Question about filing as resident alien and having 1042-S for tax treaty

Question

Hi, I have very complex tax situation this year and I'd really appreciate your help.

Long story short,

(a) I'm a PhD student in US from China and I became a resident alien in July in 2019.

(b) I am receiving a 1042-S which includes the information of tax treaty Article 20(c) $5000 exemption.

(c) On my W-2, the "1. wages, tips, other compensation" section has reflected that the $5000 is deducted from "16. state wages, tips, etc", though it's really never exactly $5000 but always a few hundred dollars short for some reason.

(d) I received scholarship in 2019 and the correlated 1098-T. My employer did not withhold any tax for the scholarship part of income for me. Also, the 1042-S I received did not reflect any scholarship income.

The VITA at my school has processed the tax return for me but then there are serious questions I have that need to be answered before having my return filed.

1. I was prompted to do my research online and I found I was regarded as dual-status alien, which doesn't allow me to claim standard deduction and is a lot more complex. However, there's also an exemption on IRS website that as a student I can exempt the part of the year as NRA to just file as RA. That's exactly what happened to me after I became an RA and refiled paperwork for stipend and my net income indeed increased quite a bit because my federal tax withholding dropped. May I ask is that the case for me so I can still file 1040 and claim standard deduction?

2. Most serious question, after finishing my tax return package and ready for e-file, my VITA preparer suddenly told me that it's best for me to mail in instead of e-file because they cannot attach the 1042-S form to my tax return package and they don't want me to be penalized if IRS were to investigate why am I exempting so much. May I ask is that true, that if I'm receiving 1042-S, I have to file by mail even though I am a resident alien now? Is 1042-S a must when you e-file or you only need to keep it on your record? It would be fine to mail in but considering the current situations it will take a lot longer to get the refund.

3. Get back to the scholarship, my preparer told me that I can actually claim US-China tax treaty Article 20(b) to exempt my entire scholarship income from my federal tax AT THE SAME TIME when I also claim $5000 exemption based on Article 20 (c). I did go to check the statute myself and there is an "and" between 20(b) and 20(c). May I just verify is it true? What the preparer did for me was to include a Supporting Statements for OTHER INCOME in the tax return package and have the Article 20(b) exemption listed as a negative value of the total amount of the taxable part of my scholarship.

4. If I e-file, do I still need to submit Form 8833? If I have to mail in at last, do I need to file two 8833 forms because I would be claiming two tax treaty exemptions?

Thank you so much for your help!

KarenJ2 · Answer

Please advise how you calculated that you became resident in the US in July 2019? Did your visa change then? Were you on a J1 or F1 visa previously? If so, when did you arrive in the US as an international student? If you did become a resident in July 2019, you would need to file a dual status return.

Please provide the link to the exemption on the IRS website that will allow a NRA to file as a US resident. This is true if you are ,married and make an election to file married filing jointly with your spouse.

You indicated that your W-2 indicates that the $5,000 treaty exemption was deducted from your state wages Does your state allow for the treaty exemption?

If you can file as a US resident with TurboTax, you do not need to attach your 1042-S to your return. Just keep it with your tax records. The IRS receives a copy of the 1042-S.

According to the IRS website, International taxpayers claiming tax treaty benefits see below.

Exceptions

You do not have to file Form 8833 for any of the following situations:

You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
You claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.