Hello:

I holds F-1 visa and my wife holds H-1 visa. We become resident aliens for tax purposes in 2005. If we file 1040 jointly, can and how can we claim a treaty exemption (between China and US) for my scholarship or fellowship? If we use 1040 form, which line in 1040 and which attached form can be used for claiming my scholarship and fellowship?

Thank you for your response!

AtlantaTaxExpert

Mark9:

Generally, if you file as a resident alien, you cannot claim a treaty exemption for the scholarship/fellowship money. However, the Chinese treaty exemption is $5,000, and the standard deduction that you get for filing jointly is $10,000, so it is better to file jointly as a resident alien.

mark9

Thank you very much Atlanta Tax Expert!

I checked IRS publication 901, for P.R.China, it states "no specific limit" for scholarship and fellowship grant. Is it still effective for me under F-1 status even though I become a resident alien?
Thank you,
mark9

AtlantaTaxExpert

Mark9:

Okay, if you insist, put the treaty exemption on Line 21 as a negative number and cite the article and paragraph of the Chinese-U.S. Tax Treaty.

However, IMHO, based on the information you have provided, I do not think you are eligible to claim an exemption because of your intent to file as a resident alien. If I am correct and you claim the exemption anyway and the IRS disallows it, you will pay the taxes, plus interest, plus penalties (which could be as high as 100% of the additional taxes due).

Think about it! Think about it long and hard before you act!

mark9

Hi,AtlantaTaxExpert:
I just found an answer from below link, the answer is from Gary Carter , you recomanded this site before and a guy from Russia has the same problem.

http://pub33.bravenet.com/forum/2786.../fetch/497253/

Thank you

AtlantaTaxExpert

Mark9:

I will not dispute Mr. Carter's advice. His experience in taxes of this nature far exceeds my own.

mark9

thank you for your help, Atlanta Tax Expert !

mark9

Hi, AtlantaTaxExpert:

I found the explanation from Mr. Carter's website about treaty benefits for resident aliens, maybe you are interested in:

"Treaty Benefits for Resident Aliens

Generally, all of the tax treaties to which the U.S. is a party contain a "saving clause," which is meant to prevent residents of the treaty partner who are also citizens or residents of the U.S. from using the treaty to reduce their U.S. tax liability. Therefore, as a general rule, those individuals who qualify as a U.S. resident, under either the green card test or the substantial presence test, are not eligible for treaty benefits. However, most tax treaties contain an exception to the "saving clause" provision for individuals who claim tax treaty benefits as students, trainees, teachers and researchers. Therefore, if you are no longer an exempt individual, income you receive as an F, J, M or Q visa holder might be exempt from U.S. taxation under the treaty with your home country, even if you are classified as a resident for U.S. tax purposes. Treaty benefits could also be available to H, O and other visa holders who become residents for tax purposes during the first year they enter the United States.

How to file your return

As a resident, you will file Form 1040, Form 1040A or Form 1040-EZ, whichever applies to you. Attach Form 8833 to explain the treaty benefit being claimed as well as the reliance on an exception to the saving clause. On Form 8833, check the box indicating disclosure under section 301.7701(b) - 7 of the Treasury regulations. You are required to report worldwide income on the return, but may claim the standard deduction, dependency exemptions, and any other deductions and credits to which a resident alien may be entitled. Mail the return to the Internal Revenue Service Center, Philadelphia, PA 19255.

Back to top.

Some Treaty Provision Examples

Following are some examples that demonstrate the procedures you should use to determine your treaty benefits from IRS Publication 901. First, however, here are some definitions of treaty terms:

Independent personal services: Self-employment income


Dependent personal services: Wages of employees


Scholarship or fellowship: Does not include compensation for services "


Thank you very much for your help,

Mark9

AtlantaTaxExpert

Thank you, Mark9.