Tax Treaty Benefits for Chinese F1 Students: The Complete Article 20 Guide

If you're an F1 student from China, you have access to valuable tax benefits under Article 20 of the US-China Tax Treaty - including a $5,000 exemption on wages and scholarships.

But there's a lot of confusion about how this treaty works. Let's clear it up.

What Article 20 Actually Says

Article 20 of the US-China Income Tax Treaty provides three main benefits for Chinese students:

Article 20(b): Scholarship Exemption

Payments from a government, scientific, educational, or other tax-exempt organization received as scholarships, fellowships, or grants are fully exempt from U.S. tax.

Article 20(c): $5,000 Wage Exemption

The first $5,000 of income from personal services (wages, compensation) performed in the U.S. is exempt from tax.

This applies to:

On-campus employment

CPT wages

OPT wages

Research assistantship wages

Key Difference: Compensation vs. Grant

Look at your tax forms:

W-2 = Compensatory wages (use $5,000 exemption)

1042-S with Income Code 16 = Scholarship income (may be fully exempt)

1042-S with Income Code 20 = Compensation during studying/training (use $5,000 exemption)

Example: How the $5,000 Exemption Works

Scenario: You earned $45,000 on OPT in 2025.

Without treaty:

Taxable income: $45,000

Deductions: $0 (nonresidents can't claim standard deduction unless from India)

Tax: ~$5,545

With China treaty ($5,000 exemption):

Gross income: $45,000

Treaty exemption: -$5,000

Taxable income: $40,000

Tax: ~$4,545

Savings: $1,000

Who Qualifies for Article 20 Benefits?

You must meet ALL of these criteria:

You were a resident of China immediately before coming to the U.S.

You're temporarily present in the U.S. for education or training

You're in F, J, M, or Q visa status

You haven't exceeded a "reasonable period" for completing your education

What About After 5 Years? (This Is Important!)

Here's where the China treaty is special: you can continue claiming Article 20 benefits even after becoming a resident alien for tax purposes.

So in Year 6 and beyond:

You file Form 1040 (not 1040-NR) as a resident alien

You can STILL claim the $5,000 exemption under Article 20

You must file Form 8833 to disclose the treaty position

How to Claim Article 20 on Your Tax Return

If You're a Nonresident (First 5 Years):

Form 1040-NR:

Report your total wages on the appropriate line

On Schedule OI, Item L, enter "China" and "Article 20(c)"

Enter the exempt amount ($5,000 or your total wages if less) as a negative adjustment

If You're a Resident Alien (After 5 Years):

Form 1040:

Report your total wages

Enter the $5,000 exemption as "Other Income" with a negative amount

Description: "US-China Tax Treaty Article 20(c) exemption"

Form 8833: Required when claiming treaty benefits as a resident alien.

Important Limitations

1. Hong Kong and Macao Residents Don't Qualify

The US-China treaty applies only to residents of the People's Republic of China (Mainland China). If you're from Hong Kong SAR, Macao SAR, or Taiwan, you cannot claim Article 20 benefits.

2. Can't Combine With Standard Deduction

As a nonresident, you get the $5,000 exemption but NO standard deduction. As a resident alien, you can claim both.

3. State Taxes Don't Honor Treaties

California, New York, and most states do not recognize federal tax treaties. Your full income is taxable at the state level.

4. Changing to H1B Ends Treaty Benefits

The moment you change from F1 to H1B status, you're no longer "a student temporarily present for education." Article 20 benefits end.

Common Questions

Is the $5,000 exemption per year or lifetime?

Per year. You can claim $5,000 each tax year as long as you qualify.

What if I earned less than $5,000?

Then your entire income is exempt. You cannot "carry forward" unused exemption to future years.

Can I claim both the scholarship exemption AND the $5,000 wage exemption?

Yes. Article 20(b) and 20(c) are separate provisions.