TAX TREATY EXEMPTED INCOME QUESTION

[swongtax]

Hi Everyone,

I have a quick question...am trying to help someone to finish their 1040NR return without charging them.

This person has a contract job, net profit is $1700, but the Tax Treaty benefit will not automatically calculate on the online software (sprintax.com) that she is using.  I played around with it for a while, and just can't find an option to activate the tax treaty income exemption rule.  So, I am wondering if China tax treaty (20) exemption - does it exempt only W-2 income but not 1099-NEC income??

Thank you for your help in advance!

SW

[sjrcpa]

Have you read the treaty?

[swongtax]

Yes! I have read the Treaty many times, and I have prepared Form 1040NR forms in the past with issues  (with W-2 income only).  We all know that the tax language can be unclear.

According to the Tax Treaty language, I do believe 1099 income qualifies for Income Tax Treaty exemption (wages or compensation for personal services provided in the US), and it is the client's tax software that is having issues.

Thanks!

SW

[swongtax]

"without issues"

[sjrcpa · Accepted solution]

Sounds like the 1099-NEC income is for personal services and would qualify for the treaty exemption.

Is there a dollar limit for this exemption, and if yes, are the earnings below it?

[swongtax]

The dollar limit is $5000, and the client's net profit from 1099-NEC income is well below that.

I have advised the client to reach out to her software/ sprintax LIVE chat directly to help with applying the Income Tax Treaty.  I've already spent too much time trying to help 😞

Thank you for responding.

SW