US China Tax Treaty for F1 OPT RA

[biyao73]

Hi,

I graduated from university and I am currently on F1 OPT while working for a tech company. I have become a RA for tax purposes so may I ask if the US-China tax treaty Article 20 ($5000 tax credit) still applies to me? 

Thanks a lot!

[tagteam]

@pk?

[pk · Accepted solution]

@biyao73 , the article you refer to is indeed applicable to you  , provided you have not any steps  to (a) declare that you are no longer learning  i.e. either in school or  practical training like CPT/OPT and (b) that you  have taken no steps move yourself from "temporarily" in the US to a more permanent posture  like applying for  permanent residence. 

Thus assuming that you are still on your F visa and have become a Resident for Tax Purposes only because you have passed the SPT, you are still eligible to assert  article 20 of the US/China tax treaty conditions to exclude  the first US$5000 of annual income from US taxation.  Also note that the article does not put a time limit -- just "reasonable time ".

Where I have worries would be the case where one Resident for Tax purposes  student marries US citizen--- it is murky water and IRS will decide on a case by case basis  depending on exact facts and circumstances.

Does that help ?

pk

@tagteam 

[biyao73]

Hi,

Thanks a lot for the response!

So based on my understanding, as long as I am still on the F-1 visa, the treaty still applies. But If I switch to H1B status next year, such as in May, will my first $5000 earnings from Jan-April still be exempt from US taxes?

Thanks so much!

[pk]

@biyao73 , that is correct --- once you switch to H1-B, you are no longer a student and as such the article 20 is no longer applicable  since you are  not " temporarily in the USA for education and/or training" but for work / earning.  There are of course nuances to this  and decision can  only be made with when all the  facts and circumstances are available.    Hypo cases are difficult to take a position on.

pk

[biyao73]

Thanks so much for your help and patience!

I have one last question: Since I am now qualified for the tax exemption(first $5000), should I 

1. clarify the tax exemption on W-4 (if there is a way to do it)before the first paycheck to avoid any tax withholdings for the first $5000 income; 

or 2. get standard tax withholdings throughout 2022 and then claim the excessive tax withholdings for the first $5000 income back when I file for the 2022 tax return in 2023. 

Will both methods work?  Based on what I have known, maybe approach 2 is more common? 

Thanks again!

[pk]

@biyao73 ,  while you can follow either path . While the former path  will take an effort  ( to make sure that you are at least sufficiently withheld), the latter requires no effort, safe ( little chance of under-withheld) and easy. Secondly, in either path you still have to fill out the schedule-OI. 

Perhaps I did not clarify  that   even if you pass SPT but still on F-1 ( or similar student/trainee visa), you can still retain the non-resident  tax status. This implies that you still file 1040-NR,use Schedule-OI but include form 8840  ( closer connection exception statement).

Please see this link --> https://www.irs.gov/individuals/international-taxpayers/the-closer-connection-exception-to-the-subst....

Note that  as this underlines, the onus is on the student/requester to prove that he/she should be considered non-resident.

A second point to note there is that because TurboTax does not support  form 1040-NR ( and its related schedules ), you will have to use other avenues to help prepare the return ( e.g.  your school's international student service,  SprinTax, Tax professional familiar with international filing,  etc. etc. ). We can, however, help you in this forum with no problem.

Does all this make sense ?   What  more can I do for you ?

pk

[biyao73]

That makes sense!

But if I choose to file as a Resident Alien, can I still claim the $5000 exemption by subtracting $5,000 on the Form 1040 Schedule C Part I Line 1 and submitting form 8833?

Thanks so so much again!

[pk]

@biyao73 , I hate to say this but --- generally it is best to keep things simple where the IRS is concerned.  Don't really understand why you are trying your hardest to file a resident --- the only advantage being  ability to use standard deduction and whole bunch of credits ( if you are eligible ).  What are you trying to achieve ?  What are you not telling us ?

First  for wages income you CANNOT use Schedule C without exposing yourself to  Self-employment tax ( which you are excluded from because you are student ).

Second form 8833 is  generally for assertion of  treaty benefit positions where IRS rules conflict with treaty assertions -- don't see how this applies to you.

Third, if I assume that you are a student , unmarried and all you want to do is to exercise the exclusion of  the first US$5000 of yearly earnings from US taxes ,  what is your tax advantage  by being a  tax resident -- do you other incomes ( non student type ) or what? Why do you need the standard deduction of $12,550 + ?

Please help me understand  your situation --yes ?

[biyao73]

Hi,

Thanks a lot for the clarification!

To provide more information regarding my situation: as mentioned in the question description, I am indeed still on the F-1 visa but I graduated from the University and now work as a full time software engineer on the F-1 OPT. Hence, I don't know if I am still a "student/trainee". I have not been transferred to be on a H1B visa yet but I will participate in the H1B lottery every year.

Based on the requirements of filing as NRA after passing PST, it says that "the student has not taken any steps to change their nonimmigrant status in the United States toward becoming a lawful permanent resident of the United States." I don't know if participating in H1B lottery will violate this requirement. 

Meanwhile, for my 2021 tax return, I have filed as a RA and received education credit benefits by proving eligibility. Hence, I assume filing as NRA for 2022 doesn't really make sense. Hence, may I ask if I can still utilize the $5000 tax treaty if I file as a RA? 

I apologize for any confusion and I hope this clarifies things  🙂

[pk]

@biyao73  with the additional info provided in your latest -- (a) that you filed as a Resident for Tax purposes {TY 2021} and (b) that you are using OPT as a stepping stone to H1-B, I think you should  continue to file as Resident for tax purposes . Additionally , while the text of the  Tax Treaty  does allow you to assert article 20 benefits, I think such assertion would go against the spirit of the treaty ( because  you have  or are taking steps to change your status from "learning" to "employee".  IMHO

is there more I can do for you ?

[biyao73]

That answers all my questions! Thanks a lot!