Table of Contents
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- Treaty Income
- Some Typical Tax Treaty Benefits
- Reporting Treaty Benefits Claimed
A nonresident alien (and certain resident aliens) from a country with which the United States has an income tax treaty may qualify for certain benefits. Most treaties require that the nonresident alien be a resident of the treaty country to qualify. However, some treaties require that the nonresident alien be a national or a citizen of the treaty country.
See Table 9-1 for a list of tax treaty countries.
You can generally arrange to have withholding tax reduced or eliminated on wages and other income that are eligible for tax treaty benefits. See Income Entitled to Tax Treaty Benefits in chapter 8.
Typical tax treaty benefits,
How to obtain copies of tax treaties, and
How to claim tax treaty benefits on your tax return.
901 U.S. Tax Treaties
Form (and Instructions)
1040NR U.S. Nonresident Alien Income Tax Return
1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents
8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
See chapter 12 for information about getting these publications and forms.
A nonresident alien's treaty income is the gross income on which the tax is limited by a tax treaty. Treaty income includes, for example, dividends from sources in the United States that are subject to tax at a tax treaty rate not to exceed 15%. Nontreaty income is the gross income of a nonresident alien on which the tax is not limited by a tax treaty.
Figure the tax on treaty income on each separate item of income at the reduced rate that applies to that item under the treaty.
To determine tax on nontreaty income, figure the tax at either the flat 30% rate or the graduated rate, depending upon whether or not the income is effectively connected with your trade or business in the United States.
Your tax liability is the sum of the tax on treaty income plus the tax on nontreaty income, but cannot be more than the tax liability figured as if the tax treaty had not come into effect.
Arthur Banks is a nonresident alien who is single and a resident of a foreign country that has a tax treaty with the United States. He received gross income of $25,900 during the tax year from sources within the United States, consisting of the following items:
|Dividends on which the tax is limited to a 15% rate by the tax treaty||$1,400|
|Compensation for personal services on which the tax is not limited by the tax treaty||24,500|
|Total gross income||$25,900|
Arthur was engaged in business in the United States during the tax year. His dividends are not effectively connected with that business. He has no deductions other than his own personal exemption.
His tax liability, figured as though the tax treaty had not come into effect, is $3,053 determined as follows:
|Less: Personal exemption||3,950|
|Tax determined by graduated rate (Tax Table column for single taxpayers)||$2,633|
|Plus: Tax on gross dividends ($1,400 × 30%)||420|
|Tax determined as though treaty had not come into effect||$3,053|
Arthur's tax liability, figured by taking into account the reduced rate on dividend income as provided by the tax treaty, is $2,843 determined as follows:
|Tax determined by graduated rate (same as figured above)||$2,633|
|Plus: Tax on gross dividends ($1,400 × 15%)||210|
|Tax on compensation and dividends||$2,843|
His tax liability, therefore, is limited to $2,843, the tax liability figured using the tax treaty rate on the dividends.
The following paragraphs briefly explain the exemptions that are available under tax treaties for personal services income, remittances, scholarships, fellowships, and capital gain income. The conditions for claiming the exemptions vary under each tax treaty. For more information about the conditions under a particular tax treaty, see Publication 901. Or, you can download the complete text of most U.S. tax treaties at IRS.gov. Enter “Tax Treaties” in the search box. Click on “United States Income Tax Treaties – A to Z.” Technical explanations for many of those treaties are also available at that site.
Tax treaty benefits also cover income such as dividends, interest, rentals, royalties, pensions, and annuities. These types of income may be exempt from U.S. tax or may be subject to a reduced rate of tax. For more information, see Publication 901 or the applicable tax treaty.
Nonresident aliens from treaty countries who are in the United States for a short stay and also meet certain other requirements may be exempt from tax on their compensation received for personal services performed in the United States. Many tax treaties require that the nonresident alien claiming this exemption be present in the United States for a total of not more than 183 days during the tax year. Other tax treaties specify different periods of maximum presence in the United States, such as 180 days or 90 days. Spending part of a day in the United States counts as a day of presence.
Tax treaties may also require that:
The compensation cannot be more than a specific amount (frequently $3,000), and
The individual have a foreign employer; that is, an individual, corporation, or entity of a foreign country.
Under many income tax treaties, nonresident alien teachers or professors who temporarily visit the United States for the primary purpose of teaching at a university or other accredited educational institution are not subject to U.S. income tax on compensation received for teaching for the first 2 or 3 years after their arrival in the United States. Many treaties also provide an exemption for engaging in research.
Generally, the teacher or professor must be in the United States primarily to teach, lecture, instruct, or engage in research. A substantial part of that person's time must be devoted to those duties. The normal duties of a teacher or professor include not only formal classroom work involving regularly scheduled lectures, demonstrations, or other student-participation activities, but also the less formal method of presenting ideas in seminars or other informal groups and in joint efforts in the laboratory.
If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens , later under Resident Aliens.
All treaties have provisions for the exemption of income earned by certain employees of foreign governments. However, a difference exists among treaties as to who qualifies for this benefit. Under many treaties, aliens admitted to the United States for permanent residence do not qualify. Under most treaties, aliens who are not nationals or subjects of the foreign country do not qualify. Employees of foreign governments should read the pertinent treaty carefully to determine whether they qualify for benefits. Chapter 10 of this publication also has information for employees of foreign governments.
Under some income tax treaties, students, apprentices, and trainees are exempt from tax on remittances received from abroad for study and maintenance. Also, under some treaties, scholarship and fellowship grants, and a limited amount of compensation received by students, apprentices, and trainees may be exempt from tax.
If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens , later, under Resident Aliens.
Most treaties provide for the exemption of gains from the sale or exchange of personal property. Generally, gains from the sale or exchange of real property located in the United States are taxable.
Resident aliens may qualify for tax treaty benefits in the situations discussed below.
In certain circumstances, individuals who are treated as residents of the United States under an income tax treaty (after application of the so-called “tie-breaker” rule) will be entitled to treaty benefits. (The “tie-breaker” rule is explained in chapter 1 under Effect of Tax Treaties.) If this applies to you, you generally will not need to file a Form 8833 for the income for which treaty benefits are claimed. This is because the income will typically be of a category for which disclosure on a Form 8833 is waived. See Reporting Treaty Benefits Claimed .
In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U.S. tax under the treaty. However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages or salaries). Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22.
Also follow the above procedure for income that is subject to a reduced rate of tax, instead of an exemption, under the treaty. Attach a statement to Form 1040 showing a computation of the tax at the reduced rate, the name of the treaty country, and the treaty article that provides for the reduced tax rate. Include this tax on Form 1040, line 63. On the dotted line next to line 63, write “Tax from attached statement” and the amount of the tax.
Jacques Dubois, who is a resident of the United States under Article 4 of the U.S.-France income tax treaty, receives French social security benefits. Under Article 18(1) of the treaty, French social security benefits are not taxable by the United States. Mr. Dubois is not required to file a Form 8833 for his French social security benefits or report the benefits on Form 1040.
Under income tax treaties with Canada and Germany, if a U.S. resident receives social security benefits from Canada or Germany, those benefits are treated for U.S. income tax purposes as if they were received under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, include them on line 1 of your Social Security Benefits Worksheet for purposes of determining the taxable amount to be reported on Form 1040, line 20b or Form 1040A, line 14b. You are not required to file a Form 8833 for those benefits.
Generally, you must be a nonresident alien student, apprentice, trainee, teacher, professor, or researcher in order to claim a tax treaty exemption for remittances from abroad for study and maintenance in the United States, for scholarship, fellowship, and research grants, and for wages or other personal service compensation. Once you become a resident alien, you generally can no longer claim a tax treaty exemption for this income.
However, if you entered the United States as a nonresident alien, but you are now a resident alien for U.S. tax purposes, the treaty exemption will continue to apply if the tax treaty's saving clause (explained later) provides an exception for it and you otherwise meet the requirements for the treaty exemption (including any time limit, explained later). This is true even if you are a nonresident alien electing to file a joint return as explained in chapter 1.
Some exceptions to the saving clause apply to all resident aliens (for example, under the U.S.-People's Republic of China treaty); others apply only to resident aliens who are not lawful permanent residents of the United States (green card holders).
If you qualify under an exception to the treaty's saving clause, you can avoid income tax withholding by giving the payor a Form W-9 with the statement required by the Form W-9 instructions.
Mr. Yu, a citizen of the People's Republic of China, entered the United States as a nonresident alien student on January 1, 2010. He remained a nonresident alien through 2014 and was able to exclude his scholarship from U.S. tax in those years under Article 20 of the U.S.-People's Republic of China income tax treaty. On January 1, 2015, he became a resident alien under the substantial presence test because his stay in the United States exceeded 5 years. Even though Mr. Yu is now a resident alien, the provisions of Article 20 still apply because of the exception to the saving clause in paragraph 2 of the Protocol to the U.S.-People's Republic of China treaty dated April 30, 1984. Mr. Yu should submit Form W-9 and the required statement to the payor.
If you claim treaty benefits that override or modify any provision of the Internal Revenue Code, and by claiming these benefits your tax is, or might be, reduced, you must attach a fully completed Form 8833 to your tax return. See below, for the situations where you are not required to file Form 8833.
You must file a U.S. tax return and Form 8833 if you claim the following treaty benefits.
You claim a reduction or modification in the taxation of gain or loss from the disposition of a U.S. real property interest based on a treaty.
You claim a credit for a specific foreign tax for which foreign tax credit would not be allowed by the Internal Revenue Code.
You receive payments or income items totaling more than $100,000 and you determine your country of residence under a treaty and not under the rules for residency discussed in chapter 1.
These are the more common situations for which Form 8833 is required.
You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
You claim a treaty reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
You claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
You are a partner in a partnership or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
The payments or items of income that are otherwise required to be disclosed total no more than $10,000.
You are claiming treaty benefits for amounts that are:
Reported to you on Form 1042-S and
Received by you:
As a related party from a reporting corporation within the meaning of Internal Revenue Code section 6038A (relating to information returns on Form 5472 filed by U.S. corporations that are 25-percent owned by a foreign person), or
As a beneficial owner that is a direct account holder of a U.S. financial institution or qualified intermediary, or a direct partner, beneficiary, or owner of a withholding foreign partnership or trust, from that U.S. financial institution, qualified intermediary, or withholding foreign partnership or trust.
The exception described in (6) above does not apply to any amounts for which a treaty-based return disclosure is specifically required by the Form 8833 instructions.
Table 9–1. List of Tax Treaties (updated through December 31, 2014)
Note. You can find the text of the tax treaties listed below on IRS.gov. Enter “Tax Treaties” in the search box. Click on “United States Income Tax Treaties – A to Z.”
|Australia||Dec. 1, 1983||Kazakhstan||Jan. 1, 1996|
|Protocol||Jan. 1, 2004||Korea, South||Jan. 1, 1980|
|Austria||Jan. 1, 1999||Latvia||Jan. 1, 2000|
|Bangladesh||Jan. 1, 2007||Lithuania||Jan. 1, 2000|
|Barbados||Jan. 1, 1984||Luxembourg||Jan. 1, 2001|
|Protocol||Jan. 1, 1994||Malta||Jan. 1, 2011|
|Protocol||Jan. 1, 2005||Mexico||Jan. 1, 1994|
|Belgium||Jan. 1, 2008||Protocol||Oct. 26,1995|
|Bulgaria||Jan. 1, 2009||Protocol||Jan. 1, 2004|
|Canada1||Jan. 1, 1985||Morocco||Jan. 1, 1981|
|Protocol||Jan. 1, 1996||Netherlands||Jan. 1, 1994|
|Protocol||Dec.16, 1997||Protocol||Jan. 1, 2005|
|Protocol||Jan. 1, 2009||New Zealand||Nov. 2, 1983|
|China, People's Republic of||Jan. 1, 1987||Protocol||Jan. 1, 2011|
|Commonwealth of Independent States2||Jan. 1, 1976||Norway||Jan. 1, 1971|
|Cyprus||Jan. 1, 1986||Protocol||Jan. 1, 1982|
|Czech Republic||Jan. 1, 1993||Pakistan||Jan. 1, 1959|
|Denmark||Jan. 1, 2001||Philippines||Jan. 1, 1983|
|Protocol||Jan. 1, 2008||Poland||Jan. 1, 1974|
|Egypt||Jan. 1, 1982||Portugal||Jan. 1, 1996|
|Estonia||Jan. 1, 2000||Romania||Jan. 1, 1974|
|Finland||Jan. 1, 1991||Russia||Jan. 1, 1994|
|Protocol||Jan. 1, 2008||Slovak Republic||Jan. 1, 1993|
|France||Jan. 1, 1996||Slovenia||Jan. 1, 2002|
|Protocol||Jan. 1, 2007||South Africa||Jan. 1, 1998|
|Protocol||Jan. 1, 2009||Spain||Jan. 1, 1991|
|Germany||Jan. 1, 1990||Sri Lanka||Jan. 1, 2004|
|Protocol||Jan. 1, 2008||Sweden||Jan. 1, 1996|
|Greece||Jan. 1, 1953||Protocol||Jan. 1, 2007|
|Hungary||Jan. 1, 1980||Switzerland||Jan. 1, 1998|
|Iceland||Jan. 1, 2009||Thailand||Jan. 1, 1998|
|India||Jan. 1, 1991||Trinidad and Tobago||Jan. 1, 1970|
|Indonesia||Jan. 1, 1990||Tunisia||Jan. 1, 1990|
|Ireland||Jan. 1, 1998||Turkey||Jan. 1, 1998|
|Israel||Jan. 1, 1995||Ukraine||Jan. 1, 2001|
|Italy||Jan. 1, 2010||United Kingdom||Jan. 1, 2004|
|Jamaica||Jan. 1, 1982||Venezuela||Jan. 1, 2000|
|Japan||Jan. 1, 2005|
|1Information on the treaty can be found in Publication 597, Information on the United States-Canada Income Tax Treaty.|
|2The U.S.-U.S.S.R. income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova,
Turkmenistan, and Uzbekistan.
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