China – USA F-1 Tax Treaty (Students and Trainees)
Article 20 of the US-China Tax Treaty provides that a resident of China who goes to the USA for the purpose of education, training or obtaining technical experience shall be exempt from tax in the United States on payments received from abroad for the purpose of his maintenance, education, or training, grants from a tax-exempt organization, and up to $5,000 per year of income for personal services performed in that other State.
This means that F-1 Students from China are entitled to the following benefits
$5000 exemption for wages or compensation per year: Article 20(c)
Unlimited exemption for scholarship, stipend, fellowship and other type of payments received from abroad: Article 20(b)
Eg , Eli was admitted to University of Denver as a full time international student , Eli arrived in U.S in 2019 to pursue his graduate studies , during the course of the year Eli received $50,000 scholarship/stipend from an institution in China , Eli also as part of the CPT program worked for an engineering firm on a part time basisand earned $10,000.
For 2019, Eli will exclude from his US tax return the entire $50,000 scholarship or stipend he received from abroad, Eli will also Exclude $5,000 from the $10,000 total income he received as a contractor, consultant or employee with the engineering firm. Eli will therefore report a taxable income of $5,000 to the IRS on his 2019 tax return.
Under the Internal Revenue Code, a student may become a resident alien for tax purposes if his or her stay in the United States exceeds 5 calendar years. In most cases, the student will become a resident for federal tax purposes in their sixth calendar year.
Students from China can continue to claim the treaty benefits on their resident alien tax return (if they still meet the definition of a student).
This treaty is not applicable to Chinese citizens who are residents of Hong Kong or Macao.
These exemptions may be claimed only for the period reasonably necessary to complete the education or training. In some cases, the course of study or training may last less than year. For most undergraduate college or university degrees the appropriate period will be four years.
For some advanced degrees, such as in medicine, the required period may be longer, e.g., seven years.
***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**