Tax Treaties between the U.S. and Foreign Governments
A tax treaty is an agreement between two governments under which each agrees to limit or modify its domestic tax laws in an attempt to avoid double taxation of income. The United States currently has tax treaties in effect with over 60 countries, but not all of these tax treaties are relevant to international students and scholars.
Tax treaties contain provisions called "articles." Many treaties include articles designed to foster educational and cultural exchanges between the two treaty countries. These articles may provide some type of an exemption from U.S. tax on income received by students and scholars. However, Tax Treaties are not all equal and the student/scholar should review the treaty with his/her own country to determine if there are any potential benefits. Generally, tax treaty benefits may apply if you received:
- gifts from abroad for purposes of maintenance or study
- grants, allowances and awards from government or tax exempt organizations
- income earned from the provision of personal services
- income earned from teaching or research performed at an academic institution.
There are usually restrictions about who may qualify to use the benefits and the amount of money which is exempt from taxation. Most articles require that the individual be a resident of the treaty country immediately prior to coming to the U.S.
Claiming Tax Treaty Benefits
An individual from a tax treaty country must complete and file Form 8233 in order to qualify for any benefit. Form 8233 must be filed annually at the beginning of each calendar year. IRS Publication 901, U.S. Tax Treaties, provides an excellent summary of the tax treaties in effect. IRS Publication 519, U.S. Tax Guide for Aliens, is also an excellent resource as it provides detailed information on the filing of US Income Taxes for nonresidents.