Tax Reporting & Withholding: Tax Treaty

Non-resident Alien: Requirements of Claiming A Tax Treaty Benefit

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 |IIF instructions) 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.
• 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.)
• No, the individual is NOT eligible to claim a treaty benefit.