Did you get your full refund eventually? And did they contact you during those 3 months or was it just radio silence while they were verifying?

Yes, I did get my full refund including the excess Social Security tax amount. They didn't adjust anything once they verified my information. During those 3 months, it was mostly radio silence. I kept checking the "Where's My Refund" tool, and it just said "Your refund is being processed" the entire time. I called once after about 2 months and was told it was in the verification department and I just needed to wait. Then one day the status suddenly changed to approved, and I got the deposit a few days later.

Thanks so much for this! I just checked my tax software and found the Schedule 3 section. You're right - there's a specific line for "Excess social security tax withheld" and it was really straightforward to enter. I was definitely overthinking this. After entering the information, my refund increased by the exact amount of my excess withholding. No need for Form 843 or contacting employers at all!

Just to add - make sure you keep good records showing your calculation of the excess amount. A friend of mine got audited for this (bad luck I guess) and needed to show how she calculated the excess amount from her multiple W-2s.

Thanks for bringing this up! We're in Pennsylvania - do you know if we'd have to use the same filing status for state as federal? I didn't even think about how this might affect our state taxes.

Pennsylvania doesn't actually have married filing jointly or married filing separately options like the federal return does. PA has a flat income tax where each person files their own return reporting their own income, regardless of federal filing status. You'll each file your own PA-40, reporting just your individual income. This is actually good news for your situation because your state tax situation won't be affected by whatever you decide for your federal return. But definitely double-check with a tax professional about your specific situation, as local taxes might have different rules.

The student loan interest deduction isn't the only thing to consider though. Child tax credits, education credits, and retirement contribution limits all have different phase-out thresholds too. At their income level, they need to look at the whole picture.

That's a really good point, I didn't even think about the company deducting it on their end. I'll definitely tell him to keep all the settlement paperwork and document everything. Would you recommend he send in any specific documentation with his tax return, or just keep it all on hand in case of questions?

I wouldn't send any extra documentation with the return itself. The IRS doesn't want that unless they specifically ask for it. Just have him keep all the settlement documents, correspondence, and proof of the payment amount in a safe place for at least 7 years (the extended audit timeline). Also, when he reports it on Schedule 1, Line 8z, he should write a brief description like "Breach of contract settlement" next to it. That shows transparency and makes it clear he's not trying to hide anything.

Sometimes companies refuse to issue 1099s for settlements because they don't want to admit liability. I had this happen and my accountant said to just report it anyway. The IRS cares more that YOU report income than whether THEY issued the proper form.

This is really helpful! The company classified me as an independent contractor (hence the 1099-NEC), but I'm wondering if the treaty might view it differently since I only work for this one company. How do I figure out if I'm considered an employee or contractor under the treaty specifically?

The treaty doesn't specifically define employee vs contractor, so it generally follows the classification principles of each country. The IRS looks at factors like behavioral control, financial control, and relationship of the parties. Since you only work for one company, that's a factor that could potentially point toward employment, but there are many other factors. Do they control when and how you work? Do you use your own equipment? Do you have the opportunity for profit or loss? These all matter for classification.

There is indeed a totalization agreement between the US and Canada! If you're paying into the Canadian social security system (CPP), you generally don't have to pay US self-employment taxes. You'll need to get a certificate of coverage from the Canadian authorities though.

Thanks for bringing this up! I definitely need the money sooner rather than later. Quick question - do you know if GLACIER tax prep software is good for this situation or should I just try to file directly?

GLACIER is actually quite good for international student tax situations. Many universities provide it free to their international students. It's specifically designed for nonresident tax filing and handles the special forms and tax treaty provisions that apply to international students. If your university doesn't provide free access, you could also look into using the IRS Free File program or one of the commercial tax software options with specific international student support. The key is making sure whatever you use can properly handle Form 1040-NR and any required attachments like Form 8843.

This is super important! I'm from the UK and because of the tax treaty, I was able to exclude some of my research stipend from being taxed. Saved me over $1200. The tax treaty articles are different for each country.