[flymanansh]

Hi there,

I have been working with a H1B visa since 2008 and my wife is a graduate student from China. We are going to file jointly for 2011. Except our w2s, we also received a 1098-T for my wife's tuition and scholarship in 2011. The scholarship actually was not subject to tax withholding because of the China-US tax treaty 20(b). According to the treaty, she can still claim the tax exemption for the scholarship if she is a resident alien. I have two questions here.

1. Because we are residents for tax purpose, can we claim the education credits like life learning credit for the billed tuition on 1098-T?

2. How to report the scholarship and the tuition in 1040? Do we need to fill out form 8833 to show the scholarship is not taxable according to the treaty?

I appreciate any help for this.

Jian

[AtlantaTaxExpert]

1) Yes, if you file jointly, you CAN claim the Lifetime Learning Credit.

2) The scholarship money, being non-taxable, does NOT have to be reported unless it is shown on Form 1042-S.

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[flymanansh]

Thank you for the answer. That is really helpful.

My wife just received form 1042-s which only showed the tax exempt for the first $5000 of her income last year. The tax exempt is according to China-US tax treaty 20 (C). We have to report this on Form 1040 and 8833?

Thanks

Jian

[flymanansh]

Actually, only the income on w2 is taxable. I was wondering if we just need to report the income on w2 and the billed tuition on 1098-T for tax return.

[AtlantaTaxExpert]

It seems that part of the scholarship IS taxable, and must be accounted for

TaxAct has a worksheet for this, I am sure TurboTax does as well. You just have to find it.

[flymanansh]

For resident alien, the scholarship not used for tuition and required expense is taxable. But according to the china-us tax treaty, all of a F1 student's scholarship or fellowship is not taxable no matter the student's filing status is resident or nonresident. The scholarship is not shown on Form 1042-s. The taxact does have a worksheet for 1098-T, but that is not for a tax-free scholarship case.

Actually no matter we report the non-taxable scholarship (1098-T) and the first non-taxable $5000 income(on 1042-S) or not, there is no difference for the final tax return. I am just wondering if it is legal to just report the income on w2.

Sorry for so many questions.

Thanks

[MukatA]

The rules for taxability of scholarship is same for residents and nonresidents. If you are a degree candidate and if the financial aid (includes scholarship and fellowship) is for tuition fee, other fees, books, supplies and equipment, then it is not taxable. For a degree candidate aid for boarding and travel are taxable. If you are not a degree candidate, then all the financial aid is taxable.
Since your spouse has been filing resident tax return, you can not claim tax treay exemption.

[flymanansh]

MukatA

Thanks for your reply. I double checked the tax treaty for Chinese student.

Article 20 (b) grants or awards from a government, scientific, educational or other tax-exempt organization;
And
Article 20 (c) income from personal services performed in that Contracting State in an amount not in excess
Of 5,000 United States dollars or its equivalent in Chinese yuan for any taxable year.

The benefits provided under this Article shall extend only for such period as is reasonably
Necessary to complete the education or training

In the paragraph 2 of the 04-30-84 protocol:
"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, 22, 23, 24 and 26 of this Agreement, the
United States may tax its residents (as determined under Article 4)"

So I believe although the taxpayer has become a resident alien, he can still claim the tax benefit of article 20.

I just want to know if the non-taxable scholarship and the $5000 benefit should be reported.

Thanks

[AtlantaTaxExpert]

You can claim the Chinese treaty as lonh as you are on the F-1 or J-1 visa, even if you become a resident for tax purposes. However, if you SWITCH to a work visa like H-1B, then the exemption ENDS in the first FUULL year of the work visa.