Canada Tax Treaty for F-1 and J-1 Students: $10,000 Wage Exemption Under Article XV(2)

# Canada Tax Treaty for F-1 and J-1 Students: How to Claim Your $10,000 Wage Exemption

If you are a student from Canada studying in the United States on an F-1 or J-1 visa, you may be eligible to exempt up to $10,000 per year in wage income from US federal income tax under the US-Canada income tax treaty.

This guide explains who qualifies, how the exemption works, and how to claim it on your US tax return.

Who Qualifies?

To claim the Canada treaty wage exemption, you must meet all of the following conditions:

You are a resident of Canada (or were immediately before coming to the US) for purposes of the tax treaty.

You are in the US primarily for education or training — typically on an F-1, J-1, M-1, or Q-1 student or trainee visa.

You are a nonresident alien for US tax purposes (or a resident alien who qualifies under the treaty's saving clause exception).

Your income is from personal services — this includes wages from campus employment, teaching or research assistantships, OPT, and CPT.

How the Canada Treaty Exemption Works

This is critical to understand: Canada's treaty works differently from every other country's student treaty provision.

Most countries use a dollar cap — for example, under the China treaty, the first $5,000 of wages is exempt and anything above that is taxable. So a Chinese student earning $8,000 would have $5,000 exempt and $3,000 taxable.

Canada uses an all-or-nothing threshold under Article XV(2). Here is how it works:

If your total US wages for the tax year are $10,000 or less, your entire wage income is exempt from federal tax. A student earning $9,500 pays $0 in federal income tax on those wages.

If your total US wages exceed $10,000 — even by $1 — your entire wage income is taxable. A student earning $10,001 owes federal income tax on the full $10,001. There is no partial exemption.

This creates a significant "cliff" effect that you must be aware of.

Quick Comparison

Important: The $10,000 Limit Applies to ALL Your Wages Combined

If you work multiple jobs, the $10,000 threshold applies to your total combined wages from all employers. For example, if you earn $6,000 from a campus job and $5,000 from an OPT position, your total is $11,000 — which exceeds $10,000, making the entire $11,000 taxable.

Is There a Time Limit?

No. The Canada treaty has no time limit on the student wage exemption. You can claim the $10,000 exemption every year for as long as you remain in the United States for the purpose of your education or training. This applies even if you transition from nonresident to resident alien status for tax purposes, as long as the treaty's saving clause exception covers you.

State Tax Implications

Tax treaty benefits apply to your federal income tax return (Form 1040-NR). State tax treatment varies because states are not parties to federal tax treaties and decide independently whether to honor them.

States that honor federal treaty benefits (treaty-exempt income stays excluded):

New York: Honors the federal treaty through AGI conformity. The IT-203 starts from federal adjusted gross income, which already excludes your treaty-exempt wages. There is no add-back. Your treaty benefit carries through to your New York return.

Illinois: Honors the federal treaty. The IL-1040 begins from federal AGI, and Illinois has no modification requiring treaty-exempt income to be added back.

Most other states with income taxes also honor treaties through the same AGI conformity mechanism.

States that do NOT honor federal treaty benefits (treaty-exempt income is added back and taxed):

California: Explicitly rejects all federal tax treaties. Under Revenue and Taxation Code § 17024.5(b)(11), California does not adopt federal provisions relating to nonresident aliens. You must add your treaty-exempt amount back on Schedule CA (540NR), and California will tax it as California-source income.

12 other states also reject treaties: Alabama, Arkansas, Connecticut, Hawaii, Kansas, Kentucky, Maryland, Mississippi, Montana, New Jersey, North Dakota, and Pennsylvania.

If you study or work in one of the 13 states that reject treaties, you will owe state income tax on wages that are exempt at the federal level.

How to Claim This Benefit on Your Tax Return

When filing your US tax return (Form 1040-NR), the Canada treaty exemption is reported as follows:

Line 1a (Wages): Enter your total wages minus the treaty-exempt amount. If your total wages are $10,000 or less, enter $0.

Line 1k (Tax treaty exempt income): Enter the exempt amount. If eligible, this is your full wage amount (up to $10,000).

Schedule OI (Other Information), Item L: Report the treaty claim with:

- Country: Canada

- Treaty Article: XV(2)

- Exempt Amount: the dollar amount you are claiming

You should also have Form 8233 on file with your employer to reduce withholding during the year, and you may need to attach Form 8833 (Treaty-Based Return Position Disclosure) to your tax return if required.

What Income Qualifies?

The treaty exemption under Article XV(2) applies to compensation for personal services performed in the United States. This includes:

Wages from on-campus employment

Teaching assistant (TA) and research assistant (RA) stipends reported as wages

Wages earned during OPT (Optional Practical Training)

Wages earned during CPT (Curricular Practical Training)

Other employment compensation reported on Form W-2

It does not apply to:

Scholarship or fellowship grants (these may be covered under a different treaty article)

Investment income (interest, dividends)

Self-employment income (in most cases)

What Else Should Canadian Students Know?

Canada's treaty works fundamentally differently from every other country on this list. Instead of a dollar cap where the first X dollars are exempt and the rest is taxable, Canada uses an all-or-nothing threshold. If your total US wages for the year are $10,000 or less, the entire amount is exempt. But if your wages exceed $10,000 — even by a single dollar — the entire amount becomes taxable, including the first $10,000. There is no partial exemption. This means a Canadian student earning $10,000 pays $0 in federal tax on those wages, but a student earning $10,001 would owe tax on the full $10,001. There is no time limit on this benefit.

File Your Canada Treaty Claim Accurately

Claiming your tax treaty benefit correctly can save you hundreds or even thousands of dollars in federal income tax. Our platform fully supports the US-Canada treaty under Article XV(2) and will automatically calculate your exempt amount, populate the correct lines on Form 1040-NR, and generate the required Schedule OI disclosure.

Start your nonresident tax return today to claim the treaty benefits you are entitled to.