Tax Reporting & Withholding

What is the individual’s residency status for U.S. tax purposes? Please refer to the response in Section 6C of the International Information Form (IIF), if applicable.

• U.S. Citizen or U.S. Permanent Resident (i.e., green card holder)
  This site is not applicable to U.S. citizens or U.S. permanent residents (i.e., greencard holders). Please refer to University Procedure 3401 PR.2  with respect to required documentation.
• Non-resident Alien section
• Resident Alien section

Payments made to nonresident aliens pursuant to an income tax treaty are generally subject to reduced withholding. These payments are reported on a Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, annually. For purposes of this section, payments include:

• Honorarium
• Payment for Independent Personal Services
• Royalty
• Fellowship or Scholarship
• Prize or Award
• Expense Reimbursements (reimbursements that are not paid pursuant to University policy)

Exception: Substantiated expense reimbursements paid pursuant to University policy are not subject to withholding or reporting.

CT Athlete and Entertainer Withholding Tax

The Connecticut athlete and entertainer withholding tax (“A&E” tax) generally must be withheld by the University at the rate of 6.7% regardless of treaty exemption on payments of more than $1,000 for a performance (or series of performances):

• For services performed in Connecticut;
• By an athlete or entertainer (hereinafter “performer” or “performing entity”);
• Who is not a Connecticut resident; and
• Who is not considered an employee of the University for federal tax purposes.

The State of Connecticut considers a wide variety of personal service providers to be performers who are subject to the A&E tax including, for example, public speakers and lecturers, referees, writers, directors, bands and actors.

See Policy 3410 for an in depth discussion of the A&E tax, including an extensive list of performers and performing entities subject to the A&E tax. See Procedure 3410 PR.1 for guidance with respect to obtaining exemption or reduced rate of withholding from the A&E tax.

Non-resident Alien: No Tax Treaty Benefit

Payments made to nonresident aliens are generally subject to federal income tax withholding at a rate of 30% (see exceptions, below) and are reported on a Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, annually. For purposes of this section, payments include:

• Honorarium
• Payment for Independent Personal Services
• Royalty
• Fellowship or Scholarship
• Prize or Award
• Expense Reimbursements

Exception 1: Substantiated expense reimbursements paid pursuant to University policy are not subject to withholding or reporting.

Exception 2: Fellowships/Scholarships paid to an individual in F-1 or J-1 status are subject to a reduced withholding rate of 14%. These payments are reported on a Form 1042-S.

CT Athlete and Entertainer Withholding Tax

The Connecticut athlete and entertainer withholding tax (“A&E” tax) generally must be withheld by the University at the rate of 6.7% on payments of more than $1,000 for a performance (or series of performances):

• For services performed in Connecticut;
• By an athlete or entertainer (hereinafter “performer” or “performing entity”);
• Who is not a Connecticut resident; and
• Who is not considered an employee of the University for federal tax purposes.

The State of Connecticut considers a wide variety of personal service providers to be performers who are subject to the A&E tax including, for example, public speakers and lecturers, referees, writers, directors, bands and actors.

See Policy 3410 for an in depth discussion of the A&E tax, including an extensive list of performers and performing entities subject to the A&E tax. See Procedure 3410 PR.1 for guidance with respect to obtaining exemption or reduced rate of withholding from the A&E tax.

The amount of federal income tax withholding on a payment made to a nonresident alien depends on whether the individual is eligible to claim a tax treaty benefit and files the required tax treaty exemption forms with the University’s Tax Department.

A tax treaty is an agreement between two governments under which each country agrees to reduce or exempt an individual from federal income tax withholding on his scholarship/fellowship grants and/or compensation payments, and prize or award. 

Is there a tax treaty between the U.S. and the individual’s country of tax residency?

• Yes, there is a tax treaty between the U.S. and the individual’s country of tax residency. See Non-resident Alien: Requirements of Claiming A Tax Treaty Benefit.
• No, there is NOT a tax treaty between the U.S. and the individual’s country of tax residency. See Does Not Want to Claim Treaty Benefit.
• Uncertain - To determine if there is a tax treaty currently in force between the U.S. and the individual’s country of tax residence, please refer to the IRS website.

Income tax treaties between the U.S. and other countries may reduce or eliminate Federal income tax withholding on fellowship payments, royalty payments, prizes or award and on compensation payments received by students, trainees, teachers, researchers and independent contractors who are residents of the country with which the U.S. has a treaty in effect.

Each treaty is distinct and may contain time and/or dollar limits. The existence of an income tax treaty between the U.S. and another country does not automatically exempt an individual from federal income tax withholding. In order to qualify, the individual must satisfy all of the qualifications as set forth in the treaty and must complete and submit all required tax treaty exemption forms to the University Tax Department for review and submission to the IRS, if applicable.

In order to claim the reduced treaty withholding rate, the following two steps must be satisfied:

1. Treaty Applicability: Please contact the International Tax Coordinator in the University Tax department (203.432.5597 or daysi.cardona@yale.edu) to discuss treaty applicability and to assist you with the determination of the proper treaty article, if appropriate. If a treaty is applicable, the International Tax Coordinator will also inform you of the reduced rate and any treaty limitations.

Note: If the treaty is not applicable a treaty benefit cannot be claimed.

2. Required Forms/Documentation: As noted in the “Required Documentation Screen,” an appropriate treaty form MUST be completed and attached to the check request in order to claim a tax treaty benefit.

• Form 8233 (Instructions) should be completed to claim a treaty benefit for honorarium, independent personal services, and consulting fees.
• Form W-8BEN or substitute W-8BEN (i.e., Section 4 of the IIF) should be completed to claim a treaty benefit for fellowship, stipend, royalty, and prize and award payments.

For a discussion of the forms, please refer to Policy 3415.4.

Will the individual claim the tax treaty benefit?

• Yes, the individual is eligible to claim a treaty benefit per step 1), above and would like to claim the benefit. All appropriate forms/documents per step 2), above have been completed. See Claim Treaty Benefit section.
• No, the individual is eligible to claim a treaty benefit, but either does NOT want to claim the benefit or has not completed the appropriate forms to claim the benefit. (Note: If an individual is eligible to claim a tax treaty benefit, but does not file the necessary paperwork with the University Tax Department in a timely manner, the individual may claim the tax treaty benefit on his or her individual tax return.) See Does Not Want to Claim Treaty Benefit section.