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-   -   Individual Switches from F1 to H1B Status (China Treaty and Tax Treatment) (https://www.askmehelpdesk.com/showthread.php?t=564744)

  • Mar 23, 2011, 05:46 PM
    TEHJ72
    Individual Switches from F1 to H1B Status (China Treaty and Tax Treatment)
    I volunteer as part of a low income tax clinic at my school, and I'm doing research for an international tax issue. If an individual was on an F-1 Visa for the first portion of the year, and had Code 19 Income. The individual is from China. During the year, they switched to H-1B status. They pass the substantial presence test, and as a result file Form 1040. They received a 1042-S that showed they had tax exempt from withholding equal to the China Treaty Provision of $5000.

    So my questions are:
    1) Are they eligible for the treaty amount on the income earned while F-1 status, even though they must file Form 1040?
    2) Do they file as dual status (or does the change plus substantial presence make them Residential Alien for the entire tax year)?
    3) Do they get the standard deduction?
    4) Are they still eligible for all other exemptions/credits as a result of being H-1B status?

    EDIT: After doing a large amount of additional research, I've come up with a few answers, and a few additional questions. I believe the answer to 2, is as a result of passing the substantial presence test, they are considered a "Resident Alien" for the tax year (Not Dual-Status). Correct me if this is wrong. I also believe they will be able to get the standard deduction and any other exemptions/credits associated with filing as a Resident Alien.

    The questions become:
    1) Are they eligible for the treaty benefit already reflected in the 1042-S (and not included in the W-2)? I know students from China can still receive tax treaty benefits once they become Resident Aliens, but must "meet the definition of student", which makes the answer to this question unclear to me.

    2) If they are eligible, do they report only the amount of income from their W-2, or do they report the W-2 + 1042-S amount, and subtract out the treaty amount on Line 21 (negative amount)? (Seems redundant, but this is how 1040NR's work.)

    3) If not eligible, do they just pick it up as income on line 7, or do they add it as a line 21 (positive amount), describing it as income originally taken as treaty income, which is no longer treaty income?

    Thanks a ton for anyone who can help me out, even if you don't have all the answers.

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