https://www.irs.gov  , by searching Forms and Instructions. The instructions print out with the form.

Heading: on Form 8843: Since the au pair would attach Form 8843 to the non-resident income tax return, it is not necessary to enter the address in the U.S. on Form 8843 or to sign the form. Only the first page of Form 8843 will be required for a J1 visa au pair.

Questions 4a and 4b
4a – for the tax year and the two prior years enter the number of days ( Z ) you were actually physically present in the U.S.
4b – for the tax year, enter the number of days ( X ) that were eXempt from being counted for the Substantial Presence Test (SPT) because you were within the eXempt period on a J visa (or an F, M, or Q visa).

As stated above, the Z and X numbers are entered on Form 8843
The Y number will be entered on Schedule OI, Line H

X = eXempt days, not countable for SPT
Y = ‘present’ days that do count for SPT
Z = actual total days physically present in the U.S.

X + Y = Z, or, Z- X = Y

Form 8843 Part II Teachers and Trainees
Line 6 – An au pair cultural exchange participant would be treated like a Trainee. Enter the information for the person who signed your DS-2019.
Line 7 – complete
Line 8 – check ‘yes’ or ‘no’. The Line 8 information states that if you answer ‘yes’, you cannot exclude actual days in the U.S. for the tax year, unless you meet an exception. That exception could apply only to an individual on a student visa, not to a cultural exchange participant.

Third year, in U.S. on a J1 visa: A visa or program renewal year:
This situation will occur for a first-time visitor to the U.S. as a J1 au pair, only if they have renewed and are now in their third calendar year in the U.S.

A third calendar year au pair calculates whether or not they have met the substantial presence test (SPT) in the third year, to see if they should still file on a non-resident form, or if they have become a tax resident of the U.S.

Look at the Substantial Presence Test (SPT) before deciding whether to complete Form 1040NR-EZ or Form 1040 for the third year:

Substantial Presence in U.S. requires1 a Form 1040. The substantial presence test (SPT) is met when someone has 183 days of countable presence in the U.S., full or partial days, over up to three years, including arrival and departure days. 1Possible ‘student exception.’
If 31 day minimum in the U.S. in the tax year is met, count all tax year days present, plus
1/3 of days present in the U.S. in the immediate first prior tax year, plus
1/6 of days present in the U.S. in the second prior tax year. Add all fractions to the total.   IRC 7701(b)(3)(a)(i) and (ii)

If the J1 visa holder leaves the U.S. by the first few days of July of the third calendar year, likely they will not meet the SPT and will use the non-resident filing form.
But if the individual leaves the U.S. later in the year, their days present will be greater than 183, they will have met the SPT, and they will use the tax resident form (Form 1040).

Completing Form 1040NR-EZ, Page 1
Some online software does not include a Form 1040NR-EZ, Form 1040NR, or Form 8843. You might need to use a fill-in the forms feature and even have to calculate the tax due yourself. You might be unable to file electronically and have to print and mail in the forms.

Getting Ready
On the IRS website, https://www.irs.gov , search Forms and Publications, search for Instructions for Form 1040NR-EZ. Look through the instructions. Print out any pages you want to have at hand.

Choose a data entry method: online software, fill-in the forms, print forms and complete by hand, or, consult a tax professional.

Gather the information you will need on income, deductions, passport and visa, dates…

Complete the heading information, then
On Line 1, check either single or married.
Line 3, enter the total stipend received during the tax year
Line 10 – enter the appropriate number. Probably the same as the number on Line 3
Line 11 – Itemized Deductions: If you paid any state tax during the year, whether by withholding, making estimated payments to the state, or, in your second calendar year, paying the balance due on the first-year state or local income tax return, enter that amount here. No other type of itemized deduction may be entered here. (Use Form 1040NR instead if you want to claim other itemized deductions)
Line 12 – follow the instructions
Line 13 – enter -0- if this line is still available on the 1040NR-EZ tax form.
Line 14 – Taxable Income
Line 15 – Tax : Calculate this using the tax table in the instructions that applies to your personal status, single, or, married.
Lines 18 and 19, 20 and 21 – enter any tax payment already sent to the IRS
Determine if you are due a refund (Line 21) or you owe the IRS (Line 25)
If you owe more than $ 1,000, you may also owe a penalty, Line 26, which you include in the Line 25 amount.

Completing Schedule OI
Complete Lines A, B, C, D
Line E – Enter J if your visa is still valid for entry into the U.S. If your visa expiration date had passed and it could no longer be used to enter the U.S., enter “no immigration status”.
Line F The question says “ever”. If you changed visa type during the calendar year, the three-year SPT period, or the prior six-year period, check ‘yes’ and describe the change and date of change.

Line G – Enter in the boxes only dates within the calendar year.
If you need help, with the dates, visit the I-94 website, enter your passport number, and print out whatever pages are available to you. One of them will show the dates you entered and departed the U.S.

If you were in the U.S. on or before January 1, enter January 1. If you departed before December 31, stop after you enter your last departure date.

Line H – Enter the number of countable days of presence for meeting the SPT for each of the three years listed, the tax year and the first two prior years. If you were not in the U.S., enter -0-. If you only were in the U.S. on a J visa in either the first or second calendar year of eXemption from counting days in the U.S. as days of presence, enter -0-. If you also were in the U.S. on countable days, such as a 15-day tourist visit, enter the number (!5).

Remaining Lines – answer any yes/no question as required. Questions 2 and 3 likely are ‘no’.

Earlier visits to the U.S.
As a tourist only, not on an F, J, M, Q Visa
Apply the Substantial Presence Test (SPT)
On an F, J, M, Q visa, as either the principal or a dependent
See blog post on Second Visit to the U.S.  http://blog.1040nror1040.com/2015/07/03/second-visit-or-multiple-visits-to-the-u-s-changing-statusvisa-u-s-tax-obligations-by-jean-mammen-ea/

FICA and Tax Resident Filing
If the au pair will file as a tax resident because the SPT has been met, the employer must pay / withhold FICA – social security and Medicare tax – on the wages
The employer pays through
–Withholding, or,
–Schedule H attached to the employer’s own tax return

Leaving the U.S.
The au pair may need to obtain a sailing permit from an IRS TAC office to leave, if the employer has not withheld income taxes and provided a W-2. See blog post on Sailing Permit. http://blog.1040nror1040.com/2018/06/04/not-a-u-s-citizen-leaving-the-u-s-returning-before-filing-a-current-year-u-s-tax-return-not-planning-to-return-by-jean-mammen-ea/
The income tax form for a given year is filed the following year. The au pair probably will have left the U.S. before it is time to file the final U.S. income tax return. They should file whether or not they owe taxes. It can be important to demonstrate that they do not owe taxes.

Not a U.S. Citizen? Leaving the U.S.? Returning Before Filing a Current Year U.S. Tax Return? Not Planning to Return?, by Jean Mammen, EA

What could go wrong?

You might be unable to depart, or, refused re-entry into, the U.S. if:

You were required to obtain a sailing/departure permit before you left, and did not do so.

You were not required to obtain a sailing/departure permit, but you are not carrying convincing documentation on you, perhaps including your most recent income tax returns, that proves this.

Many non-citizens are not required to obtain a sailing or departure permit, (certificate of compliance with tax obligations), but some are. Do you know whether or not you need a sailing or departure permit?

Or maybe in the past you went to an IRS Taxpayer Assistance Center and tried to apply for a sailing or departure permit, but were met by blank looks and sent away. And you had no problem leaving or re-entering the U.S.

What is different today?

With today’s work emphases for Customs and Border Protection Agents, do your best to protect yourself from being refused departure from or re-entry into the U.S. Obtain a sailing or departure permit, if required, and present it, or documentation showing you are excused from needing a permit,  when you leave the U.S.

What is a Sailing or Departure Permit?

A sailing permit is a certificate that a non-U.S. citizen is or will be in compliance with their obligations under the U.S. tax code for the year of departure or the preceding year.

The certificate is part of each of the two tax forms that the taxpayer might need to submit for approval at an IRS Taxpayer Assistance Center.:

Form 2063  U.S. Departing Alien Income Statement-   Submitted by

1) A resident alien* who has not received a Termination Assessment, (see Completing Form 2063) or,

*resident alien by having a green card, or meeting the substantial presence test (SPT)

2) A non-resident alien with no taxable income from U.S. sources

Form 1040-C   U.S. Departing Alien Income Tax Return

This is not the annual, final income tax return. Form 1040, or Form 1040NR, must be filed as usual. On Form 1040-C, you calculate what the full year income and tax is expected to be. If it shows a potential balance due, usually that must be paid when submitting Form 1040-C for it to be approved and the certificate of compliance issued.

When is the Sailing Permit Issued?  If the form (2063 or 1040-C) is approved, the blank certificate which is part of the form is completed and signed by the IRS agent.  Copies are provided to the taxpayer for presentation to the Border and Customs Protection officer.

The Appointment for the Sailing Permit

Take the completed form (2063 or 1040-C) and all supporting documentation to the appointment. Be able to confirm taxpayer status, income, taxes paid or withheld, exclusions, deductions, treaty benefits.

Phone well in advance to make a timely appointment at an IRS TAC – Taxpayer Assistance Center https://apps.irs.gov/app/officeLocator/index.jsp

https://apps.irs.gov/app/officeLocator/index.jsp

Or, on the main page of the IRS website, scroll to the bottom and click on: Find your local office. Enter a zip code to find a TAC near where you work, or where you will leave from.

Click on a listed office, and, under “Services Provided”, look for: Alien clearance (sailing permit).

The best appointment dates will be between 30 days and 14 days in advance of your planned departure date. The certificate cannot be issued more than 30 days in advance. If there are complications, you want to have enough time to resolve them before your planned departure date.

Who Does Not Need a Sailing Permit? (Am I excused from needing a sailing/departure permit?)

Category # 1 – Foreign diplomats with an A1 or A2 visa, and

Category # 2 international organization staff with a G1, G2, G3, or G4 visa

The Exceptions apply:

  1. If the emoluments received from the organization that sponsored the visa are not taxable by the U.S.,
  2. if the visa holders do not have any U.S. source income on which they must file a U.S. tax return,
  3. they did not obtain a U.S. green card and sign the USCIS I-508 waiver, per IRC section 247 requirements.
  4. FYI: An A3 or G5 visa holder, personal staff of an A 1 or 2 or a G 1, 2, 3, or 4 visa holder, will need a sailing permit only if they are not travelling in the company of their visa sponsor.

Category #3 Students, industrial trainees, and exchange visitors, their spouses and children on F1, F2, H3, H4, J1, J2,or Q visas, whose only U.S. source income were allowances to cover expenses, the value of food, services or lodging connected with their program, or from employment authorized by USCIS, or interest on bank deposits not connected with a U.S. trade or business.

Category #4 Students, spouses and children on a M1 or M2 visa, whose only income from U.S. sources is from employment authorized by USCIS, or interest on bank deposits not connected with a U.S. trade or business.

Category #5 A catchall group of visitors and trainees with no U.S. taxable income during the tax year or the preceding tax year, including military trainees, those on a B1 or B2 visa, in transit, entering on a border crossing card, or in the U.S. for 90 days or less.

Category #6 Residents of Canada or Mexico who are frequent commuters to work in the U.S. and whose U.S. wages are subject to withholding.

 

Completing Form 2063 – U.S. Departing Alien Income Tax Statement

IRS describes Form 2063 thusly:

This form is used to request IRS certification that all U.S. income tax obligations have been satisfied by:

A resident alien* whose taxable period has not been terminated, or

A departing non-resident alien having no taxable income from U.S. sources.

*Resident alien by meeting either the green card or the substantial presence test

The two-page Form 2063 includes a blank certificate on page 1, to be completed by the IRS.

The form’s sub-headline adds: a resident alien against whom a Termination Assessment has not been made. In the instructions for Form 1040-C, a Termination Assessment is described as a demand for immediate payment of income tax for the current and immediately preceding year. Generally, the IRS calls for immediate payment if there may be indications that the taxpayer and/ or the taxpayer’s assets may suddenly become unfindable for tax purposes.

26 U.S. Code section 6851, titled Termination assessments of income tax, states in (a)(1), Authority for making, in general:

“If the  Secretary finds that a taxpayer designs quickly to depart…or…do any other act …tending to prejudice …proceedings to collect the income tax for the current or the immediately preceding taxable year…the Secretary shall immediately make a determination of tax,,,. The Secretary shall immediately assess the amount of the tax … shall cause notice of such determination and assessment to be given the taxpayer, together with a demand for immediate payment…”.

The list of possible ‘other acts’ by the taxpayer includes:

Remove his property from the U.S.

Conceal himself or his property therein

A corporation distributing all or part of its assets in liquidation or otherwise

The taxpayer signs the form under penalties of perjury, affirming that he has examined the statements on it and that “to the best of his knowledge and belief, they are true, correct, and complete”.

Completing Form 1040-C

Form 1040-C is used by both Form 1040 filers and Form 1040 NR filers. It has two main pages, with the blank certificate of compliance on the second page,

Two pages of schedules follow, labelled

Schedule A – Income,

Schedule B – Certain gains and losses from sales or exchanges

Schedule C – Itemized deductions

Schedule D – Tax computation

The instructions run 10 pages, including the current year  tax rate schedule

The instructions start with “What’s New” which outlines how tax code changes such as the Tax Cuts and Jobs Act (TCJA) affect current year taxation. They explain how TCJA  applies to the two individual final tax returns,  Form 1040 and Form 1040NR.  They point out when 2017 tax code can be used for sections of the form. And they point out that there may be further tax code changes after the date you complete the 1040-C, which may affect your final income tax return for the year.

The form and instructions are generally self-explanatory. Read them thoroughly. A few notes:

Page 3 – Refund – If Form 1040-C shows you have overpaid the required taxes, a refund will be paid out only after you file the final form and it, too, shows a refund.

Page 3 – Exceptions to Needing a Sailing Permit – the full list is printed.  The waiver of non-immigrant privilege that, if signed, disqualifies a taxpayer from this exception is the USCIS I-508, IRC section 247 waiver signed by applicants for a green card.

Page 4 – Records you should bring to the appointment at the IRS TAC office when applying for the certificate of compliance

Page 4, Note, – Additional documents a married taxpayer living in a community property state needs to bring about the spouse’s situation. Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin. Each community property state has different community property tax rules. If you have moved from one community property state to another, be clear on the rules that apply.

Page 5 – Residency tests: green card and Substantial Presence Test (SPT) rules.

Page 5 – Dual-status tax year considerations

Page 5 – Tax under IRC Section 877 – Aliens who were U.S. citizens or long-term residents and have expatriated follow special tax rules. This note points out that affected tax payers use the Section 877 rules when completing Form 1040-C.

Page 6 – Various taxes a taxpayer might need to include on Form 1040-C tax calculation, such as social security tax, net investment tax, and household employer tax.

Page 7, line 5, and Note, and page 8 – income exempt by the Internal Revenue Code. All the examples on page 8 concern income that is exempt from U.S. income tax by provisions in the IRC.

None of them are related to treaty-based exclusions.

Looking at Form 1040-C

Line 4 asks if the taxpayer has a permit to reenter the United States.  This could be any document which states that it is valid for re-entry into the U.S. It could be a visa, a border crossing card, a work authorization card, etc.

Line 5, as noted above, asks if the taxpayer signed the USCIS I-508 waiver, concerning IRC section 247, while applying for a green card.

The taxpayer signs the form under penalties of perjury, affirming that he has examined the statements on it and that “to the best of his knowledge and belief, they are true, correct, and complete”.

https://www.irs.gov/pub/irs-pdf/i1040c.pdf

 

 

 

 

 

ITIN’s Expiring December 31, 2017, Announced June, 2017, by Jean Mammen, EA

See the link at the end for the complete IRS FAQ on which ITIN expire and how and when to renew.

IRS has annouced that ITIN’s that will expire on December 31, 2017, are ITIN’s that:

-were not used on an income tax return filed for 2014, or 2015 or 2016, or,

-whose middle two numbers are 70, 71, 72, or 80

If an expiring ITIN will be used on a tax return you will file for 2017, IRS advises you to begin the renewal process “immediately” and not wait for the CP-48 notice that you will be mailed over the summer. IRS estimates 7 weeks as the time it would take to process an ITIN renewal request.

If an ITIN for one person shown on a tax return will expire, then all individuals shown on that tax return may apply for a renewal.  Yes, it could be a good idea to get everyone on the same cycle.

Original official documents are required to support the W-7 renewal application. Ideally, the applicants can work with an IRS authorized Certifying Acceptance Agent (CAA) or visit a designated IRS Taxpayer Assistance Center (TAC)  so that they will not need to mail important documents with their application.

The Form W-7 must be the version with the revision number 9-16, not an older version of the form.

https://www.irs.gov/individuals/itin-expiration-faqs

https://www.irs.gov/individuals/acceptance-agent-program

https://www.irs.gov/uac/tac-locations-where-in-person-document-verification-is-provided