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< Back to current issue of Immigration Daily < Back to current issue of Immigrant's Weekly

Tax Treaty Benefits For Students And Business Apprentices From India

by Paula Singer, Esq.

The United States has income tax treaties with over 60 countries, all of which provide exemption from tax for residents of the treaty country who come to the United States for the primary purpose of their education or training. U.S. treaty policy as embodied in Article 20 of the U.S. Model Treaty is to provide tax exemption for payments for full-time education and training that arise outside the United States. Over one-half of the U.S. treaties provide for such a limited benefit for students and trainees including Article 21(1) of the treaty with India. However, the treaty with India provides an additional benefit for students and business apprentices.

Unique Treaty Benefit

Article 21(2) of the treaty with India provides a unique benefit for students and business apprentices who were residents of India immediately before visiting the United States for the purpose of their education or training. These students and apprentices are entitled, during such education and training, to “the same exemptions, reliefs, or reductions in respect of taxes available to residents” of the United States. (IRS treaty policy does not allow treaty benefits for individuals who enter the United States in one status, such as H-1B or F-2, and later change their status to that of a student or trainee.)

The IRS issued Revenue Procedure 93-20 interpreting Article 21(2).

1. Resident or Nonresident

Students and business apprentices are not treated as residents by virtue of Article 21(2) of the treaty. They will only be treated as residents of the United States if they meet one of the two residency tests specified in Section 7701(b) of the Internal Revenue Code. Under these tests, foreign nationals who are U.S. lawful permanent residents or who are substantially present in the United States under the 183-day residency formula are residents of the United States. The same residency rules apply to dependents in derivative status (such as F-2 and J-2) who accompany students and apprentices.

Students and apprentices who do not meet one of the residency tests remain nonresidents and must submit a Form 1040NR or 1040NR-EZ tax return, not a Form 1040.

2. Filing Status

Married nonresidents must file separately using married filing separately rates (the highest rates). An exemption, relief, or reduction does not include the ability to file a joint return or to use head of household status and rates.

Nonresidents married to a U.S. citizen or resident may elect to file as a resident under Section 6013(g) of the Code and use married filing jointly rates (the lowest rates). Instructions for this election are in IRS Publication 519, U.S. Tax Guide for Aliens. (Residents making this election must include their worldwide income in their Form 1040 tax return.) This election is available for wage withholding purposes as well.

3. Personal Exemptions

Generally, nonresidents may claim only one personal exemption. Also, personal exemptions for dependents generally may only be claimed for U.S. citizen or resident dependents.

Students and apprentices from India may claim additional personal exemptions under Article 21(2) of the treaty. They may claim a spousal exemption provided the spouse has no gross income and is not the dependent of another taxpayer. Personal exemptions may also be claimed for children born in the United States (because they are U.S. citizens) and dependents who become residents under the 183-day formula.

Students and apprentices with employment income may use the additional exemptions on their Form W-4. Recipients of taxable scholarships or fellowships who do not use their personal exemptions for employment income may use these personal exemptions as a withholding allowance to offset their taxable grants on Form 1042-S.

Students and apprentices claiming more than one personal exemption on their tax return must use Form 1040NR.

4. Standard Deduction

Unlike other nonresidents, students and apprentices from India may claim the standard deduction on their nonresident tax return. The standard deduction for single and married filing separately status is the same. They may not use the standard deduction for married filing jointly status.

This treaty benefit is reflected in the new calculation procedures for withholding on wages for nonresident employees. Wages of students and apprentices eligible for the treaty benefit are not adjusted to offset the standard deduction built into the wage withholding table because they can claim the standard deduction.

NOTE: Students working on-campus as teaching or research assistants or off-campus as teachers or researchers for practical training may not claim the benefits of Article 22, Payments Received by Professors, Teachers, and Research Scholars because their primary purpose for being in the United States is to study.


About The Author

Paula Singer, Esq. CEO of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: info@windstar.com.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.


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