Resident Alien Claiming a Treaty Exemption for a Scholarship or Fellowship
An alien student, trainee, or researcher may claim a treaty exemption for a scholarship or fellowship by submitting Form W-8BEN (PDF) to the payer of the grant. However, a scholarship or fellowship recipient who receives wages and a scholarship or fellowship from the same institution both of which are exempt from tax under a tax treaty can claim treaty exemptions on both kinds of income on Form 8233 (PDF).
The scholarship or fellowship recipient who is claiming a treaty exemption must provide the withholding agent with his or her TIN on Form W-8BEN or on Form 8233, or the withholding agent cannot allow the treaty exemption. If a payee does not have a Taxpayer Identification Number (TIN) at the time he claims a tax treaty exemption on Form 8233, he is allowed to attach a copy of Form W-7 (PDF) or a copy of Form SS-5 (PDF), or other document from the Social Security Administration showing that a social security number (SSN) has been applied for, to the Form 8233 showing that an application for a TIN has been made. A Form W-8BEN without the payee TIN cannot be accepted for purposes of claiming a tax treaty exemption.
Nonresident Alien Who Becomes a Resident Alien
Generally, only a nonresident alien individual may use the terms of a tax treaty to reduce or eliminate U.S. tax on income from a scholarship or fellowship grant. A student (including a trainee or business apprentice) or researcher who has become a resident alien for U.S. tax purposes may be able to claim benefits under a tax treaty that apply to reduce or eliminate U.S. tax on scholarship or fellowship grant income. Most treaties contain a provision known as a "saving clause." Exceptions specified in the saving clause may permit an exemption from tax to continue for scholarship or fellowship grant income even after the recipient has otherwise become a U.S. resident alien for tax purposes. In this situation, the individual must give the withholding agent a Form W-9 (PDF) to claim his treaty exemption and an attachment that includes all the following information:
- The individual's name
- The individual's U.S. Taxpayer Identification Number (TIN)
- A statement that the individual is a resident alien under
- The green card test
- The substantial presence test, or
- The residency article of a tax treaty
- The tax treaty under which the individual is claiming a benefit
- The article number of the tax treaty under which the individual is claiming a benefit, and a description of the article
- A statement that the individual is relying upon an exception to the saving clause of the tax treaty to claim the benefit
Example: Article 20 of the U.S.-China income tax treaty allows an exemption from tax for scholarship income received by a Chinese student temporarily present in the United States. Under the Internal Revenue Code, a student may become a resident alien for tax purposes if his or her stay in the United States exceeds 5 calendar years. However, the treaty allows the provisions of Article 20 to continue to apply even after the Chinese student becomes a resident alien of the United States.
Caution: The student/trainee and teacher/researcher articles of the tax treaties generally contain time limits beyond which a treaty exemption may not be claimed. An alien student/trainee or teacher/researcher who has become a resident alien of the United States should consult the applicable tax treaty article to make sure that the time limit for the treaty benefit has not expired. If the treaty article time limit has expired, the student/trainee or teacher/researcher is not allowed to claim any further tax exemption under the applicable treaty article.