How to report tax-free Japanese fellowship for US researcher working in Japan for 6 months

Forum|Forum|1 year ago
February 22, 2025
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Hello,

I am a US-citizen researcher receiving a tax-free fellowship to do research in Japan for 6 months. The Japanese fellowship stipulates the following:

"As the maintenance and other allowances provided by JSPS to researchers are not employment
based wages, they are not subject to withholding tax. In addition, as these allowances take the form
of travel expenses required to support the researchers' stays in Japan and are limited to covering
actual expenses, they are exempted from taxation."

I have the following questions:

1- Would the US-Japan Tax Treaty, Article 20, exempt me from paying US tax on the above tax-free Japanese fellowship? I satisfy both conditions in Article 20 of the Treaty as explained below:

Technical Explanation, U.S.-Japan Income Tax Treaty, signed November 6, 2003

Article 20, page 75

"A teacher or researcher who satisfies these two conditions will be exempted from tax by
the host Contracting State on any remuneration for such teaching or research for a period not
exceeding two years from the date he first visits that Contracting State temporarily for the
purpose of teaching or conducting research. "

I did not have to pay tax on this fellowship in Japan. Do I have to pay tax on this tax-free Japanese fellowship in the US?

2- How do I enter the above tax-free Japanese fellowship in TurboTax Premier 2024, and how to take the tax exemption in the US?

Thank you.

vql

pk12_2

Employee

@vql , as I read the text of the US-Japan treaty and the technical explanation ( you have provided ) regarding article 4,

(a) A US citizen ( taxed on world income , no matter where the tax home is ), under this article is not to be taxed by the host country ( this being Japan ).

(b) Because US taxes its citizens/ immigrants ( GreenCard ) on citizenship basis , it will still tax you on your world income irrespective of your tax home. Most countries tax a person on residency basis ( world income for residents and domestic income for non-residents ). There are of course others with in between forms based on many other criteria such as ownership of home etc. etc.

My conclusion is that as a researcher in Japan and meeting eligibility outlined in article 20, Japan will not tax your income while the US will. What I need to check code sections ( for the exact language ) on whether (and if you had been able to qualify for Physical Presence test ) you could use Foreign Earned Income Exclusion . My sense of the code says NO, but ....

Does this make sense ?

Is there more I can do for you ?

vqlAuthor

@pk12_2 Thank you very much for your reply, which I understand. I will read carefully Article 4 that you mentioned.

How do I enter the fellowship amount, which does not have a 1099 form? Miscellaneous income? Business income with expense deductions (e.g., travel expenses)?

Thank you.

vql

pk12_2

Employee

@vql , I would put it under "other" category.

Note that if you were to report as " non-employee " or business income, there would be Self-Employment tax ( Equivalent to FICA but at 15.3% ).

However, I do recognize that this could be interpreted as "wages" because the term remuneration is used in the treaty. That would mean putting it as W-2 income ---- wages while in a foreign country is mostly treated as self-employment ( because of the need to contribute SECA -- Self-Employment Tax ).

Given the above I would suggest to use the contract / award letter from the Japanese University whom employed you. Then determine whether this was an award / stipend or wages. Also I don't know whether your US University employer continued to pay your wages in the USA and the Japanese portion was for living & incidental expenses.