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How COVID-19 has affected the tax obligations of US Exchange Visitor Program participants

May 14, 2020

Every year more than 300,000 people travel to the US to live, work and study as participants of the US Exchange Visitor Program. However, the outbreak of COVID-19 has wreaked havoc for this year’s participants.

Many have seen their program cut short and have had to return home. Meanwhile, countless others have spent the lockdown in the US, unable to travel back to their home country.

The pandemic has had a big effect on the tax requirements of J visa holders too. To assist you in guiding your participants, we’ll take a quick look at a few of the unusual circumstances that COVID-19 has brought up for participants of the Exchange Visitor Program.

Let’s get started.

In January 2020, I travelled to Dallas from my home city of Buenos Aires in Argentina to start my program. However, in March my program was cancelled due to the COVID-19 pandemic. My Sponsor has paid for my flight back to Argentina. Should I pay tax on the cost of the plane ticket?

This has been a common scenario for many participants around the US. In short, if your program Sponsor pays for your trip back to your home country, this will be considered taxable income.

You must pay any required tax on this income and details of the cost of your flight should be included on your W-2 tax form (box 1) from your employer. This will be reported as 2020 income, so it will be reported in your 2020 tax return which you’ll complete in early 2021.

In February 2020 I arrived in California to start my program. Sadly, my program was cancelled after only a few weeks due to the pandemic. However, I was unable to travel home to Peru as the borders were closed. Thankfully my Sponsor is paying for my food and accommodation while I stay in the US until it is safe to travel home. Do I have to pay tax on the cost of the accommodation and food I have received from my Sponsor?

Countless Exchange Visitor Program participants are currently experiencing this exact scenario in the US. Similarly to the case study above regarding flights, if your visa Sponsor is paying for your food and accommodation, this will be considered taxable income. You are obliged to pay the required tax and to report this income as part of the tax return that you will submit to the IRS in 2021.

My program was cancelled after only a few weeks due to the pandemic. Do I still have to file a tax return? What happens if I don’t file?

Even if your program was cancelled prematurely, you still have a US tax filing requirement. If you visited the US in 2020, you should file your documents in 2021. Any income you earned in the US should be reported on a 1040NR or 1040NR EZ. If you did not earn any income you should file a form 8843. If you do not fulfil your US tax requirements, you may be hit with fines or penalties. And, if you’re planning to return to the US, it’s important to meet your tax obligations. By not filing you may jeopardize your future US visa applications.

I am in the US on a J-1 visa. I have lost my employment due to the COVID-19 pandemic. Am I entitled to receive the $1,200 Economic Impact Payment?

The majority of J-1 visa holders are considered nonresident aliens for tax purposes in the US.
The Economic Impact Payment can be claimed by US citizens, permanent residents and residents for tax purposes (individuals who can pass the Substantial Presence Test) who:

  • have a valid Social Security Number (SSN)
  • have filed their 2018 tax return (in 2019), or their 2019 return (in 2020)
  • will be considered a qualifying resident alien for the 2020 tax year
  • could not be claimed as a dependent of another taxpayer for 2020

In order words, nonresident J-1 visa holders are not entitled to receive the payment. There are a handful of scenarios where J visa holders will be entitled to claim the payment, but these are very limited circumstances.

You can claim the Economic Impact Payment if you hold a Green Card or you can pass the Substantial Presence Test. You can complete the Substantial Presence Test to determine your tax residency status for free by using Sprintax.

What do I do if I have already received an Economic Impact Payment?

You may receive the Economic Impact Payment if you filed a resident tax return for either 2018 or 2019. In this scenario, you should double check whether or not you should have filed your previous tax return as a resident. If your tax documents were not filed correctly, you should amend them and return the payment to the IRS. You can find more details on how to do this here.

 

You can learn more about tax guidance for your participants in our WYSE webinar:
Tax check-in: Stimulus checks and US Exchange Visitor Program participants

 

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