My husband is a UK post-doctoral researcher on a J-1 visa (and I am on a J-2). He is about 18 months into his position (we have renewed the visa once). He has not been paying any federal income tax on his salary due to the US-UK tax treaty that says that J-1 workers from the UK don't have to pay tax for the first two years. However, the treaty also says that if you stay even a day over the two years, you have to pay all the tax back. This will be a big chunk of money and, naturally, we don't want to give it back to the IRS if at all possible. I have two questions 1) Is there any way that we could leave the country for a couple of months just before the two years are up and then come back, with my husband getting a new contract? What visa could we come back on? Would we have to reapply for social security numbers, etc.? 2) If we did stay over the two years and have to pay the pax back, how does the IRS go about claiming it back? One lump sum? Doubled income tax deductions from then on? And what about if you wanted to leave the country before it was all paid back?
I don't know the ins and outs of J-visas, but to answer a few of your other Qs...
Is there any way that we could leave the country for a couple of months just before the two years are up and then come back, with my husband getting a new contract?
What visa could we come back on?
I don't know the answers to these questions, but I would assume that a 2-year Home Residency Requirement would kick in at some point, before being eligible for another non-immigrant visa.
Would we have to reapply for social security numbers, etc.?
The social security number is yours for life, so you don't need to reapply. The INS may or may not change your A-number, but this isn't really anything for you to worry about.
If we did stay over the two years and have to pay the pax back, how does the IRS go about claiming it back? One lump sum? Doubled income tax deductions from then on?
You file a federal tax return (1040) which would show that you owed a lot of money - as a US resident (by IRS definition), you are obliged to do this. If you do not pay them before April 15th of the following tax year, then they will charge you a penalty and interest on the amount. Your following years estimated tax would be higher, and you would be expected to pay more tax throughout the year. You can be penalised for owing the govt. more than a certain % of your tax bill, so it is worth not putting off until the following April. A lot of people with unpayable tax bills take out consumer loans to enable them to spread the payments, and avoid penalties and IRS interest; obviously there is interest to pay on the loan.
And what about if you wanted to leave the country before it was all paid back?
You would still owe the money, which you could pay from the UK. If you walk away from this debt, you jeopardise your chances of ever going back to the US.
...I would assume that a 2-year Home Residency Requirement would kick in at some point, before being eligible for another non-immigrant visa.
Just wanted to note that my husband is NOT subject to the 2-year Home Residency Requirement (most J-1 workers from the UK are not subject to it).
I sat in my kitchen a few years ago going through this very thing with a friend of mine working at Fisk University in Nashville on a research project. He had to pay everything month out of his salary, this years', last years' and then the year befores' taxes. Oh boy, three years worth a month, prorated. If came down to the fact he would have been better of paying it as you would normally home. He then could have applied for an adjustment of status on the third year. J-1 one is good for two years, with a one year additional waiver. You cannot get a new J-1, you have to apply for adjustment of status or go home. His pay was pitiful every month after they had cleaned him out
Has anybody tried this
Stay in the US for just under two years on a J-1 visa, ask your work to sponsor you for an H-1B visa, go home for a few weeks, and then come back into the country on the H-1B? Normally people just convert their J-1 into an H-1B in the US, and don't leave the country inbetween. But if you do that, you overstay the two tax-free years on the J-1. By leaving the country it seems that you would be able to keep the two years' tax-free salary and then just start paying tax normally after returning on the H-1B.
I can't see why this wouldn't work, but if anyone has any experience of doing this, I would love to hear from them!