Planning opportunity for certain "J" visa holders.

• Author: Burbach, Julie
• Position: Brief Article

Foreign Income & Taxpayers

Foreign nationals with "J" visas working at U.S. branches of a foreign corporation or partnership can be exempt from U.S. tax on compensation. This is a significant benefit for foreign banks and other foreign businesses with branches in the U.S.

"J" visas are granted to alien students, scholars, teachers, trainees, professors, others of similar description, and their spouses and children, for the purpose of teaching, instructing, lecturing, studying, observing, etc. Holders of 'J" visas are generally taxed as U.S. nonresidents, provided they were not teachers, trainees or students for two out of the preceding six calendar years (Sec. 7701 (b) (5) (E) ); otherwise, the law treats them as residents if: they meet the substantial presence test (Sec. 7701 (b) (3) ). However, "J" visa holders all of whose compensation is paid by a foreign employer as described in Sec.872 (b) (3) are generally taxed as U.S. nonresidents, provided they were not teachers, trainees or students for four out of the preceding six calendar years. Additionally, such individuals are exempt from Social Security taxation (Sec. 3121 (b) (19)).

A nonresident alien is generally subject to U.S. tax on income from U.S. sources (Sec. 871). Nonresident aliens who are "J" visa holders, however, are provided an exception. Under Sec. 872(b) (3), compensation paid to F, J and Q visa...