[Individual]China & U.S. Treaty --Who are eligible to exempt income tax(Jan-20-2011, 88 days)

Article 16 (Artistes and Athletes)

Incomes derived by an entertainer or athlete from activities exercised in accordance with a special program for cultural exchange agreed upon by both governments are exempt from tax.

But income derived from their personal activities (e.g. exercised in U.S. ) may be taxable.

Article 19 (Teacher, Professors and Researchers)

Teacher, professors and Researchers should be exempt from tax for a period not exceeding 3 years in the aggregate , if they meet the following requirements:

• A resident of China, immediately before visiting U.S.
• Primary purpose is to teach, give lectures or conducting research

Article 20 (Students and Trainee)

A student, business apprentice or trainee (resident of china, immediately before visiting U.S. ) should be exempt from tax with respect to:

• Payments from abroad for the purpose of his maintenance, education, study, research or training;
• Grants or awards from a government, scientific, educational or other tax-exempt organization;
• Income from personal service performed in an amount not in excess of 5,000 U.S. Dollar.

This Article shall extend only for such period of time as is reasonably necessary to complete the education or training. It means students who claim as resident alien are also can benefit from this Article.

There is a very clear example on Publication 519 Page 58 Example. It says that "even though Mr. Yu is now a resident alien, the provisions of Article 20 still apply. Mr. Yu should submit Form W-9 and the required statement to the payor.

If your employer failed to deduct your first $5,000 from your taxable income, you can file Form 8833 when you do the tax refund next year.

How to report your income on tax return files?

First, you must make sure whether your taxable income includes the exemption part.

Second, if it is not included, you don't need to worry about anything. If it is included, you should follow the instruction below:

e.g. Form 1040

Line 7 (wages, salaries, scholarships, or fellowships): your taxable income on a Form W-2, Form 1042-s, Form 1099

Line 21: The amount for which treaty benefits are claimed, e.g. 5000. Next to the amount write " Exempt Income" , the name of the treaty county and Article Number.

PSQ

Source: http://www.irs.gov