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about Tax Treaty benefit ??

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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Reply to
reaz
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Plz reply me.. thankx

Reply to
reaz

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.
Reply to
A.G. Kalman

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