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.

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.

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?

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.

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.

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.

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.

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.

Hi AtlantaTaxExpert:

I am an international student, and I am a resident of China. I entered USA in August 2004 with F1 visa, so this year I fill the resident tax form (1040a) for 2009, and with China Tax Treaty.

My question is where should I mail my 1040a form? I know there is an address on back of the instruction book, but I heard someone said the staff dealing with resident tax form do not know about tax treaty issue, so the resident tax form with tax treaty exemption should be mailed to the center processing nonresident tax form, since the staff there know about the tax treaty issue. Is it correct?

Hi AtlantaTaxExpert:

I am an international student, and I am a resident of China. I entered USA in August 2004 with F1 visa, so this year I fill the resident tax form (1040a) for 2009, and with China Tax Treaty.

My question is where should I mail my 1040a form? I know there is an address on back of the instruction book, but I heard someone said the staff dealing with resident tax form do not know about tax treaty issue, so the resident tax form with tax treaty exemption should be mailed to the center processing nonresident tax form, since the staff there know about the tax treaty issue. Is it correct?

Hi AtlantaTaxExpert:

I am an international student, and I am a resident of China. I entered USA in August 2004 with F1 visa, so this year I fill the resident tax form (1040a) for 2009, and with China Tax Treaty.

My question is where should I mail my 1040a form? I know there is an address on back of the instruction book, but I heard someone said the staff dealing with resident tax form do not know about tax treaty issue, so the resident tax form with tax treaty exemption should be mailed to the center processing nonresident tax form, since the staff there know about the tax treaty issue. Is it correct?

Oops, I post more than what I want, sorry.

Mail the return to the IRS center in Austin, Texas. That center handles all non-resident returns and are familiar with the eccentricities associated with the U.S.-China Tax Treaty.

HI Atlanda TaxExpert,

May I ask you a question: I came to US in Mar 1, 2011 on H1B. I became a dual-status alien for 2011 by reading IRS 519 (Chapter 6). I understand that I do not need to report/include any earned income (wage) from my previous employment outside US before Mar 1. My previous employment terminated in Jan 2011 however my last paycheck arrived in May 2011 (delayed by the company), when I already started new job in US. My question is: do I need to report this late-received wage from previous employment outside US in my 2011 Return (in 1040) as a worl-wide income?

Thanks!

Jim

No, that is income earned OUTSIDE of the United States and is NOT subject to U.S. income taxes because it is NOT U.S.-sourced.

Quote:

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Originally Posted by AtlantaTaxExpert

No, that is income earned OUTSIDE of the United States and is NOT subject to U.S. income taxes because it is NOT U.S.-sourced.

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Thanks for the quick answer! Just to confirm: my RA starts from the date I entered US (Mar 1,2011) and I should report world-wide income from that date. The fact of my last pay came in April should not make it part of my world-wide income as it's earned before I became a RA, right?

Another relevant question: if I have a 3-year fixed term cash deposit with a foreign bank, and the 3 year maturity date falls on June 2011 and the interests posted then (at a time I am already a RA). Shall I include all the interest as my world-wide income or report only the portion (4 month/36 month) of it earned during my RA period (Mar-June)?

Thank you once again!

Jim

The PAY is an exception of the cash-basis rule. Money earned as a non-resident-alien status, but received after the resident-alien status commences, reverts BACK to the non-resident alien status for tax purposes.

The Interest, on the other hand, must be claimed on the dual-status return.