The Finer Details Of The Employer Tax Requirements

Hiring international talent through the J-1 Exchange Visitor Program offers U.S. employers access to diverse, global talent while supporting cultural and educational exchange. However, many host companies are unsure about the tax responsibilities associated with bringing on J-1 Interns and Trainees in the United States.

Our blog article outlines key tax requirements for U.S. employers hiring J-1 Interns and Trainees, including FICA exemptions, withholding obligations, and compliance best practices.

FICA Taxes: Generally Not Required For J-1 Interns & Trainees

Most J-1 Interns and Trainees are exempt from FICA taxes (Social Security and Medicare) for the first two calendar years they are in the United States, provided they remain nonresident aliens for tax purposes under IRS Substantial Presence Test rules.

What this means for employers: You generally should not withhold Social Security or Medicare taxes from the wages of eligible J-1 Interns/Trainees. The same applies to your employer portion of FICA taxes.

Important Caveat: If a J-1 Intern or Trainee becomes a resident alien for tax purposes (usually in the third year), FICA taxes would apply. Be sure to assess residency status annually.

Federal Income Tax Withholding: Required

Although exempt from FICA, J-1 Interns or Trainees are not exempt from federal income tax. Host companies are required to withhold federal income taxes from their pay unless a tax treaty applies.

Tip: Have participants complete IRS Form W-4 and possibly Form 8233 if a tax treaty exemption applies. Review the treaty provisions by country to confirm eligibility.
Tip: If FICA is mistakenly withheld, employers should refund it or file IRS Form 843 for abatement.

Form W-4: J-1 Interns & Trainees must complete Form W-4 (Employee’s Withholding Certificate) when starting their training to determine the correct withholding amount. Nonresident aliens follow specific instructions:

Check “Single” status, even if married.
Enter “1” for allowances (or follow country-specific rules for residents of Canada, Mexico, Japan, South Korea, or India).
Provide a U.S. mailing address and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).

State & Local Taxes: Varies By Jurisdiction

State and local income tax rules differ. In most cases, J-1 Intern or Trainee are subject to state income tax withholding unless a specific state exemption exists.

Check with your state’s tax authority or consult a tax advisor familiar with nonresident withholding to stay compliant.

Required Forms & Documentation

Once the program begins, employers should ensure the following documentation is on file:

Form DS-7002: Training/Internship Placement Plan (not a tax form, but central to J-1 compliance)
IRS Form W-4: For income tax withholding
IRS Form 8233 (if applicable): To claim tax treaty benefits
Form I-9: For employment eligibility verification

Also, at year-end, employers must issue a Form W-2 (not Form 1099) to report wages paid to J-1 Interns and Trainees.

Tax Treaties Can Reduce Withholding

Some countries have tax treaties with the U.S. that exempt all or part of J-1 income from federal taxation. However, the exemption is not automatic; it must be claimed properly using Form 8233 and backed by treaty language.

Warning: Failing to withhold taxes because of a presumed treaty exemption, without proper documentation, can result in IRS penalties for the employer.

Reporting & Recordkeeping

Employers must keep careful records of:

Tax forms and exemption claims
Visa status documentation
Training plans and compensation terms
Residency status determinations

These records are important in the event of an IRS or Department of State audit.

Social Security Number (SSN) Or ITIN

Requirement: J-1 Interns and Trainees paid by a U.S. employer need an SSN for payroll and tax reporting. J-1 Participants are provided with the necessary documents to apply for one at the SSN office.
Employer Role: Assist program participants in applying for an SSN or direct them to IRS resources for an ITIN. Ensure the SSN or ITIN is provided on Form W-4 and W-2.
Guidance and instruction are provided via email to all participants who are in a program with us.

Form W-2 & Year-End Reporting

W-2 Issuance: Employers must issue a W-2 form to J-1 employees by January 31, detailing wages paid and taxes withheld for the year. Employees use this for filing their federal (Form 1040-NR) and state tax returns by April 15.
Employer Reporting: Submit W-2 data to the IRS and state tax authorities, ensuring compliance with nonresident alien reporting rules under IRC Sections 1441–1464.

Practical Steps For Employers

Partner With A Trusted J-1 Sponsor Organization: Work with us to verify visa status and program compliance, which can clarify tax obligations. You may reach out to us by completing the form here.
Consult Tax Professionals: Engage with service providers, such as Sprintax or a CPA, to ensure compliance with nonresident alien tax rules, especially for treaty benefits or multi-state operations.
Educate Employees: Provide J-1 Interns and Trainees with resources on tax filing (e.g., IRS Form 8843 for non-income filers) and connect them with tax services.
Maintain Records: Keep accurate records of Forms W-4, W-2, 8233, and any treaty-related documentation for IRS audits.

In Conclusion

Hiring J-1 Interns or Trainees is a rewarding way to contribute to international exchange while enhancing your organization. However, tax compliance is a critical part of the process. Host companies must understand and fulfill their obligations regarding income tax withholding, FICA exemptions, and treaty applications.

If you have any questions about employer tax requirements, kindly reach out to us. We will be happy to provide you with resources and guidance!

Hiring J-1 Interns & Trainees: Employer Tax Requirements