Are J-1 Visa Interns and Trainees "Employees" for Retirement Plan purposes?

[cheersmate]

Are student trainees (18mos visas) and interns (12 mos visas) working in the US under a J-1 Visa (who are subject to Fed and State taxes but generally exempt from Medicare, Social Security and FUTA taxes; limited as to the work they can perform) considered "employees" for purposes of service credits and eligibility in a retirement plan?  As I understand it, the J-1 Visa opportunities are temporary and are permitted with the understanding the training will then be taken back and applied in their home nation, intended to be a cultural experience.

Client hired a J-1 Visa Student Intern/Trainee in May 2015. While "interning/training" with the Client, she applied for political asylum and was given a Employment Authorization Card late 2015/early 2016. She was then hired by the Client effective 2/6/2016. Each year she renews the Employment Authorization Card, continues working for the Client.

QUESTION, is her Date of Hire for Eligibility determination (and service crediting purposes for Vesting) May 2015 (date started interning/training under J-1 Visa) or Feb 2016 (bc now has Employment Authorization Card the Client was able to offer and she accepted Position as an employee)?

For what it is worth, 2016 and 2017 tax returns were filed as Resident Alien; 2015 was filed by her scholarship program and she does not know the basis of the filing.

Thank you!

[imchipbrown]

I've excluded "Aliens holding a visa permitting them to work in the US" under the "Excluded employees" provisions of the document, while including them in the coverage test. 

 

[cheersmate]

Thank you imchipbrown.  I appreciate your suggestion.

May be I did not pose my question well enough. 

What I need to know is whether the employer must count service from the hire date while working as a J-1 Visa temporary student intern (5/2015), or, must the employer count service from the hire date when she had received a temporary political asylum card and offered permanent employment (2/2016) for purposes of determining eligibility?  Assuming 1 Y of S waiting period, she is eligible either 7/1/2016 (assuming J-1 start date) or 7/1/2017 (assuming perm hire date).

If anyone can help it would be appreciated.

Thank you.

[Kevin C]

The easy answer to your question is "what does the plan say?"  The terms Employee and Hour of Service should be defined in the plan.  With various federal laws prohibiting discrimination on the basis of national origin, immigration status, etc., I seriously doubt you will find anything saying any of this person's service is excluded.

The DOL website has some info on the laws against discrimination on the basis of immigration status and national origin.

https://www.dol.gov/general/topic/discrimination/immdisc

 

[cheersmate]

On 7/11/2018 at 9:59 AM, Kevin C said:

The easy answer to your question is "what does the plan say?"  The terms Employee and Hour of Service should be defined in the plan.  With various federal laws prohibiting discrimination on the basis of national origin, immigration status, etc., I seriously doubt you will find anything saying any of this person's service is excluded.

The DOL website has some info on the laws against discrimination on the basis of immigration status and national origin.

https://www.dol.gov/general/topic/discrimination/immdisc

 

Hello Kevin -

I understand and agree re document, crediting service as you stated.

The client is arguing that prior to this person commencing work in her "permanent position" she was paid through a strict internship program (based on cultural/prof experiences to be taken back home afterwards), therefore "not really an employee." The employer did issue a W-2 for this intern for 2015 tax year, however they do not believe she was an "employee" per se, there were NO Soc Sec taxes withheld, zero Soc Sec Wages reported. According to this intern, she did not file a tax return for 2015 (period while she was J-1 intern), the internship program took care of it, she never saw it.  

In the midst of her internship, the intern filed for political asylum. When she was awarded a temp residency for this (has to refile annually) is when the client offered her a "permanent job" withholding all standard taxes incl Soc Sec tax. (this was Jan or Feb 2016)

They have excluded her as an Non Resident Alien, however, the employee has said she filed 2016 and 2017 as Resident Alien (btw, never claiming tax exemption under a treaty w home nation... the additional requirement for excluding NRAs anyhow).  I am trying to correct the error. I believe her elig should be determined from her Internship start date (in 2015), they believe it should be from her permanent job start date (2016).  Obviously the latter makes her elig in 2017, while the former requires correction back to 2016.

Based on this, do you agree she was in fact an employee in 2015 even though working thru a strict internship program, thus requiring service credit from start date in 2015 (albeit internship...)?

[Kevin C]

I agree that she was an employee in 2015 and eligibility service starts from her initial employment. 

If they have excluded her as a non-resident alien, they have been improperly excluding her from the plan.  The statutory exclusion is for non-resident aliens with no US source income, so it doesn't apply. 

[duckthing]

21 minutes ago, cheersmate said:

They have excluded her as an Non Resident Alien, however, the employee has said she filed 2016 and 2017 as Resident Alien (btw, never claiming tax exemption under a treaty w home nation... the additional requirement for excluding NRAs anyhow).  I am trying to correct the error. I believe her elig should be determined from her Internship start date (in 2015), they believe it should be from her permanent job start date (2016).  Obviously the latter makes her elig in 2017, while the former requires correction back to 2016.

Based on this, do you agree she was in fact an employee in 2015 even though working thru a strict internship program, thus requiring service credit from start date in 2015 (albeit internship...)?

I think Kevin's answer stands. Does the plan say interns are not considered to be eligible employees?

She resided here and had U.S.-source income from the sponsor; I think the sponsor will have an uphill battle convincing anybody that she was correctly classified as a non-resident alien (in the "excludable for 410(b) purposes" sense) for that period. The fact that the IRS considers her a non-resident alien under a J-1 visa for personal income tax filing purposes doesn't affect the plan.

[cheersmate]

3 minutes ago, duckthing said:

I think Kevin's answer stands. Does the plan say interns are not considered to be eligible employees?

She resided here and had U.S.-source income from the sponsor; I think the sponsor will have an uphill battle convincing anybody that she was correctly classified as a non-resident alien (in the "excludable for 410(b) purposes" sense) for that period. The fact that the IRS considers her a non-resident alien under a J-1 visa for personal income tax filing purposes doesn't affect the plan.

Thank you duckthing.

The matter is not whether she is an eligible employee, it is whether she was an employee at all in 2015 while she was this foreign J-1 student intern (not subject to Soc Sec withholding; I am not sure if the other taxes withheld were returned to her as she herself is unsure how 2015 tax returns were prepared by her internship). The plan does not exclude interns but even if it did, you have to count service of an employee, so that in the event an otherwise excluded employee should become an Eligible Employee, plan entry can be determined.

 

[shERPA]

Yes, she is an employee from day 1 in 2015.  Someone is either an employee or an independent contractor.  Hard to see how she would be an IC under common law.  This would also mean she'd been self-employed, but the visa itself has employment restrictions that would preclude this.  Furthermore social security tax does not determine employment where there is a specific exemption from it in the law.  See below from IRS and note the repeated use of the term "employment".  IRS considers her an employee.

https://www.irs.gov/individuals/international-taxpayers/alien-liability-for-social-security-and-medicare-taxes-of-foreign-teachers-foreign-researchers-and-other-foreign-professionals

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Nonresident aliens, in general, are also liable for Social Security/Medicare Taxes on wages paid to them for services performed by them in the United States, with certain exceptions based on their nonimmigrant status. The following classes of nonimmigrants and nonresident aliens are exempt from U.S. Social Security and Medicare taxes:

• J-visas, and Q-visas. Nonresident Alien scholars, professors, teachers, trainees, researchers, physicians, au pairs, summer camp workers, and other non-student aliens temporarily present in the United States in J-1, or Q-1/Q-2 nonimmigrant status are exempt on wages paid to them for services performed within the United States, as long as such services are allowed by United States Citizenship and Immigration Services (USCIS) for these nonimmigrant statuses, and such services are performed to carry out the purposes for which such visas were issued to them.
  • Exempt Employment includes:
    • Employment as a professor, teacher or researcher.
    • Employment as a physician, au pair, summer camp worker, or any other non-student category of exchange visitor.
  • Limitations on exemption:
    • The exemption does not apply to spouses and children in J-2,  or Q-3 nonimmigrant status.
    • The exemption does not apply to employment not allowed by USCIS or to employment not closely connected to the purpose for which the visa was issued.
    • The exemption does not apply to J-1, or Q-1/Q-2 nonimmigrants who change to an immigration status which is not exempt or to a special protected status.
    • The exemption does not apply to J-1, or Q-1/Q-2 nonimmigrants who become resident aliens.
•  H-visas. Certain nonimmigrants in H-2 and H-2A status are exempt as follows:
  • An H-2 nonimmigrant who is a resident of the Philippines and who performs services in Guam;
  • An H-2A nonimmigrant admitted into United States temporarily to do agricultural labor. For more information on foreign agricultural workers, see Foreign Agricultural Workers, Exemption from Withholding of U.S. Federal Income Tax and U.S. FICA Taxes.

[cheersmate]

 

Thank you, shERPA. I tend to agree. It is my understanding the client issued a W2... 

This young lady was a J-1 "student intern" in 2015... the client believes this matters. During this time she was NOT subject to Soc Sec.  and she did not have to file a tax return as far as she knows. Everything was handled by the internship program for the 2015 tax year. Absent receiving temp green card in 2016, she would have been forced to return to her home nation.

This young lady applied for asylum and was granted temp residency and received a temporary "green card" in 2016 (still reapplies annually to continue it).As it was explained to me she "became" a Non Resident Alien in 2016, and it was then that she started being subject to Soc Sec. Was she a NRA in 2015? if not, what was she before she "became" a NRA in 2016? Does this matter? Or is it even correct? As I have said, the client believes this matters and wants service recognized 2016 fwd.

If anyone has a citation that speaks directly to this as it relates to retirement plans, it would be appreciated (e.g. ASPPA outline).

Sorry for beating this dead horse :(

Thank you everyone!

[shERPA]

She's not statutorily excludable.  The exclusion in Section 410(a) is:

(C)  employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).

She was paid earned income from a source within the US (would have to be <+90 days and <= $3,000 to be treated as non-US), so she doesn't meet this exclusion. Follow the above cites to verify.  

 

[cheersmate]

Regarding NRA exclusion, a plan can only exclude statutorily under 410b if the NRA also claims exemption from US tax as per a tax treaty between the US and the person's home nation.  Derrin Watson addresses this here:

https://benefitslink.com/cgi-bin/qa.cgi?n=103&db=qa_who_is_employer

I am not questioning this, as it is clear 2016 forward this person is not excludable.  It is her service in 2015 -- is this service excludable and therefore not recognized for eligibility purposes (i.e. 12 mos / 1000 hrs)?  In 2015 this person did not have a green card and may not have satisfied the substantial presence test either... This person said she never filed a 2015 US Tax Return bc all paperwork was handled by the internship -- even though the employer/plan sponsor issued a W2, was this person some special classification that permits the employer to not recognize her service in 2015 for plan purposes?

They are not trying to exclude her now, they believe she is eligible in 2017 Plan Year (in process) based on her service in 2016 -- I however believe she is eligible in 2016, recognizing her 2015 service, and therefore believe a correction is in order.

 

 

[shERPA]

Service is service, whether they are in an ineligible classification or not.  410(a) provides for the exclusion of the NRA employee, not the NRA employee's service.  Same with collective bargaining exclusion.  the CB employee is excludable, not the service. 

But she's not an excludable NRA in 2015 anyway, based on my understanding of the facts.  She had US source income in 2015 because she performed the services in the US and was here more than 90 days per 861(a)(3) noted above.  If she had US source income she's not an excludable NRA. 

[Luke Bailey]

If a J-1 visa holder working in U.S. has his or her service covered by a tax treaty between the U.S. and their country of residence covering temporary employment as a trainee or apprentice or the like, then they can File IRS Form 8223 and the payments they receive from their employer in the U.S. is not subject to U.S. Federal income tax. You have to check whether the individual is covered by a treaty and then also check the treaty's wording, because the language is not uniform for all treaties and requires interpretation in many cases. The detailed and lengthy instructions for Form 8223 do a pretty good job of explaining the principles involved. In most cases, this will mean that they have no "compensation" under the employer's 401(k), 403(b), or 457(b) plan document, making their participation in the plan impossible, even if they are not excluded by the standard "nonresident alien with no U.S.-source income" exclusion.