Hi, I am a citizen of People's Republic of China and currently studying in the states as a F1 student. This is my sixth year in the states. I just recently married to an American citizen. We filed my green card application in early June, 2007. We are expecting to adjust my status to permanant resident in September or October of 2007. My question is will I still be eligible to claim US-China income tax treaty benifits on the fellowship I receive, based on the exception to the "saving clause" in the paragraph 2 of the protocol 1?

Protocol 1 paragraph2 states as this in the US-China Income Tax Convention: 2. Notwithstanding any provision of the Agreement, the United States may tax its citizens. Except as provided in paragraph 2 of Article 8, paragraph 2 of Article 17, and Articles 18, 19, 20 (Students and Trainees), 22, 23, 24 and 26 of this Agreement, the United States may tax its residents.

On the IRS website, it also says:

Nonresident Alien Who Becomes a Resident Alien
Generally, only a nonresident alien individual may use the terms of a tax treaty to reduce or eliminate U.S. tax on income from a scholarship or fellowship grant. A student (including a trainee or business apprentice) or researcher who has become a resident alien for U.S. tax purposes may be able to claim benefits under a tax treaty that apply to reduce or eliminate U.S. tax on scholarship or fellowship grant income. Most treaties contain a provision known as a "saving clause." Exceptions specified in the saving clause may permit an exemption from tax to continue for scholarship or fellowship grant income even after the recipient has otherwise become a U.S. resident alien for tax purposes. In this situation, the individual must give you a Form W-9 (PDF) to claim his treaty exemption and an attachment that includes all the following information:

The individual's name
The individual's U.S. Taxpayer Identification Number (TIN)
A statement that the individual is a resident alien under
The green card test
The substantial presence test, or
The residency article of a tax treaty
The tax treaty under which the individual is claiming a benefit
The article number of the tax treaty under which the individual is claiming a benefit, and a description of the article
A statement that the individual is relying upon an exception to the saving clause of the tax treaty to claim the benefit

Example: Article 20 of the U.S.-China income tax treaty allows an exemption from tax for scholarship income received by a Chinese student temporarily present in the United States. Under the Internal Revenue Code, a student may become a resident alien for tax purposes if his or her stay in the United States exceeds 5 calendar years. However, the treaty allows the provisions of Article 20 to continue to apply even after the Chinese student becomes a resident alien of the United States.

Therefore, Can I still claim tax exemption on my fellowship after I receive my green card? The IRS website also says that "some exceptions to the saving clause apply to all resident aliens (for example, under the US-China treaty); others apply only to resident aliens who are not lawful permanent residents of the United States (green card holders)." This means I could use the exception no matter how I became a resident alien (green card or substantial presence test), right? Thank you very much for your help!!!!!

Yuan

AtlantaTaxExpert

Yuan:

Whether you know it or not, you became a resident alien at the beginning of your sixth year in the U.S. regardless of your F-1 status. However, because of the 'saving clause' in the China-U.S. Tax Treaty, I believe that you are STILL eligible for the $5,000 treaty exemption for that sixth year.

However, when you get the green card, you WILL lose that exemption. You will also lose the exemption if you file jointly with your wife prior to getting the green card.

anthony_bu

I found this post by google, although it's an old post, I must say something.

Regarding the answer given by AtlantaTaxExpert, part of it is NOT true. If you maintain F1 status, you are considered an exempt individual, thus the days you present in US is not calculated into the residency test. To clam the exemption, you need to file form 8843 every year, and that is what international student office in every school keeping telling their students!!!

Please refer to IRS article topic 851: Tax Topics - Topic 851 Resident and Non–Resident Aliens

anthony_bu

I just read through the Publication 901 again and I see the 5-year limit on page 6. Sorry about the confusion.