More Tax Returns for International Students!!!


NOTE: Enter a lottery before Noon Sunday (03/25) PT, for a free download of TaxCut Premium (Federal + State + efile) , retail value of $64.99. at my other web site: http://www.latestartersblog.com!

Yannick and I have been students for so long that we were “forced” to become “sophisticated” senior students, at least financial-wise.

We came from China. There is an annual $5,000 exclusion of a student’s wages for the first 5 years. We were very happy back then, because we were optimistic that we could finish our PhD’s in 5 years.

As you know now that we did not accomplish our mission within 5 years. In the 6th year, as we were grudging the loss of the “$5000 exclusion of students wages”, we started extensive research on tax laws, treaties, and even attended a PhD level taxation seminar! (You see, there is a reason that we stayed in graduate schools for such a long time).

And you know what? Our efforts did get rewarded! Here is what we found: The tax treaty from the People’s Republic of China (PRC) contains no time limit, and a Chinese student who qualifies for it may use the article for as long as he is still in valid F-1 status, including during that period in which he is engaged in practical training in valid F-1 status.

So, if you are from P.R.C, still a student after 5 years in U.S., and believe in “NO Taxation Without Representation”, here is something we want to share with you. Hopefully this will save you some time, and help you get out of graduate school early.

Step by Step instruction to get you $5,000 tax exclusion:

I. Download Form 8833 .

II. Fill out the form like this:

1. Enter the specific Treaty position relied on:
(a) Treaty country: People’s Republic of China
(b) Articles: 20(C), Paragraph 2 of 04-30-1984 prot.

2. List the internal revenue code provisions overruled or modified by the treaty asked return position: IRC61; 871(b)

3. Name, identifying number of …. : N/A

4. List the provision(s) of the limitation on benefits…: N/A

5. Explain the treaty-based return position taken:

The taxpayer is a citizen of the People’s Republic of China. He entered the United States on on an F-1 visa (student), and has remained in F-1 status continuously since. Under the residency rules of IRC7701 (b), the taxpayer passed the substantial presence test in and his residency starting date was 01-01-. This means that for 2006, the taxpayer is a resident alien and is filing form 1040 for 2006 as a resident alien.

Article 20(c) of the USA-China income tax treaty allows an annual $5000 exclusion of student wages from gross income. The article contains no time limit, and a Chinese student who qualifies for it may use the article for as long as he is a bona fide student in valid F-1 status. Paragraph 2 of the 04-30-1984 protocol of the USA-China income tax treaty contains the “saving clause” of the treaty, which normally acts to nullify the tax treaty’s benefits once a resident of China has become a resident of the USA. However, paragraph 2 of the Protocol also specifies exceptions to the saving clause, among which is article 20 on student and trainees. This means that, even though the taxpayer has become a resident alien under the substantial present test of IRC 7701(b), he may still claim the benefit of article 20 of the USA-China income tax treaty. The taxpayer has elected to do this, and is claiming an exclusion from gross income for 2006 of $5,000 in student wages as allowed by article 20(c) of the USA-China income tax treaty. TOTAL EXCLUSION CLAIMED: $5,000

Gong Xi Fa Cai!

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38 Responses to “More Tax Returns for International Students!!!”

  1. mOOm Says:

    Hi, I would never guess with those French names you are using you are from China!

    Snork Maiden is also from the PRC. She has been using the tax treaty up till now and her W-2 reports her salary as $5000 less than it really is which I guess is due to her signing the treaty form. When I computed her 1040-EZ last night she ends up with a big refund because of the combined $8450 deduction/exemption. But then I thought: “How can you claim a tax treaty as a resident of China and simultaneously file as a resident for US tax purposes?” It seems you answer this here. Technically, I guess she would need to submit all that stuff. In practice I strongly doubt the issue will raised. Maybe for 2008 when she will probably still be OPT (unless we move to Europe or something) she could fill out all that stuff.

    She already has signed an 8833 that the school gave her for the 2007 tax year.

    I was only an F1 for 4 years so never ran into this issue back then. When I was a J1 visiting professor I claimed the United Kingdom tax treaty and got all my US taxes refunded for the 1 1/2 years I was under that status.

  2. Golbguru Says:

    Thanks for all the info. I am sure something similar would work out for me.

  3. mOOm Says:

    Hi Yannick

    I’m trying to complete Snork Maiden’s taxes now. My only question is I have a 1042S with the $5000 reported on it. If we were still filing a 1040NR-EZ there is a box line 6 to mention that excluded amount. But on neither the 1040 not 1040-EZ is there a box for that of course. So what do I do? Just ignore the $5000?

  4. Yannick Says:

    moom:

    yes, if Snork Maiden has a 1042S, then her W2 should only show a her Total_Actual_Wage – $5000. In this case, you will still attach Form 8833, but on the line 7 of 1040, just use the number on W2, effectively ignore the $5000 (of course, IRS can find it using the attached 1042S and 8833).
    If she did not have the 1042S and the W2 showed the Total_Actual_Wage, then she should still attach Form 8833 and on line 21 (other income…), put “See attached Form 8833” and “(5000)” as -$5000 to arrive at the correct amount on line 22.
    As you told me, she would not qualify for Resident Alient until 2008, thus, you only need 1040NR-EZ for her this year?
    You must have also reminded her of Roth IRA contribution, right?

  5. Yannick Says:

    # cs Says:
    March 7th, 2007 at 4:58 pm e

    “Thanks for information.

    Now that you’re resident alien (for tax purpose) in the 6th year, do you pay any FICA on your student wages?”

    Sorry for replying you late. Somehow I just read your comment. I am still not sure why your comment was put into the moderation queue, since you put down an email already.

    I didn’t pay any FICA as a student. Full-time students enrolled in a university and working part-time for the same university are exempted from FICA payroll taxes.

  6. Yannick Says:

    I have been asked by a few friends for the content of US China tax treaty. The treaty is called UNITED STATES-THE PEOPLE’S REPUBLIC OF CHINA INCOME TAX CONVENTION.

    Here is Article 20:
    ARTICLE 20
    (Students and Trainees)
    A student, business apprentice or trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first- mentioned Contracting State solely for the purpose of his education, training or obtaining special technical experience shall be exempt from tax in that Contracting State with respect to:
    (a) payments received from abroad for the purpose of his maintenance, education, study, research
    or training;
    (b) grants or awards from a government, scientific, educational or other tax-exempt organization;
    and
    (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 of time as is reasonably necessary to complete the education or training.

  7. Montga Says:

    Thanks for the information!
    I have a question related to my situation:
    2006 was my sixth year in F-1 status (so I need to file 1040 this year), my opt starts from Feb 2006 and I graduated in Mar 2006. Starting from Aug 2006, I accepted a job offer but worked in the status of OPT until Nov. 2006 when my H-1b was approved.
    My question is: can I still claim the $5000 treaty, given that I’m not holding F-1 status for the whole year of 2006?
    Thank you very much for answering my question!

  8. latestarters Says:

    Dear Montga:

    Welcome to our blog. The quick answer is yes, since you were still on F1 during your OPT. What kind of job you are doing since last August? The worst case is that your current job is not essential (or related) to your training, thus, you were only able to claim exemption on whatever graduate stipends you earned during the first 3 months last year. Hopefully, that’s already $5000 to claim.
    If your job is in the field of your training like most people and involves research in industry or academia, then you could use your income earned while you were on OPT since that’s part of your training.
    Good luck!

  9. Yannick Says:

    Montga Says:
    April 7th, 2007 at 3:18 am e
    Thanks for the information!
    I have a question related to my situation:
    2006 was my sixth year in F-1 status (so I need to file 1040 this year), my opt starts from Feb 2006 and I graduated in Mar 2006. Starting from Aug 2006, I accepted a job offer but worked in the status of OPT until Nov. 2006 when my H-1b was approved.
    My question is: can I still claim the $5000 treaty, given that I’m not holding F-1 status for the whole year of 2006?
    Thank you very much for answering my question!

    Dear Montga:
    Welcome to our blog. The quick answer is yes, since you were still on F1 during your OPT. What kind of job you are doing since last August? The worst case is that your current job is not essential (or related) to your training, thus, you were only able to claim exemption on whatever graduate stipends you earned during the first 3 months last year. Hopefully, that’s already $5000 to claim.
    If your job is in the field of your training like most people and involves research in industry or academia, then you could use your income earned while you were on OPT since that’s part of your training.
    Good luck!

  10. Yannick Says:

    Came across a similar question as Montga’s accidentally.

    mm Says:
    April 26th, 2007 at 3:45 pm edit
    Can you help me with this? I just graduated and came to a University as a postdoc. I’m under F-1 OPT right now. Can I still get tax treaty before my H1B is issued? My university payroll said I can’t because I am a full-time employee and no longer student. They said the tax treaty applies to RA/TA type of job, but not my current job. Thanks.

    mm:
    Welcome to our blog. I think you can. As I understand, you need two conditions to claim the treaty benefit:
    1. Holding a trainee visa, such as F1 or J1.
    Even you are in OPT, it’s still an F1 visa. So you’re fine.
    2. Have income through your training on which to claim the exemption.
    Even postdoc is a full time employment, it’s still part of your training. We all know that postdocs earn as little as 1/2 or 1/3 of prevalent salary of comparable position in industry. So that’s not a problem.

    This might be tricky because some universities classify postdocs as “staff”, not as “trainee” such as in my school. In this case, your school may refuse to set up form 8233 for you.

    Remember, you can always do it yourself later using form 8833 to get the money back from IRS, without going through the university. So if your school refuses to do it for you, just let it be. File a form 8833 next year to get the money back.

    One more point, the tax treaty is calendar-year based. If you have several months’ student stipends to claim the treaty on earlier this year, you can do it without such complication (next year’s tax return). I hope this helps. Good luck!

  11. Ying Says:

    Hi,

    I read your blog tonight. Surprising I have similar experiecne and feeling as you. I am also a phd student ,from China, and struggle in the pursue of the degree.

  12. latestarters Says:

    Welcome Ying. I hope this information is helpful to you. I also recommend you to check my posts on Roth IRA. Degree is only one of the many goals in your life. Pay some attention to other aspects and live a balanced and fulfilling life!

  13. cell Says:

    Hi,

    Do you know whether we can still claim the $5000 if my husband and I are file jointly? Then we should enter -10000 in line 21, right?

  14. latestarters Says:

    if both of your are still student, you should be able to file for $10K on line 21 as it’s $5000 per person. i guess you will need to submit two 8833 forms.

  15. Xu Says:

    Help me to clarify my doubt.

    I have been struggling with this issue for a long time. As far as I understand it, if you choose to be an exempt individual then you are not considered to be presence in U.S.A when you calculate the days in U.S.A while you file 8843. So you can only file as a nonresident alien to get $5000 exempt, or file as a resident alien and lose $5000 exempt.

    Repeat:
    When you file 8843, 4b. trying to get $5000 exempt, in line 4b, you should fill in 365 days. Then how can you pass the substantial presence test.

  16. latestarters Says:

    Hi Xu,

    Can you clarify why 8843 is required?

    I believe the treaty 20(c) enable us to have $5000 with a RESIDENT ALIEN status. Of course, this is not because the general exempt status of F1 or J1, but because you are a F1 or J1 from China mainland covered by this treaty.

    Good luck,

    Yannick

  17. Xu Says:

    Thanks for your response.

    I was confused about 8843. But like I said as long as you are an exempt individual, according IRS, you won’t be able to count those days as your presence in U.S.A. Am I right?

  18. latestarters Says:

    no problem. that’s totally a different issue. Being an exemplt individual, you can ELECT not to count those days as your presence according to IRS rules. However, counting them is in your favor, so why not?!

    btw, is this your 6th year in U.S. or the first year to claim a Resident Alien status? If not, I do not think you need to go through present test any more.

  19. Xu Says:

    Thanks a lot. I thought you were not allowed to elect to do that in my favor. I came here in 2000. Now I am on H1 visa. This is my first year to do tax as a resident.
    One more question: Do I need to do sth to establish that I am a resident alien, and how? Thanks.

    Xu

  20. latestarters Says:

    you’re welcome. yes, you need to pass the substantial presence test the first time you file as R.A. however, sicne you came to US in 2000, this is trivial if you have not been out of U.S. for a prolonged time during this period or more specifically, in 2007. remember to count your time as a student in US. good luck in your after-school life!

  21. mangocherrylili Says:

    Yannick,
    Your explaination is very helpful. Thanks for shareing.
    I have two questions.
    1. I believe that I have read somewhere that even after F-1 student changes their status to H1 after graduation, they still can claim $5000 treaty exemption until the point they get green card. Is it true? If it is true, does the $5000 exempt us from FICA tax when we are in H1 status?
    2. My husband is in his 6th year of F1 (he came in August 2002). So he should probably file as resident alien for 2007. I was on F1 status for 2007 as well. If we file as resident alien jointly taking treaty exemption and standard deduction, do we have to pay FICA tax?
    Thanks.

  22. latestarters Says:

    MCL,

    Thanks.

    1. I do not think so. You need to maintain a trainee status F1 not H1 and also, incoming derived from you training to qualify for $5000 exemption. Please refer to my comments above:
    https://latestarters.wordpress.com/2007/02/25/more-tax-returns-for-international-students/#comment-919

    2. Correct, you should be able to take $10,000 jointly. However, each of you need a separate 8833 form. Student stipends are exempt from FICA tax, regardless of your resident status or whether to take treaty exemption.

    Hope this helps.

  23. Johan Says:

    Hi and first of all thanks for all the information I could get on your blog it’s really useful.

    There is still something I am not quite sure about.

    I might be in the exact same case mentioned by moom. I am filling out form 1040NR EZ and in line 6 I am exempt from all the taxes I paid under the tready US-France code 19 article 21(2). The question that I have is that even though I put that amount on line 6 it is never used again in the form (line 6 is never used again).

    Therefore where should I claim it. If it is in the 8833 form than I do have another question. What do they mean by “return position as required by section 6114” ? And do I fit into a “dual resident taxpayer”, I was a J1 student from France doing academic training.

    Again my question is more about “Is it in form 1040NR EZ or form 8833 or both that I mention that i am exempt from the taxes I paid”. Is line 6 enough by itself ? Or should i put its content in some other line ? I couldn’t find those answers in the instructions document.

    Thanks again.

    Johan

  24. Yan Says:

    Thank you so much for your useful information. My husband was OPT status before October last year and H1 after October. He was working in industry the whole year last year, but also a student the whole year last year since he defended in October last year and graduated January this year. Could we still claim $5000 exempt? I was also a student last year but I didn’t have any stipend. Thank you for your comments.

    Yan

  25. Fan Says:

    Oh my god! I so wish that I have seen this last year! But I am still struggling with my tax return this year…
    Here is my question: I am filing as a resident alien this year. I have received both w-2 & 1042S (fellowship). It appears that I have tax withheld on my 1042S. Under the treaty, I should claim exemption on 5000 (w-2) and all of the money from my fellowship. But there is nowhere on the 1040 indicated I should put 1042S information on. Could you tell me what I should do?
    Thank you ahead of time!!

    Fan

  26. latestarters Says:

    -Johan: Sorry that I am not able to help. 1040NR EZ was really a remote memory (6-7 years ago?) and I do not know what do you mean by “exempt from all the taxes I paid”. Do you mean you pay zero tax to IRS according to the US-France treaty?

    When I was in NR status, the part of income exempt from US tax ($5000) was put on 1042S (the school needs your 8833 form before each calendar year to put $5000 on 1042S), and deducted from W2. Therefore, it’s not taxable on 1040NR.

    If you can’t find deduction for your exempt income in EZ form, maybe you can try the long 1040NR?

    Good luck!

    Yannick

  27. latestarters Says:

    – Yan: I’m glad that you found this blog useful. Congratulations to your husband! It’s unfortunate that I don’t really know the answer to your case. IMHO, if you can make the case to IRS that his industry job was an essential part of his educational training, then $5000 earned before October can be claimed as an exemption. On the other hand, you don’t have any stipend to claim $5000 on. So it’s not for you. Good luck!

    – Fan: It’s not too late. You can file 1040X to amend your last year’s return to claim $5000 exemption.
    Regarding to your question for this year, I’m a bit confused by your case. Firstly, you don’t need to pay any tax on fellowship reported on 1042S. That’s why the income on 1042S never get to be placed on 1040. If you school mistakenly withheld taxes on your 1042S income, then you should include the amount as tax payment already paid, so that you can get a refund. Secondly, if you already set up 8233 form with your school, the $5000 exempt income should appear on your 1042S, not on your W2. Thirdly, if you didn’t and need $5000 subtracted from your W2, please use 8833 form and 1040 line 21 as described in the original post. Good luck!

  28. tianmu Says:

    Hi, thanks a lot for the really useful blog! My case is a little different as Yan’s. In 2007 I was in OPT (Jan-Sep) then H1B (Oct-Dec) in an industry company and it is my third year in US (I graduated on August 2006 then started to work as F1 OPT). Do I still qualify the $5000 tax treaty? If so, I should file f1040 + f8833 or f1040 +f8843, or other forms?

  29. Johan Says:

    Yannick,

    Thanks for your help. I think after a good amount of hours figuring out how I should fill out this form I finally got it.

    I will leave line 3 to 0 (since all my wages are exempt from tax) and put this amount on line 6. Then the amount of federal taxes that where witheld will show up on line 18 which will lead me to what I was looking for, claiming back all the taxes that were witheld from my salary.

    On top of that I’ll fill out form 8843 since it’s seems like it’s mendatory for international students when they claim a tax treaty benefit.

    Thanks again for your help.

  30. latestarters Says:

    Hi Tianmu,

    I’m glad you found it useful. As I commented in Yan’s case, you have the potential to claim income earned during OPT as $5000 exempt income, if you can make the case to IRS that your industry job was an essential part of your educational training.

    If 2007 is your first year of filing with resident status, then you may need 8843 together with f8833 and 1040. Please double check with instructions in 1040NR and 1040, to see if your 3 months H1B can qualify you resident status, as you went through school so fast (a student needs 5 years to qualify 1040). 🙂

    Good Luck!

    Yannick

  31. latestarters Says:

    Johan,

    Thanks for coming back and sharing the solution with us! This definitely sounds right. The refund comes from the difference between your tax payment and tax liability, in your case, $0! Gee, that’s sweet!

    You may want to consider filing Form 8233 with your employer to avoid your personal free loans to Uncle Sam. 🙂

  32. tianmu Says:

    Hi Yannick,

    I appreciated your notice! I am not quality for 1040 right now, but I may file extension first then wait some days to be qualify for dual-status. To save time, I have filed 1040NR +f8843+f8833 and got tax-treaty one more time 🙂 I am not sure f8833 is required or not , but filed it just in case.

    Best,

    Tianmu

  33. latestarters Says:

    Tianmu,

    Thanks for letting me know. Best regards.

  34. Laowu Says:

    In form 8833, what should I check for ” disclosing a treaty-based return position” or “dual-resident taxpayer”?

    Also, in form 1040, what change do I need to make? Subtract $5000 from W2 wage at line 7? Anything else?

    Please help to answer, many thanks.

  35. latestarters Says:

    Laowu-

    Check ” disclosing a treaty-based return position”.

    In 1040, on line 21 (other income…), put “See attached Form 8833″ and “(5000)” as -$5000 to arrive at the correct amount on line 22.

    Good luck!

  36. Continuous 1042s 5 Part Dated Says:

    […] More Tax Returns for International Students!!! « Late Starters … 5 Explain the treaty-based return position taken: The taxpayer is a citizen of the People's Republic of China. He entered the United States on on an F-1 visa (student), and has remained in F-1 status continuously since. Under the residency rules of When I was in NR status, the part of income exempt from US tax ($5000) was put on 1042S (the school needs your 8833 form before each calendar year to put $5000 on 1042S), and deducted from W2. Therefore, it's not taxable . […]

  37. Lara Clarc Says:

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