US-UK Tax Treaty- Students

[Toby_Lee]

Can someone help me understand the verbiage in the US-UK tax treaty with regards to article 20 for students? (https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf) 

"Payments received by a student or business apprentice 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 State for the purpose of his full-time education at a university, college or other recognized educational institution of a similar nature, or for his full-time training, shall not be taxed in that State, provided that such payments arise outside that State, and are for the purpose of his maintenance, education or training. The exemption from tax provided by this article shall apply to a business apprentice only for a period of time not exceeding one year from the date he first arrives in the first-mentioned Contracting State for the purpose of his training."

I arrived in the US from the UK in August 2019 to enter grad school (full-time) on an F1 visa. As part of my course, I had to undertake an internship in the US (on CPT), which was paid, and then post graduation, since May 2020 I have been working full time in the US on OPT (also paid). Are either the internship or job exempt from US taxes since it is considered practical training linked to my education?

Or is the treaty suggesting that if I received money from outside the US (e.g. from the UK) during my full time studies, which was for the sole purposes of education/maintenance/training, only that would be exempt from US taxation?

[MarilynG1]

Yes, you are correct that income received from a Foreign Source may not be taxable in the US due to a Treaty Agreement.

Income you earned in the US is taxable in the US.

However, if you are a Student on an F1 Visa and arrived in the US in August 2019, you have not been present in the US for five years, so you would need to file a Non-Resident return through Sprintax.

TurboTax doesn't ask about your visa status, since it assumes you are a Resident if you are using it.

Click this link for more info on F1 Visa Status Filing.

This article has Tax Tips for Resident and Non-Resident Aliens. 

[Toby_Lee]

Thank you for your response. This is really useful.

However, if this is the case, how is this any different to how nonresident alien's incomes are treated if such a treaty didn't exist?

NRA's are only subject to paying US tax on US income whereas foreign income is not subject to US tax. Does this treaty really add anything?

My wife is a US citizen so am trying to figure out which is more favorable: filing as a NRA on Sprintax as MFS or being treated as a RA and MFJ on TurboTax. Sounds like I won't get a treaty benefit on my US income if MFS as a NRA based on what you said.