Dear Help Desk:

I am a postdoc in life sciences. I came here from China in 1999 as a F1 student and now hold H1B visa. Our payroll still files W9 form for me which claims the tax-treaty Article 20(c) - $5000 is tax-free. I am just wondering whether this is correct. Thank you very much.

AtlantaTaxExpert

No, that is NOT correct.

If you have been in country for over five years, your tax-exempt status as a F-1 student expired after 2003. You should be filing as a resident alien, filign Form 1040, 1040A or 1040EZ.

However, the net effect is about the same, because the $5,000 treaty exemption effectively replaced the Standard Deduction until this year, when it exceeds $5,000 for the first time.

yaoyao

Thank you so much for your reply. But I don't quite understand this part -the $5,000 treaty exemption effectively replaced the Standard Deduction until this year, when it exceeds $5,000 for the first time.
And how does that affect my tax return?

AtlantaTaxExpert

A non-resident alien who has earned income in the United States must file a non-resident tax return and pay income taxes on that earned income.

Most non-resident aliens CANNOT claim the Standard Deduction, but CAN claim the treaty exemption specified in the tax treaty between the U.S. and the country from which the person originated (not necessarily their home country).

In your case, the treaty exemption is $5,000, which is about the same as the standard deduction that most U.S. citizens claim on their tax returns.

Because your tax-exempt status as a F-1 student expired after 2003, you must file as a resident alien in 2006. This means you file the same tax forms that U.S. citizens file (Form 1040, 1040A or 1040EZ) instead of the non-resident alien tax form (Form 1040NR or 1040NR-EZ), and you also can claim the $5,150 standard deduction for 2006.

biomode

Hi AtlantaTaxExpert:

So does that mean we can only choose either of them: 5000 tax exempt or 5350 standard deduction for the year we are resident alien for tax purpose? Actually I did not find any place in form 1040 which allows me to use 1042-S!
But interestingly I was told I can still enjoy the 5000S tax exempt, and in my W2, my total wages,tips , other compensation (item 1) has been lowered by 5000$ ! Does that mean I can enjoy both tax exemption and standard deduction at the same time since No 7 item of 1040 form only require to fill in the amount of total wages,tips,other compensation as shown in W2? Or I have to definitely choose one and drop the other?

Another question is that I have been US for more than 6 years as F1, but my wife is only here for 3 years as a F1, can we both fill 1040 as resident aliens?

Thank you so much for your kind and helpful information.

AtlantaTaxExpert

Actually, after I made that posting, I did some more detailed researched and conferred with some more knowledgeable experts in the field.

Due to the Savings Clause of the U.S.-China Tax treaty, those who come to the U.S. under either a "F: or "J" visa, then convert to a work visa, can STILL claim the $5,000 treaty exemption AND, once they start filing as a resident alien, select the $5,350 standard deduction.

AS for your other question, your wife can file jointly with you and CHOOSE to be treated as a resident alien. However, in doing so, she LOSES her exemption from Social Security and Medicare taxes for 2008 and beyond.

Something to consider, as FICA taxes, at 7.65%, can really add up.

kkcydff

I came to US with F1 visa from July , 2006from China, and my OPT began from May, 2007, my H1B visa was effective from Oct. 2008. I have a question regarding the tax return in 2010, can I still claim the $5000 tax treaty then? I claimed that this April, I am holding H1B visa now.

AtlantaTaxExpert

A couple of changes to previous posts:

1) The carryover of claiming the China Tax Treaty is good only in the year you convert to the H-1B visa. In successive years, you LOSE the treaty exemption.

2) Even if the F-1 student spouse files jointly with her H-1B spouse, he/she retains his/her FICA tax exemption as long as he/she is under the F-1 visa for LESS than five years.

KKCYDFF:

In keeping with my revision noted above, you CANNOT claim the China treaty exemption in 2009 or 2010.