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Publication 519

Cat. No. 15023T Contents

U.S. Tax Guide


Introduction . . . . . . . . . . . . . . . . . . 1
Department
of the What's New .................. 2

for Aliens
Treasury
Internal Reminders . . . . . . . . . . . . . . . . . . . 3
Revenue
Service Chapter 1. Nonresident Alien or
Resident Alien? . . . . . . . . . . . . . 3

For use in preparing Chapter 2. Source of Income . . . . . . 10

2017 Returns
Chapter 3. Exclusions From Gross
Income . . . . . . . . . . . . . . . . . 14

Chapter 4. How Income of Aliens Is


Taxed . . . . . . . . . . . . . . . . . . 17

Chapter 5. Figuring Your Tax . . . . . . 24

Chapter 6. Dual-Status Tax Year . . . . 32

Chapter 7. Filing Information . . . . . . 35

Chapter 8. Paying Tax Through


Withholding or Estimated Tax . . . 39

Chapter 9. Tax Treaty Benefits . . . . . 46

Chapter 10. Employees of Foreign


Governments and International
Organizations . . . . . . . . . . . . . 48

Chapter 11. Departing Aliens and


the Sailing or Departure
Permit . . . . . . . . . . . . . . . . . . 50

Chapter 12. How To Get Tax Help . . . 52

Appendix A—Tax Treaty Exemption


Procedure for Students . . . . . . . 56

Appendix B—Tax Treaty Exemption


Procedure for Teachers and
Researchers . . . . . . . . . . . . . . 60

Index . . . . . . . . . . . . . . . . . . . . . 65

Future Developments
For the latest information about developments
related to Pub. 519, such as legislation enacted
after it was published, go to IRS.gov/Pub519.

Introduction
For tax purposes, an alien is an individual who
is not a U.S. citizen. Aliens are classified as
nonresident aliens and resident aliens. This
publication will help you determine your status
and give you information you will need to file
your U.S. tax return. Resident aliens generally
are taxed on their worldwide income, the same
as U.S. citizens. Nonresident aliens are taxed
only on their income from sources within the
United States and on certain income connected
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Feb 28, 2018


Table A. Where To Find What You Need To Know About U.S. Taxes
Commonly Asked Questions Where To Find The Answer

Am I a nonresident alien or resident alien? See chapter 1.

Can I be a nonresident alien and a resident alien in the same See Dual-Status Aliens in chapter 1.
year? See chapter 6.

I am a resident alien and my spouse is a nonresident alien. Are See Nonresident Spouse Treated as a Resident
there special rules for us? in chapter 1.
See Community Income in chapter 2.

Is all my income subject to U.S. tax? See chapter 2.


See chapter 3.

Is my scholarship subject to U.S. tax? See Scholarships, Grants, Prizes, and Awards in chapter 2.
See Scholarships and Fellowship Grants in chapter 3.
See chapter 9.

What is the tax rate on my income subject to U.S. tax? See chapter 4.

I moved to the United States this year. Can I deduct my moving See Deductions in chapter 5.
expenses on my U.S. return?

Can I claim exemptions for my spouse and children? See Exemptions in chapter 5.

I pay income taxes to my home country. Can I get credit for these See Tax Credits and Payments in chapter 5.
taxes on my U.S. tax return?

What forms must I file and when and where do I file them? See chapter 7.

How should I pay my U.S. income taxes? See chapter 8.

Am I eligible for any benefits under a tax treaty? See Income Entitled to Tax Treaty Benefits in chapter 8.
See chapter 9.

Are employees of foreign governments and international See chapter 10.


organizations exempt from U.S. tax?

Is there anything special I have to do before leaving the United See chapter 11.
States? See Expatriation Tax in chapter 4.

The information in this publication is not as feedback and will consider your comments as amount. See the relevant discussion under
comprehensive for resident aliens as it is for we revise our tax products. Itemized Deductions in chapter 5, later.
nonresident aliens. Resident aliens are gener- Additional disaster tax relief provisions.
ally treated the same as U.S. citizens and can Ordering forms and publications. Visit
IRS.gov/FormsPubs to download forms and See Pub. 976, Disaster Relief, for information
find more information in other IRS publications. about other disaster tax relief provisions that
Table A, Where To Find What You Need To publications. Otherwise, you can go to IRS.gov/
OrderForms to order current and prior-year are not covered in this publication. Also go to
Know About U.S. Taxes, provides a list of ques- IRS.gov/DisasterTaxRelief.
tions and the chapter or chapters in this publi- forms and instructions. Your order should arrive
cation where you will find the related discus- within 10 business days. New tax rates for 2018. For tax years begin-
sion. ning after December 31, 2017, and before Jan-
Tax questions. If you have a tax question uary 1, 2026, the maximum tax rate for individu-
Answers to frequently asked questions are not answered by this publication, check
presented in the back of the publication. als has decreased from 39.6% to 37%.
IRS.gov and How To Get Tax Help at the end of
this publication. Individual taxpayer identification number
Comments and suggestions. We welcome (ITIN) renewal. You may need to renew your
your comments about this publication and your ITIN. For more information, see Expired ITIN
suggestions for future editions. under Identification Number in chapter 5.
You can send us comments through What's New Personal exemption. For tax years beginning
IRS.gov/FormComments. in 2017, the personal exemption amount is
Or you can write to: Disaster tax relief. Disaster tax relief was $4,050.
enacted for those impacted by Hurricane Har-
vey, Irma, or Maria, and residents of the Califor- Beginning in 2018, and continuing through
Internal Revenue Service 2025, you cannot take a deduction for a per-
Tax Forms and Publications nia Wildfire Disaster Area, including provisions
that may allow you to calculate your casualty sonal exemption for yourself, your spouse, or
1111 Constitution Ave. NW, IR-6526 your dependents.
Washington, DC 20224 and theft losses differently for 2017. Also, cer-
tain nonresident aliens may be allowed to cal-
culate their standard deduction differently for
Although we cannot respond individually to
2017, or elect to amend their original 2016 tax
each comment received, we do appreciate your
return to take a different standard deduction

Page 2 Publication 519 (2017)


a paid preparer, Form 8867 must be attached to 8833 Treaty-Based Return Position
Reminders the return. Your preparer must complete the
columns corresponding to the CTC and EIC.
Disclosure Under Section 6114 or
7701(b)
Multilevel marketing. Clarification regarding Refunds for returns that claim the addi- 8840 Closer Connection Exception
the characterization and source of income re- tional child tax credit (ACTC) or earned in- Statement for Aliens
ceived from multilevel marketing companies by come tax credit (EITC). If you are claiming
distributors (upper-tier distributors) that are the ACTC or EITC on your 2017 return, and you 8843 Statement for Exempt Individuals
based on the sales or purchases of persons expect a refund, it will not be issued before Feb- and Individuals With a Medical
whom they have recruited and sponsored ruary 15, 2018. For more information, go to Condition
(lower-tier distributors) is provided. See Multile- IRS.gov/For-Tax-Pros/New-Federal-Tax-Law- See chapter 12 for information about getting
vel marketing under Personal Services in chap- May-Affect-Some-Refunds-Filed-in-Early-2017. these forms.
ter 2. U.S. real property interest. The Protecting
Additional Medicare Tax. You may be re- Americans from Tax Hikes Act 2015 (P.L.
quired to pay Additional Medicare Tax. Also, 114-113) made substantial changes to the Nonresident Aliens
you may need to report Additional Medicare treatment of dispositions and distributions of
Tax withheld by your employer. For more infor- U.S. real property interests. See Tax Withheld If you are an alien (not a U.S. citizen), you are
mation, see Additional Medicare Tax under So- on Real Property Sales, later. considered a nonresident alien unless you meet
cial Security and Medicare Taxes and Self-Em- Photographs of missing children. The IRS is one of the two tests described next under Resi-
ployment Tax in chapter 8. For more a proud partner with the National Center for dent Aliens.
information on Additional Medicare Tax, go to Missing & Exploited Children® (NCMEC). Pho-
IRS.gov and enter “Additional Medicare Tax” in tographs of missing children selected by the
the search box. Center may appear in this publication on pages
that would otherwise be blank. You can help
Resident Aliens
Premium tax credit. You may be eligible to
claim the premium tax credit if you, your bring these children home by looking at the
You are a resident alien of the United States for
spouse, or a dependent enrolled in health insur- photographs and calling 800-THE-LOST
tax purposes if you meet either the green card
ance through the Health Insurance Market- (800-843-5678) if you recognize a child.
test or the substantial presence test for calen-
place. See Form 8962 and the Instructions for dar year 2017 (January 1–December 31). Even
Form 8962 for more information. if you do not meet either of these tests, you may
Advance payments of the premium tax be able to choose to be treated as a U.S. resi-
credit. Advance payments of the premium tax dent for part of the year. See First-Year Choice
credit may have been made to the health in- under Dual-Status Aliens, later.
surer to help pay for the insurance coverage of
you, your spouse, or your dependent. If ad- 1. Green Card Test
vance payments of the premium tax credit were
made, you must file a 2017 tax return and Form
You are a resident for tax purposes if you are a
8962. If you enrolled someone who is not
claimed as a dependent on your tax return or for
Nonresident lawful permanent resident of the United States
at any time during calendar year 2017. (How-
more information, see the Instructions for Form
8962. Alien or ever, see Dual-Status Aliens, later.) This is
known as the “green card” test. You are a lawful
Form 1095-A. If you, your spouse, or a de- permanent resident of the United States at any
pendent enrolled in health insurance through
the Marketplace, you should have received a
Resident Alien? time if you have been given the privilege, ac-
cording to the immigration laws, of residing per-
Form 1095-A. If you receive a Form 1095-A for manently in the United States as an immigrant.
2017, save it. It will help you figure your pre- You generally have this status if the U.S. Citi-
mium tax credit. If you did not receive a Form Introduction zenship and Immigration Services (USCIS) (or
1095-A, contact the Marketplace. its predecessor organization) has issued you an
You should first determine whether, for income alien registration card, also known as a “green
Refunds of certain withholding tax delayed.
tax purposes, you are a nonresident alien or a card.” You continue to have resident status un-
Refund requests for tax withheld and reported
resident alien. der this test unless the status is taken away
on Form 1042-S, Form 8288-A, or Form 8805
If you are both a nonresident and resident in from you or is administratively or judicially de-
may require additional time for processing. Al-
the same year, you have a dual status. Dual termined to have been abandoned.
low up to 6 months for these refunds to be is-
status is explained later. Also explained later
sued.
are a choice to treat your nonresident spouse Resident status taken away. Resident status
Third-party designee. You can check the as a resident and some other special situations. is considered to have been taken away from
“Yes” box in the “Third-Party Designee” area of
you if the U.S. government issues you a final
your return to authorize the IRS to discuss your
return with a friend, family member, or any other Topics administrative or judicial order of exclusion or
This chapter discusses: deportation. A final judicial order is an order that
person you choose. This allows the IRS to call
you may no longer appeal to a higher court of
the person you identified as your designee to
How to determine if you are a nonresident, competent jurisdiction.
answer any questions that may arise during the
processing of your return. It also allows your resident, or dual-status alien, and
How to treat a nonresident spouse as a Resident status abandoned. An administra-
designee to perform certain actions such as
resident alien. tive or judicial determination of abandonment of
asking the IRS for copies of notices or tran-
resident status may be initiated by you, the US-
scripts related to your return. Also, the authori-
CIS, or a U.S. consular officer.
zation can be revoked. See your income tax re- Useful Items If you initiate the determination, your resi-
turn instructions for details. You may want to see: dent status is considered to be abandoned
Change of address. If you change your mail- when you file either of the following documents
ing address, be sure to notify the IRS using Form (and Instructions) with your USCIS Alien Registration Receipt
Form 8822. Card (green card) attached with the USCIS or a
1040 U.S. Individual Income Tax Return
Child tax credit (CTC), Earned income U.S. consular officer.
credit (EIC), and American opportunity tax 1040A U.S. Individual Income Tax Return USCIS Form I-407 (Record of Abandon-
credit (AOTC). If you are claiming the CTC, 1040NR U.S. Nonresident Alien Income ment of Lawful Permanent Resident
EIC, or AOTC on your 2017 return, and you had Tax Return Status), or

Chapter 1 Nonresident Alien or Resident Alien? Page 3


A letter stating your intent to abandon your considered a resident under the substantial United States to work and ends on the last day
resident status. When filing by mail, you presence test for 2017. of the season or cycle on which you are present
must send by certified mail, return receipt in the United States to work. You can have
requested (or the foreign equivalent) and The term United States includes the follow- more than one working period in a calendar
keep a copy and proof that it was mailed ing areas. year, and your working period can begin in one
and received. All 50 states and the District of Columbia. calendar year and end in the following calendar
The territorial waters of the United States. year.
Until you have proof your letter was re- The seabed and subsoil of those submar-
! ceived, you remain a resident alien for ine areas that are adjacent to U.S. territo- Example. Maria Perez lives in Mexico and
CAUTION tax purposes even if the USCIS would
rial waters and over which the United works for Compañía ABC in its office in Mexico.
not recognize the validity of your green card be- States has exclusive rights under interna- She was assigned to her firm's office in the Uni-
cause it is more than ten years old or because tional law to explore and exploit natural re- ted States from February 1 through June 1. On
you have been absent from the United States sources. June 2, she resumed her employment in Mex-
for a period of time.
The term does not include U.S. possessions ico. On 69 days, Maria commuted each morn-
If the USCIS or U.S. consular officer initiates and territories or U.S. airspace. ing from her home in Mexico to work in Compa-
this determination, your resident status will be ñía ABC's U.S. office. She returned to her home
considered to be abandoned when the final ad- in Mexico on each of those evenings. On 7
ministrative order of abandonment is issued. If Days of Presence days, she worked in her firm's Mexico office.
you are granted an appeal to a federal court of in the United States For purposes of the substantial presence test,
competent jurisdiction, a final judicial order is Maria does not count the days she commuted
required. You are treated as present in the United States to work in the United States because those
on any day you are physically present in the days equal more than 75% of the workdays dur-
Under U.S. immigration law, a lawful perma-
country at any time during the day. However, ing the working period (69 workdays in the Uni-
nent resident who is required to file a tax return
there are exceptions to this rule. Do not count ted States divided by 76 workdays in the work-
as a resident and fails to do so may be regar-
the following as days of presence in the United ing period equals 90.8%).
ded as having abandoned status and may lose
States for the substantial presence test.
permanent resident status.
Days you commute to work in the United Days in transit. Do not count the days you are
A long-term resident (LTR) who ceases States from a residence in Canada or Mex- in the United States for less than 24 hours and
! to be a lawful permanent resident may ico if you regularly commute from Canada you are in transit between two places outside
CAUTION be subject to special reporting require- or Mexico. the United States. You are considered to be in
ments and tax provisions. See Expatriation Tax Days you are in the United States for less transit if you engage in activities that are sub-
in chapter 4. than 24 hours when you are in transit be- stantially related to completing travel to your for-
tween two places outside the United eign destination. For example, if you travel be-
Termination of residency after June 3, States. tween airports in the United States to change
2004, and before June 17, 2008. If you termi- Days you are in the United States as a planes en route to your foreign destination, you
nated your residency after June 3, 2004, and crew member of a foreign vessel. are considered to be in transit. However, you
before June 17, 2008, you will still be consid- Days you are unable to leave the United are not considered to be in transit if you attend
ered a U.S. resident for tax purposes until you States because of a medical condition that a business meeting while in the United States.
notify the Secretary of Homeland Security and arose while you are in the United States. This is true even if the meeting is held at the air-
file Form 8854. Days you are in the United States under a port.
NATO visa as a member of a force or civil-
Termination of residency after June 16, ian component to NATO. However, this ex- Crew members. Do not count the days you
2008. For information on your residency termi- ception does not apply to an immediate are temporarily present in the United States as
nation date, see Former LTR under Expatriation family member who is present in the Uni- a regular crew member of a foreign vessel (boat
After June 16, 2008, in chapter 4. ted States under a NATO visa. A depend- or ship) engaged in transportation between the
ent family member must count every day of United States and a foreign country or a U.S.
Substantial Presence Test presence for purposes of the substantial possession. However, this exception does not
presence test. apply if you otherwise engage in any trade or
Days you are an exempt individual. business in the United States on those days.
You will be considered a U.S. resident for tax
purposes if you meet the substantial presence The specific rules that apply to each of these
test for calendar year 2017. To meet this test, categories are discussed next. Medical condition. Do not count the days you
you must be physically present in the United intended to leave, but could not leave the Uni-
States on at least: Regular commuters from Canada or Mex- ted States because of a medical condition or
ico. Do not count the days on which you com- problem that arose while you were in the United
1. 31 days during 2017, and mute to work in the United States from your res- States. Whether you intended to leave the Uni-
2. 183 days during the 3-year period that in- idence in Canada or Mexico if you regularly ted States on a particular day is determined
cludes 2017, 2016, and 2015, counting: commute from Canada or Mexico. You are con- based on all the facts and circumstances. For
sidered to commute regularly if you commute to example, you may be able to establish that you
a. All the days you were present in 2017, work in the United States on more than 75% of intended to leave if your purpose for visiting the
and the workdays during your working period. United States could be accomplished during a
b. For this purpose, “commute” means to travel period that is not long enough to qualify you for
13
of the days you were present in
to work and return to your residence within a the substantial presence test. However, if you
2016, and
24-hour period. “Workdays” are the days on need an extended period of time to accomplish
c. 16
of the days you were present in which you work in the United States or Canada the purpose of your visit and that period would
2015. or Mexico. “Working period” means the period qualify you for the substantial presence test,
beginning with the first day in the current year you would not be able to establish an intent to
Example. You were physically present in on which you are physically present in the Uni- leave the United States before the end of that
the United States on 120 days in each of the ted States to work and ending on the last day in extended period.
years 2015, 2016, and 2017. To determine if the current year on which you are physically In the case of an individual who is judged
you meet the substantial presence test for present in the United States to work. If your mentally incompetent, proof of intent to leave
2017, count the full 120 days of presence in work requires you to be present in the United the United States can be determined by analyz-
2017, 40 days in 2016 (1 3 of 120), and 20 days States only on a seasonal or cyclical basis, your ing the individual's pattern of behavior before he
in 2015 (1 6 of 120). Because the total for the working period begins on the first day of the or she was judged mentally incompetent.
3-year period is 180 days, you are not season or cycle on which you are present in the

Page 4 Chapter 1 Nonresident Alien or Resident Alien?


If you qualify to exclude days of presence An individual is considered to have full-time A foreign employer includes an office or place
because of a medical condition, you must file a diplomatic or consular status if he or she: of business of an American entity in a foreign
fully completed Form 8843 with the IRS. See Has been accredited by a foreign govern- country or a U.S. possession.
Form 8843, later. ment that is recognized by the United If you qualify to exclude days of presence as
You cannot exclude any days of presence in States, a teacher or trainee, you must file a fully com-
the United States under the following circum- Intends to engage primarily in official activi- pleted Form 8843 with the IRS. See Form 8843,
stances. ties for that foreign government while in the later.
You were initially prevented from leaving, United States, and
were then able to leave, but remained in Has been recognized by the President, Example. Carla was temporarily in the Uni-
the United States beyond a reasonable pe- Secretary of State, or a consular officer as ted States during the year as a teacher on a “J”
riod for making arrangements to leave. being entitled to that status. visa. Her compensation for the year was paid
You returned to the United States for treat- by a foreign employer. Carla was treated as an
Members of the immediate family include
ment of a medical condition that arose dur- exempt teacher for the previous 2 years but her
the individual's spouse and unmarried children
ing a prior stay. compensation was not paid by a foreign em-
(whether by blood or adoption) but only if the
The condition existed before your arrival in ployer. She will not be considered an exempt
spouse's or unmarried children's visa statuses
the United States and you were aware of individual for the current year because she was
are derived from and dependent on the exempt
the condition. It does not matter whether exempt as a teacher for at least 2 of the past 6
individual's visa classification. Unmarried chil-
you needed treatment for the condition years.
dren are included only if they:
when you entered the United States. If her compensation for the past 2 years had
Are under 21 years of age,
been paid by a foreign employer, she would be
Reside regularly in the exempt individual's
Exempt individual. Do not count days for an exempt individual for the current year.
household, and
which you are an exempt individual. The term Are not members of another household. Students. A student is any individual who
“exempt individual” does not refer to someone
is temporarily in the United States on an “F,” “J,”
exempt from U.S. tax, but to anyone in the fol- Note. Generally, if you are present in the “M,” or “Q” visa and who substantially complies
lowing categories. United States under an “A” or “G” class visa, with the requirements of that visa. You are con-
An individual temporarily present in the you are considered a foreign government-rela- sidered to have substantially complied with the
United States as a foreign government-re- ted individual (with full-time diplomatic or con- visa requirements if you have not engaged in
lated individual under an “A” or “G” visa, sular status). None of your days count for pur- activities that are prohibited by U.S. immigration
other than individuals holding “A-3” or poses of the substantial presence test. laws and could result in the loss of your visa
“G-5” class visas.
status.
A teacher or trainee temporarily present in Household staff exception. If you are
Also included are immediate family mem-
the United States under a “J” or “Q” visa, present in the United States under an “A-3” or
bers of exempt students. See the definition of
who substantially complies with the re- “G-5” visa as a personal employee, attendant,
immediate family, earlier, under Foreign gov-
quirements of the visa. or domestic worker for either a foreign govern-
ernment-related individuals.
A student temporarily present in the United ment or international organization official, you
You will not be an exempt individual as a
States under an “F,” “J,” “M,” or “Q” visa, are not considered a foreign government-rela-
student in 2017 if you have been exempt as a
who substantially complies with the re- ted individual and must count all your days of
teacher, trainee, or student for any part of more
quirements of the visa. presence in the United States for purposes of
than 5 calendar years unless you meet both of
A professional athlete temporarily in the the substantial presence test.
the following requirements.
United States to compete in a charitable
Teachers and trainees. A teacher or You establish that you do not intend to re-
sports event.
trainee is an individual, other than a student, side permanently in the United States.
The specific rules for each of these four cat- who is temporarily in the United States under a You have substantially complied with the
egories (including any rules on the length of “J” or “Q” visa and substantially complies with requirements of your visa.
time you will be an exempt individual) are dis- the requirements of that visa. You are consid- The facts and circumstances to be considered
cussed next. ered to have substantially complied with the in determining if you have demonstrated an in-
visa requirements if you have not engaged in tent to reside permanently in the United States
Foreign government-related individuals.
activities that are prohibited by U.S. immigration include, but are not limited to, the following.
A foreign government-related individual is an in-
laws and could result in the loss of your visa Whether you have maintained a closer
dividual (or a member of the individual's imme-
status. connection to a foreign country (discussed
diate family) who is temporarily present in the
Also included are immediate family mem- later).
United States:
bers of exempt teachers and trainees. See the Whether you have taken affirmative steps
As a full-time employee of an international
definition of immediate family, earlier, under to change your status from nonimmigrant
organization,
Foreign government-related individuals. to lawful permanent resident as discussed
By reason of diplomatic status, or
You will not be an exempt individual as a later under Closer Connection to a Foreign
By reason of a visa (other than a visa that
teacher or trainee in 2017 if you were exempt Country.
grants lawful permanent residence) that
as a teacher, trainee, or student for any part of 2
the Secretary of the Treasury determines If you qualify to exclude days of presence as
of the 6 preceding calendar years. However,
represents full-time diplomatic or consular a student, you must file a fully completed Form
you will be an exempt individual if all of the fol-
status. 8843 with the IRS. See Form 8843, later.
lowing conditions are met.
You were exempt as a teacher, trainee, or
Note. You are considered temporarily Professional athletes. A professional ath-
student for any part of 3 (or fewer) of the 6
present in the United States regardless of the lete who is temporarily in the United States to
preceding calendar years,
actual amount of time you are present in the compete in a charitable sports event is an ex-
A foreign employer paid all of your com-
United States. empt individual. A charitable sports event is one
pensation during 2017,
An international organization is any public that meets the following conditions.
You were present in the United States as a
international organization that the President of The main purpose is to benefit a qualified
teacher or trainee in any of the 6 prior
the United States has designated by Executive charitable organization.
years, and
Order as being entitled to the privileges, ex- The entire net proceeds go to charity.
A foreign employer paid all of your com-
emptions, and immunities provided for in the In- Volunteers perform substantially all the
pensation during each of the preceding 6
ternational Organizations Act. An individual is a work.
years you were present in the United
full-time employee if his or her work schedule
States as a teacher or trainee. In figuring the days of presence in the Uni-
meets the organization's standard full-time work ted States, you can exclude only the days on
schedule. which you actually competed in a sports event.

Chapter 1 Nonresident Alien or Resident Alien? Page 5


You cannot exclude the days on which you the period during which you maintained a f. The jurisdiction in which you hold a
were in the United States to practice for the tax home in that foreign country. driver's license,
event, to perform promotional or other activities You are subject to tax as a resident under
g. The jurisdiction in which you vote, and
related to the event, or to travel between the tax laws of either foreign country for the
events. entire year or subject to tax as a resident in h. Charitable organizations to which you
If you qualify to exclude days of presence as both foreign countries for the period during contribute.
a professional athlete, you must file a fully com- which you maintained a tax home in each
pleted Form 8843 with the IRS. See Form 8843 foreign country. It does not matter whether your permanent
next. home is a house, an apartment, or a furnished
Tax home. Your tax home is the general area room. It also does not matter whether you rent
Form 8843. If you exclude days of presence in of your main place of business, employment, or or own it. It is important, however, that your
the United States because you fall into any of post of duty, regardless of where you maintain home be available at all times, continuously,
the following categories, you must file a fully your family home. Your tax home is the place and not solely for short stays.
completed Form 8843. where you permanently or indefinitely work as
You were unable to leave the United an employee or a self-employed individual. If When you cannot have a closer connection.
States as planned because of a medical you do not have a regular or main place of busi- You cannot claim you have a closer connection
condition or problem. ness because of the nature of your work, then to a foreign country if either of the following ap-
You were temporarily in the United States your tax home is the place where you regularly plies.
as a teacher or trainee on a “J” or “Q” visa. live. If you do not fit either of these categories, You personally applied, or took other steps
You were temporarily in the United States you are considered an itinerant and your tax during the year, to change your status to
as a student on an “F,” “J,” “M,” or “Q” visa. home is wherever you work. that of a permanent resident, or
You were a professional athlete competing You had an application pending for adjust-
For determining whether you have a closer
in a charitable sports event. ment of status during the current year.
connection to a foreign country, your tax home
must also be in existence for the entire current Steps to change your status to that of a perma-
Attach Form 8843 to your 2017 income tax year, and must be located in the same foreign nent resident include, but are not limited to, the
return. If you do not have to file a return, send country to which you are claiming to have a filing of the following forms.
Form 8843 to the Department of the Treasury, closer connection. Form I-508, Request for Waiver of Certain
Internal Revenue Service Center, Austin, TX Rights, Privileges, Exemptions, and Im-
73301-0215, by the due date for filing Form Foreign country. In determining whether you munities
1040NR or Form 1040NR-EZ. The due date for have a closer connection to a foreign country, Form I-485, Application to Register Perma-
filing is discussed in chapter 7. the term “foreign country” means: nent Residence or Adjust Status
Any territory under the sovereignty of the Form I-130, Petition for Alien Relative
United Nations or a government other than Form I-140, Immigrant Petition for Alien
If you do not timely file Form 8843, you can-
that of the United States, Worker
not exclude the days you were present in the
The territorial waters of the foreign country Form ETA-750, Application for Alien Em-
United States as a professional athlete or be-
(determined under U.S. law), ployment Certification
cause of a medical condition that arose while
The seabed and subsoil of those submar- Form DS-230, Application for Immigrant
you were in the United States. This does not ap-
ine areas which are adjacent to the territo- Visa and Alien Registration
ply if you can show by clear and convincing evi-
rial waters of the foreign country and over
dence that you took reasonable actions to be-
which the foreign country has exclusive Form 8840. You must attach a fully completed
come aware of the filing requirements and
rights under international law to explore Form 8840 to your income tax return to claim
significant steps to comply with those require-
and exploit natural resources, and you have a closer connection to a foreign coun-
ments.
Possessions and territories of the United try or countries.
States. If you do not have to file a return, send the
Closer Connection
form to the Department of the Treasury, Internal
to a Foreign Country Establishing a closer connection. You will
Revenue Service Center, Austin, TX
be considered to have a closer connection to a
Even if you meet the substantial presence test, 73301-0215, by the due date for filing Form
foreign country than the United States if you or
you can be treated as a nonresident alien if you: 1040NR or Form 1040NR-EZ. The due date for
the IRS establishes that you have maintained
Are present in the United States for less filing is discussed later in chapter 7.
more significant contacts with the foreign coun-
than 183 days during the year, If you do not timely file Form 8840, you can-
try than with the United States. In determining
Maintain a tax home in a foreign country not claim a closer connection to a foreign coun-
whether you have maintained more significant
during the year, and try or countries. This does not apply if you can
contacts with the foreign country than with the
Have a closer connection during the year show by clear and convincing evidence that you
United States, the facts and circumstances to
to one foreign country in which you have a took reasonable actions to become aware of
be considered include, but are not limited to,
tax home than to the United States (unless the filing requirements and significant steps to
the following.
you have a closer connection to two for- comply with those requirements.
eign countries, discussed next). 1. The country of residence you designate on
forms and documents.
Effect of Tax Treaties
Closer connection to two foreign countries. 2. The types of official forms and documents
You can demonstrate that you have a closer you file, such as Form W-9, Form The rules given here to determine if you are a
connection to two foreign countries (but not W-8BEN, or Form W-8ECI. U.S. resident do not override tax treaty defini-
more than two) if you meet all of the following
3. The location of: tions of residency. If you are a dual-resident
conditions.
taxpayer, you can still claim the benefits under
You maintained a tax home beginning on a. Your permanent home, an income tax treaty. A dual-resident taxpayer
the first day of the year in one foreign
b. Your family, is one who is a resident of both the United
country.
States and another country under each coun-
You changed your tax home during the c. Your personal belongings, such as try's tax laws. The income tax treaty between
year to a second foreign country. cars, furniture, clothing, and jewelry, the two countries must contain a provision that
You continued to maintain your tax home
d. Your current social, political, cultural, provides for resolution of conflicting claims of
in the second foreign country for the rest of
professional, or religious affiliations, residence (tie-breaker rule). If you are treated
the year.
as a resident of a foreign country under a tax
You had a closer connection to each for- e. Your business activities (other than treaty, you are treated as a nonresident alien in
eign country than to the United States for those that constitute your tax home), figuring your U.S. income tax. For purposes

Page 6 Chapter 1 Nonresident Alien or Resident Alien?


other than figuring your tax, you will be treated and resided here for the rest of the year. Ivan is remained until November 5, 2016, when he re-
as a U.S. resident. For example, the rules dis- able to establish a closer connection to Russia turned to Switzerland. Robert came back to the
cussed here do not affect your residency time for the period January 6–10. Thus, his resi- United States on March 5, 2017, as a lawful
periods as discussed later under Dual-Status dency starting date is March 1. permanent resident and still resides here. In
Aliens. calendar year 2017, Robert's U.S. residency is
Statement required to exclude up to 10 deemed to begin on January 1, 2017, because
Information to be reported. If you are a days of presence. You must file a statement he qualified as a resident in calendar year 2016.
dual-resident taxpayer and you claim treaty with the IRS if you are excluding up to 10 days
benefits, you must file a return by the due date of presence in the United States for purposes of
your residency starting date. You must sign and First-Year Choice
(including extensions) using Form 1040NR or
Form 1040NR-EZ, and compute your tax as a date this statement and include a declaration
that it is made under penalties of perjury. The If you do not meet either the green card test or
nonresident alien. You must also attach a fully the substantial presence test for 2016 or 2017
completed Form 8833 if you determine your statement must contain the following informa-
tion (as applicable). and you did not choose to be treated as a resi-
residency under a tax treaty and receive pay- dent for part of 2016, but you meet the substan-
ments or income items totaling more than Your name, address, U.S. taxpayer identi-
fication number (if any), and U.S. visa tial presence test for 2016, you can choose to
$100,000. You may also have to attach Form be treated as a U.S. resident for part of 2017.
8938 (discussed in chapter 7). See Reporting number (if any).
Your passport number and the name of the To make this choice, you must:
Treaty Benefits Claimed in chapter 9 for more
information on reporting treaty benefits. country that issued your passport. 1. Be present in the United States for at least
The tax year for which the statement ap- 31 days in a row in 2017, and
plies.
2. Be present in the United States for at least
Dual-Status Aliens The first day that you were present in the
United States during the year. 75% of the number of days beginning with
The dates of the days you are excluding in the first day of the 31-day period and end-
You can be both a nonresident alien and a resi- figuring your first day of residency. ing with the last day of 2017. For purposes
dent alien during the same tax year. This usu- Sufficient facts to establish that you have of this 75% requirement, you can treat up
ally occurs in the year you arrive in or depart maintained your tax home in and a closer to 5 days of absence from the United
from the United States. Aliens who have dual connection to a foreign country during the States as days of presence in the United
status should see chapter 6 for information on period you are excluding. States.
filing a return for a dual-status tax year.
Attach the required statement to your in- When counting the days of presence in (1)
come tax return. If you are not required to file a
First Year of Residency return, send the statement to the Department of
and (2) above, do not count the days you were
in the United States under any of the exceptions
the Treasury, Internal Revenue Service Center, discussed earlier under Days of Presence in the
If you are a U.S. resident for the calendar year, Austin, TX 73301-0215, on or before the due United States.
but you were not a U.S. resident at any time date for filing Form 1040NR or Form
during the preceding calendar year, you are a 1040NR-EZ. The due date for filing is dis-
If you make the first-year choice, your resi-
U.S. resident only for the part of the calendar cussed in chapter 7.
dency starting date for 2017 is the first day of
year that begins on the residency starting date. If you do not file the required statement as
the earliest 31-day period (described in (1)
You are a nonresident alien for the part of the explained above, you cannot claim that you
above) that you use to qualify for the choice.
year before that date. have a closer connection to a foreign country or
You are treated as a U.S. resident for the rest of
countries. Therefore, your first day of residency
Residency starting date under substantial the year. If you are present for more than one
will be the first day you are present in the United
presence test. If you meet the substantial 31-day period and you satisfy condition (2)
States. This does not apply if you can show by
presence test for a calendar year, your resi- above for each of those periods, your residency
clear and convincing evidence that you took
dency starting date is generally the first day you starting date is the first day of the first 31-day
reasonable actions to become aware of the re-
are present in the United States during that cal- period. If you are present for more than one
quirements for filing the statement and signifi-
endar year. However, you do not have to count 31-day period but you satisfy condition (2)
cant steps to comply with those requirements.
up to 10 days of actual presence in the United above only for a later 31-day period, your resi-
States if on those days you establish that: dency starting date is the first day of the later
Residency starting date under green card
You had a closer connection to a foreign 31-day period.
test. If you meet the green card test at any time
country than to the United States, and during a calendar year, but do not meet the
Note. You do not have to be married to
Your tax home was in that foreign country. substantial presence test for that year, your res-
make this choice.
See Closer Connection to a Foreign Country, idency starting date is the first day in the calen-
earlier. dar year on which you are present in the United Example 1. Juan DaSilva is a citizen of the
States as a lawful permanent resident.
In determining whether you can exclude up Philippines. He came to the United States for
to 10 days, the following rules apply. If you meet both the substantial presence the first time on November 1, 2017, and was
You can exclude days from more than one test and the green card test, your residency here on 31 consecutive days (from November 1
period of presence as long as the total starting date is the earlier of the first day during through December 1, 2017). Juan returned to
days in all periods are not more than 10. the year you are present in the United States the Philippines on December 1 and came back
You cannot exclude any days in a period of under the substantial presence test or as a law- to the United States on December 17, 2017. He
consecutive days of presence if all the ful permanent resident. stayed in the United States for the rest of the
days in that period cannot be excluded. year. During 2018, Juan was a resident of the
Residency during the preceding year. If you United States under the substantial presence
Although you can exclude up to 10 days of
were a U.S. resident during any part of the pre- test. Juan can make the first-year choice for
presence in determining your residency
ceding calendar year and you are a U.S. resi- 2017 because he was in the United States in
starting date, you must include those days
dent for any part of the current year, you will be 2017 for a period of 31 days in a row (Novem-
when determining whether you meet the
considered a U.S. resident at the beginning of ber 1 through December 1) and for at least 75%
substantial presence test.
the current year. This applies whether you are a of the days following (and including) the first
Example. Ivan Ivanovich is a citizen of Rus- resident under the substantial presence test or day of his 31-day period (46 total days of pres-
sia. He came to the United States for the first green card test. ence in the United States divided by 61 days in
time on January 6, 2017, to attend a business the period from November 1 through December
Example. Robert Bach is a citizen of Swit-
meeting and returned to Russia on January 10, 31 equals 75.4%). If Juan makes the first-year
zerland. He came to the United States as a U.S.
2017. His tax home remained in Russia. On choice, his residency starting date will be No-
resident for the first time on May 1, 2016, and
March 1, 2017, he moved to the United States vember 1, 2017.

Chapter 1 Nonresident Alien or Resident Alien? Page 7


Example 2. The facts are the same as in This includes situations in which both you and 1. The last day in 2017 that you are physi-
Example 1, except that Juan was also absent your spouse were nonresident aliens at the be- cally present in the United States, if you
from the United States on December 24, 25, 29, ginning of the tax year and both of you are resi- met the substantial presence test,
30, and 31. He can make the first-year choice dent aliens at the end of the tax year.
2. The first day in 2017 that you are no lon-
for 2017 because up to 5 days of absence are
ger a lawful permanent resident of the Uni-
considered days of presence for purposes of Note. If you are single at the end of the
ted States, if you met the green card test,
the 75% requirement. year, you cannot make this choice.
or
Statement required to make the If you make this choice, the following rules
3. The later of (1) or (2), if you met both tests.
first-year choice for 2017. You must attach a apply.
statement to Form 1040 to make the first-year You and your spouse are treated as U.S. You can use this date only if, for the remainder
choice for 2017. The statement must contain residents for the entire year for income tax of 2017, your tax home was in a foreign country
your name and address and specify the follow- purposes. and you had a closer connection to that foreign
ing. You and your spouse are taxed on world- country. See Closer Connection to a Foreign
That you are making the first-year choice wide income. Country, earlier.
for 2017. You and your spouse must file a joint re-
turn for the year of the choice. An LTR who ceases to be a lawful per-
That you were not a resident in 2016.
Neither you nor your spouse can make this ! manent resident may be subject to
That you are a resident under the substan-
CAUTION special reporting requirements and tax
tial presence test in 2018. choice for any later tax year, even if you
are separated, divorced, or remarried. provisions. See Expatriation Tax in chapter 4.
The number of days of presence in the
United States during 2018. The special instructions and restrictions for
The date or dates of your 31-day period of dual-status taxpayers in chapter 6 do not Termination of residency. For information
presence and the period of continuous apply to you. on your residency termination date, see Former
presence in the United States during 2017. LTR under Expatriation After June 16, 2008, in
The date or dates of absence from the Uni- Note. A similar choice is available if, at the chapter 4.
ted States during 2017 that you are treat- end of the tax year, one spouse is a nonresident
alien and the other spouse is a U.S. citizen or De minimis presence. If you are a U.S. resi-
ing as days of presence.
resident. See Nonresident Spouse Treated as a dent because of the substantial presence test
You cannot file Form 1040 or the statement until and you qualify to use the earlier residency ter-
Resident, later. If you previously made that
you meet the substantial presence test for mination date, you can exclude up to 10 days of
choice and it is still in effect, you do not need to
2018. If you have not met the test for 2018 as of actual presence in the United States in deter-
make the choice explained here.
April 17, 2018, you can request an extension of mining your residency termination date. In de-
time for filing your 2017 Form 1040 until a rea- termining whether you can exclude up to 10
Making the choice. You should attach a state-
sonable period after you have met that test. To days, the following rules apply.
ment signed by both spouses to your joint re-
request an extension to file until October 15, You can exclude days from more than one
turn for the year of the choice. The statement
2018, use Form 4868. You can file the paper period of presence as long as the total
must contain the following information.
form or use one of the electronic filing options days in all periods are not more than 10.
A declaration that you both qualify to make
explained in the Form 4868 instructions. You You cannot exclude any days in a period of
the choice and that you choose to be trea-
should pay with this extension the amount of tax consecutive days of presence if all the
ted as U.S. residents for the entire tax
you expect to owe for 2017 figured as if you days in that period cannot be excluded.
year.
were a nonresident alien the entire year. You Although you can exclude up to 10 days of
The name, address, and taxpayer identifi-
can use Form 1040NR or Form 1040NR-EZ to presence in determining your residency
cation number (SSN or ITIN) of each
figure the tax. Enter the tax on Form 4868. If termination date, you must include those
spouse. (If one spouse died, include the
you do not pay the tax due, you will be charged days when determining whether you meet
name and address of the person who
interest on any tax not paid by the regular due the substantial presence test.
makes the choice for the deceased
date of your return, and you may be charged a spouse.)
penalty on the late payment. Example. Lola Bovary is a citizen of Malta.
Once you make the first-year choice, you You generally make this choice when you She came to the United States for the first time
may not revoke it without the approval of the file your joint return. However, you also can on March 1, 2017, and resided here until Au-
IRS. make the choice by filing Form 1040X, Amen- gust 25, 2017. On December 12, 2017, Lola
If you do not follow the procedures dis- ded U.S. Individual Income Tax Return. Attach came to the United States for vacation and
cussed here for making the first-year choice, Form 1040, Form 1040A, or Form 1040EZ and stayed here until December 16, 2017, when she
you will be treated as a nonresident alien for all print “Amended” across the top of the corrected returned to Malta. She is able to establish a
of 2017. However, this does not apply if you can return. If you make the choice with an amended closer connection to Malta for the period De-
show by clear and convincing evidence that you return, you and your spouse must also amend cember 12–16. Lola is not a U.S. resident for
took reasonable actions to become aware of any returns that you may have filed after the tax purposes during 2018 and can establish a
the filing procedures and significant steps to year for which you made the choice. closer connection to Malta for the rest of calen-
comply with the procedures. You generally must file the amended joint dar year 2017. Lola is a U.S. resident under the
return within 3 years from the date you filed substantial presence test for 2017 because she
your original U.S. income tax return or 2 years
Choosing Resident from the date you paid your income tax for that
was present in the United States for 183 days
(178 days for the period March 1 to August 25
Alien Status year, whichever is later. plus 5 days in December). Lola's residency ter-
mination date is August 25, 2017.
If you are a dual-status alien, you can choose to
be treated as a U.S. resident for the entire year Last Year of Residency Residency during the next year. If you are a
if all of the following apply. U.S. resident during any part of 2018 and you
You were a nonresident alien at the begin- If you were a U.S. resident in 2017 but are not a
U.S. resident during any part of 2018, you are a resident during any part of 2017, you will
ning of the year. be treated as a resident through the end of
You are a resident alien or U.S. citizen at cease to be a U.S. resident on your residency
termination date. Your residency termination 2017. This applies whether you have a closer
the end of the year. connection to a foreign country than the United
You are married to a U.S. citizen or resi- date is December 31, 2017, unless you qualify
for an earlier date as discussed next. States during 2017, and whether you are a resi-
dent alien at the end of the year. dent under the substantial presence test or
Your spouse joins you in making the green card test.
choice. Earlier residency termination date. You may
qualify for a residency termination date that is
earlier than December 31. This date is:

Page 8 Chapter 1 Nonresident Alien or Resident Alien?


Statement required to establish your resi- If you make this choice, you and your nonresident alien. They chose to treat Judy as a
dency termination date. You must file a spouse are treated for income tax purposes as resident alien and filed joint 2014 and 2015 in-
statement with the IRS to establish your resi- residents for your entire tax year. Neither you come tax returns. On January 10, 2016, Dick
dency termination date. You must sign and date nor your spouse can claim under any tax treaty became a nonresident alien. Judy had re-
this statement and include a declaration that it not to be a U.S. resident. You are both taxed on mained a nonresident alien throughout the pe-
is made under penalties of perjury. The state- worldwide income. You must file a joint income riod. Dick and Judy could have filed joint or sep-
ment must contain the following information (as tax return for the year you make the choice, but arate returns for 2016 because Dick was a
applicable). you and your spouse can file joint or separate resident alien for part of that year. However, be-
Your name, address, U.S. taxpayer identi- returns in later years. cause neither Dick nor Judy is a resident alien
fication number (if any), and U.S. visa at any time during 2017, their choice is suspen-
If you file a joint return under this provi-
number (if any). ded for that year. If either meets the filing re-
! sion, the special instructions and re-
Your passport number and the name of the quirements for nonresident aliens discussed in
CAUTION strictions for dual-status taxpayers in
country that issued your passport. chapter 7, they must file separate returns as
chapter 6 do not apply to you.
The tax year for which the statement ap- nonresident aliens for 2017. If Dick becomes a
plies. resident alien again in 2018, their choice is no
The last day that you were present in the Example. Bob and Sharon Williams are longer suspended.
United States during the year. married and both are nonresident aliens at the
Sufficient facts to establish that you have beginning of the year. In June, Bob became a
Ending the Choice
maintained your tax home in, and that you resident alien and remained a resident for the
have a closer connection to, a foreign rest of the year. Bob and Sharon both choose to Once made, the choice to be treated as a resi-
country following your last day of presence be treated as resident aliens by attaching a dent applies to all later years unless suspended
in the United States during the year or fol- statement to their joint return. Bob and Sharon (as explained earlier under Suspending the
lowing the abandonment or rescission of must file a joint return for the year they make the Choice) or ended in one of the following ways.
your status as a lawful permanent resident choice, but they can file either joint or separate
during the year. returns for later years. If the choice is ended in one of the following
The date that your status as a lawful per- ways, neither spouse can make this choice in
manent resident was abandoned or rescin-
ded.
How To Make the Choice any later tax year.

Sufficient facts (including copies of rele- 1. Revocation. Either spouse can revoke
Attach a statement, signed by both spouses, to the choice for any tax year, provided he or
vant documents) to establish that your sta- your joint return for the first tax year for which
tus as a lawful permanent resident has she makes the revocation by the due date
the choice applies. It should contain the follow- for filing the tax return for that tax year.
been abandoned or rescinded. ing information.
If you can exclude days as discussed ear- The spouse who revokes the choice must
A declaration that one spouse was a non- attach a signed statement declaring that
lier under De minimis presence, include resident alien and the other spouse a U.S.
the dates of the days you are excluding the choice is being revoked. The state-
citizen or resident alien on the last day of ment must include the name, address, and
and sufficient facts to establish that you your tax year, and that you choose to be
have maintained your tax home in, and that identification number of each spouse. (If
treated as U.S. residents for the entire tax one spouse dies, include the name and
you have a closer connection to, a foreign year.
country during the period you are exclud- address of the person who is revoking the
The name, address, and identification choice for the deceased spouse.) The
ing. number of each spouse. (If one spouse statement also must include a list of any
Attach the required statement to your in- died, include the name and address of the states, foreign countries, and possessions
come tax return. If you are not required to file a person making the choice for the de- that have community property laws in
return, send the statement to the Department of ceased spouse.) which either spouse is domiciled or where
the Treasury, Internal Revenue Service Center, real property is located from which either
Austin, TX 73301-0215, on or before the due Amended return. You generally make this spouse receives income. File the state-
date for filing Form 1040NR or Form choice when you file your joint return. However, ment as follows.
1040NR-EZ. The due date for filing is dis- you also can make the choice by filing a joint
cussed in chapter 7. amended return on Form 1040X. Attach Form a. If the spouse revoking the choice
If you do not file the required statement as 1040, Form 1040A, or Form 1040EZ and print must file a return, attach the state-
explained above, you cannot claim that you “Amended” across the top of the corrected re- ment to the return for the first year the
have a closer connection to a foreign country or turn. If you make the choice with an amended revocation applies.
countries. This does not apply if you can show return, you and your spouse also must amend b. If the spouse revoking the choice
by clear and convincing evidence that you took any returns that you may have filed after the does not have to file a return, but
reasonable actions to become aware of the re- year for which you made the choice. does file a return (for example, to ob-
quirements for filing the statement and signifi- You generally must file the amended joint tain a refund), attach the statement to
cant steps to comply with those requirements. return within 3 years from the date you filed the return.
your original U.S. income tax return or 2 years
from the date you paid your income tax for that c. If the spouse revoking the choice
Nonresident Spouse year, whichever is later. does not have to file a return and
does not file a claim for refund, send
Treated as a Resident Suspending the Choice
the statement to the Internal Revenue
Service Center where you filed the
If, at the end of your tax year, you are married last joint return.
The choice to be treated as a resident alien is
and one spouse is a U.S. citizen or a resident suspended for any tax year (after the tax year 2. Death. The death of either spouse ends
alien and the other spouse is a nonresident you made the choice) if neither spouse is a U.S. the choice, beginning with the first tax year
alien, you can choose to treat the nonresident citizen or resident alien at any time during the following the year the spouse died. How-
spouse as a U.S. resident. This includes situa- tax year. This means each spouse must file a ever, if the surviving spouse is a U.S. citi-
tions in which one spouse is a nonresident alien separate return as a nonresident alien for that zen or resident and is entitled to the joint
at the beginning of the tax year, but a resident year if either meets the filing requirements for tax rates as a surviving spouse, the choice
alien at the end of the year, and the other nonresident aliens discussed in chapter 7. will not end until the close of the last year
spouse is a nonresident alien at the end of the for which these joint rates may be used. If
year. Example. Dick Brown was a resident alien both spouses die in the same tax year, the
on December 31, 2014, and married to Judy, a

Chapter 1 Nonresident Alien or Resident Alien? Page 9


choice ends on the first day after the close a. The recipient of the interest is related
of the tax year in which the spouses died.
Resident Aliens to the resident alien or domestic cor-
poration. See section 954(d)(3) for the
3. Legal separation. A legal separation un-
definition of related person.
der a decree of divorce or separate main- A resident alien's income is generally subject to
tenance ends the choice as of the begin- tax in the same manner as a U.S. citizen. If you b. The terms of the obligation are signifi-
ning of the tax year in which the legal are a resident alien, you must report all interest, cantly modified after August 9, 2010.
separation occurs. dividends, wages, or other compensation for Any extension of the term of the obli-
services, income from rental property or royal- gation is considered a significant
4. Inadequate records. The IRS can end
ties, and other types of income on your U.S. tax modification.
the choice for any tax year that either
spouse has failed to keep adequate return. You must report these amounts from 2. Interest paid by a foreign branch of a do-
books, records, and other information nec- sources within and outside the United States. mestic corporation or a domestic partner-
essary to determine the correct income tax ship on deposits or withdrawable accounts
liability, or to provide adequate access to with mutual savings banks, cooperative
those records. Nonresident Aliens banks, credit unions, domestic building
and loan associations, and other savings
A nonresident alien usually is subject to U.S. in- institutions chartered and supervised as
Aliens From American come tax only on U.S. source income. Under savings and loan or similar associations
under federal or state law if the interest
limited circumstances, certain foreign source in-
Samoa or Puerto Rico come is subject to U.S. tax. See Foreign In- paid or credited can be deducted by the
come in chapter 4. association.
If you are a nonresident alien in the United The general rules for determining U.S. 3. Interest on deposits with a foreign branch
States and a bona fide resident of American Sa- source income that apply to most nonresident of a domestic corporation or domestic
moa or Puerto Rico during the entire tax year, aliens are shown in Table 2-1. The following partnership, but only if the branch is in the
you are taxed, with certain exceptions, accord- discussions cover the general rules as well as commercial banking business.
ing to the rules for resident aliens of the United the exceptions to these rules.
States. For more information, see Bona Fide
Residents of American Samoa or Puerto Rico in Not all items of U.S. source income are Dividends
chapter 5. TIP taxable. See chapter 3.
In most cases, dividend income received from
If you are a nonresident alien from American
domestic corporations is U.S. source income.
Samoa or Puerto Rico who does not qualify as
a bona fide resident of American Samoa or Pu- Interest Income Dividend income from foreign corporations is
usually foreign source income. Exceptions to
erto Rico for the entire tax year, you are taxed
Generally, U.S. source interest income includes both of these rules are discussed below.
as a nonresident alien.
the following items.
Resident aliens who formerly were bona fide Interest on bonds, notes, or other inter- A substitute dividend payment made to the
residents of American Samoa or Puerto Rico est-bearing obligations of U.S. residents or transferor of a security in a securities lending
are taxed according to the rules for resident ali- domestic corporations. transaction or a sale-repurchase transaction is
ens. Interest paid by a domestic or foreign part- sourced in the same manner as a distribution
nership or foreign corporation engaged in on the transferred security.
a U.S. trade or business at any time during
the tax year. Dividend equivalent payments. U.S. source
Original issue discount. dividends also include all dividend equivalent
Interest from a state, the District of Colum- payments. Currently, dividend equivalent pay-
bia, or the U.S. government. ments include (1) substitute dividends, and (2)
2. The place or manner of payment is immate-
payments made pursuant to a specified no-
tional principal contract that, directly or indi-
rial in determining the source of the income. rectly, are contingent on, or determined by ref-
A substitute interest payment made to the erence to, the payment of a dividend from U.S.
Source of transferor of a security in a securities lending sources.
transaction or a sale-repurchase transaction is The IRS has issued final and tempo-
Income sourced in the same manner as the interest on
the transferred security. ! rary regulations that affect the treat-
CAUTION ment of dividend equivalent payments,

specified notional principal contracts, and other


Exceptions. U.S. source interest income does equity derivatives. These regulations generally
Introduction not include the following items. do not apply to transactions entered into before
1. Interest paid by a resident alien or a do- January 1, 2017. You can view these regula-
After you have determined your alien status, mestic corporation on obligations issued tions at IRS.gov/irb/2015-41_IRB/ar07.html.
you must determine the source of your income. before August 10, 2010, if for the 3-year
This chapter will help you determine the source period ending with the close of the payer's First exception. Dividends received from a
of different types of income you may receive tax year preceding the interest payment, domestic corporation are not U.S. source in-
during the tax year. This chapter also discusses at least 80% of the payer's total gross in- come if the corporation elects to take the Ameri-
special rules for married individuals who are do- come: can Samoa economic development credit.
miciled in a country with community property
laws. a. Is from sources outside the United Second exception. Part of the dividends
States, and received from a foreign corporation is U.S.
Topics b. Is attributable to the active conduct of source income if 25% or more of its total gross
This chapter discusses: a trade or business by the individual income for the 3-year period ending with the
or corporation in a foreign country or a close of its tax year preceding the declaration of
U.S. possession. dividends was effectively connected with a
Income source rules, and trade or business in the United States. If the
Community income. However, the interest will be consid- corporation was formed less than 3 years be-
ered U.S. source interest income if either fore the declaration, use its total gross income
of the following apply. from the time it was formed. Determine the part

Page 10 Chapter 2 Source of Income


that is U.S. source income by multiplying the correctly reflects the proper source of that in- amount of compensation that specifically re-
dividend by the following fraction. come under the facts and circumstances of lates to a period of time that includes several
your particular case. In many cases, the facts calendar years is attributable to the entire multi-
Foreign corporation's gross income and circumstances will call for an apportion- year period.
connected with a U.S. trade or business ment on a time basis as explained next. The amount of compensation treated as
for the 3-year period from U.S. sources is figured by multiplying the
Foreign corporation's gross income from Time Basis total multiyear compensation by a fraction. The
all sources for that period numerator of the fraction is the number of days
Use a time basis to figure your U.S. source (or unit of time less than a day, if appropriate)
compensation (other than the fringe benefits that you performed labor or personal services in
Guarantee of Indebtedness discussed later). Do this by multiplying your to- the United States in connection with the project.
tal compensation (other than the fringe benefits The denominator of the fraction is the total num-
Amounts received directly or indirectly, for the discussed later) by the following fraction. ber of days (or unit of time less than a day, if ap-
provision of a guarantee of indebtedness is- propriate) that you performed labor or personal
sued after September 27, 2010, are U.S. Number of days you performed services
services in connection with the project.
source income if they are paid by: in the United States during the year
1. A noncorporate resident or U.S. corpora- Total number of days you performed Geographical Basis
tion, or services during the year
Compensation you receive as an employee in
2. Any foreign person if the amounts are ef- the form of the following fringe benefits is
fectively connected with the conduct of a You can use a unit of time less than a day in sourced on a geographical basis.
U.S. trade or business. the above fraction, if appropriate. The time pe- Housing.
riod for which the compensation is made does Education.
For more information, see Internal Revenue
not have to be a year. Instead, you can use an- Local transportation.
Code section 861(a)(9).
other distinct, separate, and continuous time Tax reimbursement.
period if you can establish to the satisfaction of Hazardous or hardship duty pay as defined
Personal Services the IRS that this other period is more appropri- in Regulations section 1.861-4(b)(2)(ii)(D)
ate. (5).
All wages and any other compensation for serv- Moving expense reimbursement.
ices performed in the United States are consid- Example 1. Christina Brooks, a resident of
ered to be from sources in the United States. the Netherlands, worked 240 days for a U.S. The amount of fringe benefits must be reasona-
The only exceptions to this rule are discussed in company during the tax year. She received ble and you must substantiate them by ade-
Employees of foreign persons, organizations, or $80,000 in compensation. None of it was for quate records or by sufficient evidence.
offices, and under Crew members. fringe benefits. Christina performed services in
the United States for 60 days and performed Principal place of work. The above fringe
If you are an employee and receive com- services in the Netherlands for 180 days. Using benefits, except for tax reimbursement and haz-
pensation for labor or personal services per- the time basis for determining the source of ardous or hardship duty pay, are sourced based
formed both inside and outside the United on your principal place of work. Your principal
compensation, $20,000 ($80,000 × 60 240) is her
States, special rules apply in determining the place of work is usually the place where you
U.S. source income.
source of the compensation. Compensation spend most of your working time. This could be
(other than certain fringe benefits) is sourced on your office, plant, store, shop, or other location.
Example 2. Rob Waters, a resident of
a time basis. Certain fringe benefits (such as If there is no one place where you spend most
South Africa, is employed by a corporation. His
housing and education) are sourced on a geo- of your working time, your main job location is
annual salary is $100,000. None of it is for
graphical basis. the place where your work is centered, such as
fringe benefits. During the first quarter of the
where you report for work or are otherwise re-
Or, you may be permitted to use an alterna- year he worked entirely within the United
quired to “base” your work.
tive basis to determine the source of compen- States. On April 1, Rob was transferred to Sin-
gapore for the remainder of the year. Rob is If you have more than one job at any time,
sation. See Alternative Basis, later. your main job location depends on the facts in
able to establish that the first quarter of the year
and the last 3 quarters of the year are two sepa- each case. The more important factors to be
Multilevel marketing. Certain companies sell considered are:
products through a multilevel marketing ar- rate, distinct, and continuous periods of time.
Accordingly, $25,000 of Rob's annual salary is The total time you spend at each place,
rangement, such that an upper-tier distributor, The amount of work you do at each place,
who has sponsored a lower-tier distributor, is attributable to the first quarter of the year (0.25
× $100,000). All of it is U.S. source income be- and
entitled to a payment from the company based How much money you earn at each place.
on certain activities of that lower-tier distributor. cause he worked entirely within the United
Generally, depending on the facts, payments States during that quarter. The remaining
$75,000 is attributable to the last three quarters Housing. The source of a housing fringe bene-
from such multilevel marketing companies to in- fit is determined based on the location of your
dependent (non employee) distributors (up- of the year. During those quarters, he worked
150 days in Singapore and 30 days in the Uni- principal place of work. A housing fringe benefit
per-tier distributors) that are based on the sales includes payments to you or on your behalf
or purchases of persons whom they have spon- ted States. His periodic performance of serv-
ices in the United States did not result in dis- (and your family's if your family resides with
sored (lower-tier distributors) constitute income you) only for the following.
for the performance of personal services in re- tinct, separate, and continuous periods of time.
Rent.
cruiting, training, and supporting the lower-tier Of this $75,000, $12,500 ($75,000 × 30 180) is
Utilities (except telephone charges).
distributors. The source of such income is gen- U.S. source income.
Real and personal property insurance.
erally based on where the services of the up- Occupancy taxes not deductible under
per-tier distributor are performed, and may, de- Multiyear compensation. The source of mul-
section 164 or 216(a).
pending on the facts, be considered multiyear tiyear compensation is generally determined on
Nonrefundable fees for securing a lease-
compensation, with the source of income deter- a time basis over the period to which the com-
hold.
mined over the period to which such compen- pensation is attributable. Multiyear compensa-
Rental of furniture and accessories.
sation is attributable. tion is compensation that is included in your in-
Household repairs.
come in one tax year but that is attributable to a
Residential parking.
Self-employed individuals. If you are period that includes two or more tax years.
Fair rental value of housing provided in
self-employed, you determine the source of You determine the period to which the com-
kind by your employer.
compensation for labor or personal services pensation is attributable based on the facts and
from self-employment on the basis that most circumstances of your case. For example, an

Chapter 2 Source of Income Page 11


A housing fringe benefit does not include: reimburse you for moving expenses that you in- Scholarships, Grants,
Deductible interest and taxes (including cur to return to your former principal place of
deductible interest and taxes of a ten- work regardless of whether you continue to
Prizes, and Awards
ant-stockholder in a cooperative housing work for your employer after returning to that lo-
Generally, the source of scholarships, fellow-
corporation), cation. It may contain certain conditions upon
ship grants, grants, prizes, and awards is the
The cost of buying property, including prin- which the right to reimbursement is determined
residence of the payer regardless of who ac-
cipal payments on a mortgage, as long as those conditions set forth standards
tually disburses the funds. However, see Activi-
The cost of domestic labor (maids, garden- that are definitely ascertainable and can only be
ties to be performed outside the United States,
ers, etc.), fulfilled prior to, or through completion of, your
later.
Pay television subscriptions, return move to your former principal place of
Improvements and other expenses that in- work. For example, payments for research or
crease the value or appreciably prolong study in the United States made by the United
the life of property, Alternative Basis States, a noncorporate U.S. resident, or a do-
Purchased furniture or accessories, mestic corporation, are from U.S. sources. Sim-
Depreciation or amortization of property or If you are an employee, you can determine the ilar payments from a foreign government or for-
improvements, source of your compensation under an alterna- eign corporation are foreign source payments
The value of meals or lodging that you ex- tive basis if you establish to the satisfaction of even though the funds may be disbursed
clude from gross income, or the IRS that, under the facts and circumstances through a U.S. agent.
The value of meals or lodging that you de- of your case, the alternative basis more prop-
duct as moving expenses. erly determines the source of your compensa- Payments made by an entity designated as
tion than the time or geographical basis. If you a public international organization under the In-
Education. The source of an education fringe use an alternative basis, you must keep (and ternational Organizations Immunities Act are
benefit for the education expenses of your de- have available for inspection) records to docu- from foreign sources.
pendents is determined based on the location ment why the alternative basis more properly
of your principal place of work. An education determines the source of your compensation. Activities to be performed outside the Uni-
fringe benefit includes payments only for the fol- Also, if your total compensation from all sources ted States. Scholarships, fellowship grants,
lowing expenses for education at an elementary is $250,000 or more, check “Yes” to both ques- targeted grants, and achievement awards re-
or secondary school. tions on line K on page 5 of Form 1040NR, and ceived by nonresident aliens for activities per-
Tuition, fees, academic tutoring, special attach a written statement to your tax return that formed, or to be performed, outside the United
needs services for a special needs stu- sets forth all of the following. States are not U.S. source income.
dent, books, supplies, and other equip-
1. Your name and social security number These rules do not apply to amounts
ment.
(written across the top of the statement). ! paid as salary or other compensation
Room and board and uniforms that are re-
CAUTION for services. See Personal Services,
quired or provided by the school in con- 2. The specific compensation income, or the earlier, for the source rules that apply.
nection with enrollment or attendance. specific fringe benefit, for which you are
using the alternative basis.
Local transportation. The source of a local
transportation fringe benefit is determined 3. For each item in (2), the alternative basis Pensions and Annuities
based on the location of your principal place of of allocation of source used.
If you receive a pension from a domestic trust
work. Your local transportation fringe benefit is 4. For each item in (2), a computation show- for services performed both in and outside the
the amount that you receive as compensation ing how the alternative allocation was United States, part of the pension payment is
for local transportation for you or your spouse or computed. from U.S. sources. That part is the amount at-
dependents at the location of your principal
5. A comparison of the dollar amount of the tributable to earnings of the pension plan and
place of work. The amount treated as a local
U.S. compensation and foreign compen- the employer contributions made for services
transportation fringe benefit is limited to actual
sation sourced under both the alternative performed in the United States. This applies
expenses incurred for local transportation and
basis and the time or geographical basis whether the distribution is made under a quali-
the fair rental value of any employer-provided
discussed earlier. fied or nonqualified stock bonus, pension,
vehicle used predominantly by you, your
profit-sharing, or annuity plan (whether or not
spouse, or your dependents for local transpor-
funded).
tation. Actual expenses do not include the cost Transportation Income
(including interest) of any vehicle purchased by If you performed services as an employee of
you or on your behalf. Transportation income is income from the use the United States, you may receive a distribu-
of a vessel or aircraft or for the performance of tion from the U.S. government under a plan,
Tax reimbursement. The source of a tax reim- services directly related to the use of any vessel such as the Civil Service Retirement System,
bursement fringe benefit is determined based or aircraft. This is true whether the vessel or air- that is treated as a qualified pension plan. Your
on the location of the jurisdiction that imposed craft is owned, hired, or leased. The term “ves- U.S. source income is the otherwise taxable
the tax for which you are reimbursed. sel or aircraft” includes any container used in amount of the distribution that is attributable to
connection with a vessel or aircraft. your total U.S. government basic pay other than
Moving expense reimbursement. The tax-exempt pay for services performed outside
source of a moving expense reimbursement is All income from transportation that begins
and ends in the United States is treated as de- the United States.
generally based on the location of your new
principal place of work. However, the source is rived from sources in the United States. If the
determined based on the location of your for- transportation begins or ends in the United Rents or Royalties
mer principal place of work if you provide suffi- States, 50% of the transportation income is
cient evidence that such determination of treated as derived from sources in the United Your U.S. source income includes rent and roy-
source is more appropriate under the facts and States. alty income received during the tax year from
circumstances of your case. Sufficient evidence For transportation income from personal property located in the United States or from
generally requires an agreement between you services, 50% of the income is U.S. source in- any interest in that property.
and your employer, or a written statement of come if the transportation is between the United
company policy, which is reduced to writing be- U.S. source income also includes rents or
States and a U.S. possession. For nonresident
fore the move and which is entered into or es- royalties for the use of, or for the privilege of us-
aliens, this only applies to income derived from,
tablished to induce you or other employees to ing, in the United States, intangible property
or in connection with, an aircraft.
move to another country. The written statement such as patents, copyrights, secret processes
or agreement must state that your employer will For information on how U.S. source trans- and formulas, goodwill, trademarks, franchises,
portation income is taxed, see chapter 4. and similar property.

Page 12 Chapter 2 Source of Income


Table 2-1. Summary of Source Rules for Income of Nonresident Aliens Depreciable property. To determine the
source of any gain from the sale of depreciable
Item of income Factor determining source personal property, you must first figure the part
of the gain that is not more than the total depre-
Salaries, wages, other compensation Where services performed ciation adjustments on the property. You allo-
Business income: cate this part of the gain to sources in the Uni-
ted States based on the ratio of U.S.
Personal services Where services performed
depreciation adjustments to total depreciation
Sale of inventory—purchased Where sold adjustments. The rest of this part of the gain is
Sale of inventory—produced Allocation considered to be from sources outside the Uni-
Interest Residence of payer ted States.
For this purpose, “U.S. depreciation adjust-
Dividends Whether a U.S. or foreign corporation* ments” are the depreciation adjustments to the
Rents Location of property basis of the property that are allowable in figur-
ing taxable income from U.S. sources. How-
Royalties: ever, if the property is used predominantly in
Natural resources Location of property the United States during a tax year, all depreci-
Patents, copyrights, etc. Where property is used ation deductions allowable for that year are
treated as U.S. depreciation adjustments. But
Sale of real property Location of property there are some exceptions for certain transpor-
tation, communications, and other property
Sale of personal property Seller's tax home (but see Personal Property,
used internationally.
later, for exceptions)
Gain from the sale of depreciable property
Pension distributions attributable to Where services were performed that earned that is more than the total depreciation adjust-
contributions the pension ments on the property is sourced as if the prop-
erty were inventory property, as discussed
Investment earnings on pension Location of pension trust above.
contributions A loss is sourced in the same way as the de-
Sale of natural resources Allocation based on fair market value of preciation deductions were sourced. However,
if the property was used predominantly in the
product at export terminal. For more United States, the entire loss reduces U.S.
information, see section 1.863-1(b) of the source income.
regulations. The basis of property usually means the
*Exceptions include: (a) Dividends paid by a U.S. corporation are foreign source if the cost (money plus the fair market value of other
property or services) of property you acquire.
corporation elects the American Samoa economic development credit. (b) Part of a dividend
Depreciation is an amount deducted to recover
paid by a foreign corporation is U.S. source if at least 25% of the corporation's gross income is the cost or other basis of a trade or business
effectively connected with a U.S. trade or business for the 3 tax years before the year in which asset. The amount you can deduct depends on
the dividends are declared. the property's cost, when you began using the
property, how long it will take to recover your
Real Property Tax home. Your tax home is the general area cost, and which depreciation method you use.
of your main place of business, employment, or A depreciation deduction is any deduction for
post of duty, regardless of where you maintain depreciation or amortization or any other allow-
Real property is land and buildings and gener-
your family home. Your tax home is the place able deduction that treats a capital expenditure
ally anything built on, growing on, or attached to
where you permanently or indefinitely work as as a deductible expense.
land.
an employee or a self-employed individual. If
you do not have a regular or main place of busi- Intangible property. Intangible property in-
Gross income from sources in the United
ness because of the nature of your work, then cludes patents, copyrights, secret processes or
States includes gains, profits, and income from
your tax home is the place where you regularly formulas, goodwill, trademarks, trade names, or
the sale or other disposition of real property lo-
live. If you do not fit either of these categories, other like property. The gain from the sale of
cated in the United States.
you are considered an itinerant and your tax amortizable or depreciable intangible property,
Natural resources. The income from the sale home is wherever you work. up to the previously allowable amortization or
of products of any farm, mine, oil or gas well, depreciation deductions, is sourced in the same
other natural deposit, or timber located in the Inventory property. Inventory property is per- way as the original deductions were sourced.
United States and sold in a foreign country, or sonal property that is stock in trade or that is This is the same as the source rule for gain from
located in a foreign country and sold in the Uni- held primarily for sale to customers in the ordi- the sale of depreciable property. See Deprecia-
ted States, is partly from sources in the United nary course of your trade or business. Income ble property, earlier, for details on how to apply
States. For information on determining that part, from the sale of inventory that you purchased is this rule.
see section 1.863-1(b) of the regulations. sourced where the property is sold. Generally, Gain in excess of the amortization or depre-
this is where title to the property passes to the ciation deductions is sourced in the country
buyer. For example, income from the sale of in- where the property is used if the income from
Personal Property ventory in the United States is U.S. source in- the sale is contingent on the productivity, use,
come, whether you purchased it in the United or disposition of that property. If the income is
Personal property is property, such as machi- States or in a foreign country. not contingent on the productivity, use, or dis-
nery, equipment, or furniture, that is not real Income from the sale of inventory property position of the property, the income is sourced
property. that you produced in the United States and sold according to your tax home as discussed ear-
outside the United States (or vice versa) is lier. If payments for goodwill do not depend on
Gain or loss from the sale or exchange of partly from sources in the United States and its productivity, use, or disposition, their source
personal property generally has its source in the partly from sources outside the United States. is the country in which the goodwill was gener-
United States if you have a tax home in the Uni- For information on making this allocation, see ated.
ted States. If you do not have a tax home in the section 1.863-3 of the regulations.
United States, the gain or loss generally is con- These rules apply even if your tax home is Sales through offices or fixed places of
sidered to be from sources outside the United not in the United States. business. Despite any of the earlier rules, if
States. you do not have a tax home in the United

Chapter 2 Source of Income Page 13


States, but you maintain an office or other fixed Other community income. All other commun- Foreign country. A foreign country is any terri-
place of business in the United States, treat the ity income is treated as provided by the applica- tory under the sovereignty of a government
income from any sale of personal property (in- ble community property laws. other than that of the United States.
cluding inventory property) that is attributable to The term “foreign country” includes the
that office or place of business as U.S. source country's territorial waters and airspace, but not
income. However, this rule does not apply to international waters and the airspace above
sales of inventory property for use, disposition, them. It also includes the seabed and subsoil of
or consumption outside the United States if those submarine areas adjacent to the country's
your office or other fixed place of business out- territorial waters over which it has exclusive
side the United States materially participated in
the sale.
3. rights under international law to explore and ex-
ploit the natural resources.
If you have a tax home in the United States The term “foreign country” does not include
but maintain an office or other fixed place of
business outside the United States, income Exclusions From U.S. possessions or territories. It does not in-
clude the Antarctic region.
from sales of personal property, other than in-
ventory, depreciable property, or intangibles,
that is attributable to that foreign office or place
Gross Income Nonresident Aliens
of business may be treated as U.S. source in-
come. The income is treated as U.S. source in- Nonresident aliens can exclude the following
come if an income tax of less than 10% of the
income from the sale is paid to a foreign coun-
Introduction items from their gross income.
try. This rule also applies to losses if the foreign Resident and nonresident aliens are allowed
country would have imposed an income tax of exclusions from gross income if they meet cer- Interest Income
less than 10% had the sale resulted in a gain. tain conditions. An exclusion from gross income
is generally income you receive that is not inclu- Interest income that is not connected with a
ded in your U.S. income and is not subject to U.S. trade or business is excluded from income
Community Income U.S. tax. This chapter covers some of the more if it is from:
Deposits (including certificates of deposit)
common exclusions allowed to resident and
nonresident aliens. with persons in the banking business,
If you are married and you or your spouse is
Deposits or withdrawable accounts with
subject to the community property laws of a for-
Topics mutual savings banks, cooperative banks,
eign country, a U.S. state, or a U.S. possession,
This chapter discusses: credit unions, domestic building and loan
you generally must follow those laws to deter-
associations, and other savings institutions
mine the income of yourself and your spouse
chartered and supervised as savings and
for U.S. tax purposes. But you must disregard Nontaxable interest, loan or similar associations under federal
certain community property laws if: Nontaxable dividends, or state law (if the interest paid or credited
Both you and your spouse are nonresident Certain compensation paid by a foreign can be deducted by the association), and
aliens, or employer, Amounts held by an insurance company
One of you is a nonresident alien and the Gain from sale of home, and under an agreement to pay interest on
other is a U.S. citizen or resident and you Scholarships and fellowship grants. them.
do not both choose to be treated as U.S.
residents as explained in chapter 1.
Useful Items State and local government obligations. In-
In these cases, you and your spouse must re- You may want to see: terest on obligations of a state or political subdi-
port community income as explained later. vision, the District of Columbia, or a U.S. pos-
Publication session, generally is not included in income.
Earned income. Earned income of a spouse, However, interest on certain private activity
other than trade or business income and a part- 54 Tax Guide for U.S. Citizens and bonds, arbitrage bonds, and certain bonds not
ner's distributive share of partnership income, is Resident Aliens Abroad in registered form is included in income.
treated as the income of the spouse whose
services produced the income. That spouse 523 Selling Your Home Portfolio interest. Interest and original issue
must report all of it on his or her separate return. discount that qualifies as portfolio interest is not
See chapter 12 for information about getting
subject to chapter 3 withholding under sections
Trade or business income. Trade or busi- these publications.
1441 through 1443 of the Internal Revenue
ness income, other than a partner's distributive Code. However, such interest may be subject to
share of partnership income, is treated as the
income of the spouse carrying on the trade or Resident Aliens withholding if it is a withholdable payment, and
there is no exception under chapter 4 (sections
business. That spouse must report all of it on 1471 through 1474) of the Internal Revenue
his or her separate return. Resident aliens may be able to exclude the fol- Code. For more information, see the discussion
lowing items from their gross income. of portfolio interest under Withholding on Spe-
Partnership income (or loss). A partner's cific Income in Pub. 515.
distributive share of partnership income (or
loss) is treated as the income (or loss) of the
Foreign Earned Income To qualify as portfolio interest, the interest

partner. The partner must report all of it on his and Housing Amount must be paid on obligations issued after July
18, 1984, and otherwise subject to withholding.
or her separate return. For obligations issued after March 18, 2012,
If you are physically present in a foreign country
portfolio interest does not include interest paid
Separate property income. Income derived or countries for at least 330 full days during any
on debt that is not in registered form. Before
from the separate property of one spouse (and period of 12 consecutive months, you may qual-
March 19, 2012, portfolio interest included inter-
which is not earned income, trade or business ify for the foreign earned income exclusion. The
est on certain registered and nonregistered
income, or partnership distributive share in- exclusion is $102,100 in 2017. In addition, you
(bearer) bonds if the obligations meet the re-
come) is treated as the income of that spouse. may be able to exclude or deduct certain for-
quirements described below.
That spouse must report all of it on his or her eign housing amounts. You may also qualify if
separate return. Use the appropriate community you are a bona fide resident of a foreign country Obligations in registered form. Portfolio
property law to determine what is separate and you are a citizen or national of a country interest includes interest paid on an obligation
property. with which the United States has an income tax that is in registered form, and for which you
treaty. For more information, see Pub. 54.

Page 14 Chapter 3 Exclusions From Gross Income


have received documentation that the beneficial For exceptions, see Internal Revenue and is tax exempt if you meet all three of the fol-
owner of the obligation is not a United States Code section 871(h)(4)(C). lowing conditions.
person.
2. Any other type of contingent interest that is 1. You perform personal services as an em-
Generally, an obligation is in registered form
identified by the Secretary of the Treasury ployee of or under a contract with a non-
if: (i) the obligation is registered as to both prin-
in regulations. resident alien individual, foreign partner-
cipal and any stated interest with the issuer (or
ship, or foreign corporation, not engaged
its agent) and any transfer of the obligation may Related persons. Related persons in- in a trade or business in the United States;
be effected only by surrender of the old obliga- clude the following. or you work for an office or place of busi-
tion and reissuance to the new holder; (ii) the Members of a family, including only broth- ness maintained in a foreign country or
right to principal and stated interest with respect ers, sisters, half brothers, half sisters, possession of the United States by a U.S.
to the obligation may be transferred only spouse, ancestors (parents, grandparents, corporation, a U.S. partnership, or a U.S.
through a book entry system maintained by the etc.), and lineal descendants (children, citizen or resident.
issuer or its agent; or (iii) the obligation is regis- grandchildren, etc.).
tered as to both principal and stated interest Any person who is a party to any arrange- 2. You perform these services while you are
with the issuer or its agent and can be transfer- ment undertaken for the purpose of avoid- a nonresident alien temporarily present in
red both by surrender and reissuance and ing the contingent interest rules. the United States for a period or periods of
through a book entry system. Certain corporations, partnerships, and not more than a total of 90 days during the
An obligation that would otherwise be con- other entities. For details, see Nondeducti- tax year.
sidered to be in registered form is not consid- ble Loss in chapter 2 of Pub. 544. 3. Your pay for these services is not more
ered to be in registered form as of a particular
Exception for existing debt. Contingent than $3,000.
time if it can be converted at any time in the fu-
ture into an obligation that is not in registered interest does not include interest paid or ac- If you do not meet all three conditions, your in-
form. For more information on whether obliga- crued on any debt with a fixed term that was is- come from personal services performed in the
tions are considered to be in registered form, sued: United States is U.S. source income and is
see the discussion of portfolio interest under On or before April 7, 1993, or taxed according to the rules in chapter 4.
Withholding on Specific Income in Pub. 515. After April 7, 1993, pursuant to a written
If your pay for these services is more than
binding contract in effect on that date and
Obligations not in registered form. For $3,000, the entire amount is income from a
at all times thereafter before that debt was
obligations issued before March 19, 2012, inter- trade or business within the United States. To
issued.
est on an obligation that is not in registered form find if your pay is more than $3,000, do not in-
(bearer obligation) is portfolio interest if the obli- clude any amounts you get from your employer
gation is foreign targeted. A bearer obligation is Dividend Income for advances or reimbursements of business
foreign targeted if: travel expenses, if you were required to and did
There are arrangements to ensure that the The following dividend income is exempt from account to your employer for those expenses. If
obligation will be sold, or resold in connec- the 30% tax. the advances or reimbursements are more than
tion with the original issue, only to a person your expenses, include the excess in your pay
who is not a U.S. person, Certain dividends paid by foreign corpora- for these services.
Interest on the obligation is payable only tions. There is no 30% tax on U.S. source divi- A day means a calendar day during any part
outside the United States and its posses- dends you receive from a foreign corporation. of which you are physically present in the Uni-
sions, and See Second exception under Dividends in ted States.
The face of the obligation contains a state- chapter 2 for how to figure the amount of U.S.
ment that any U.S. person who holds the source dividends. Example 1. During 2017, Henry Smythe, a
obligation will be subject to limits under the nonresident alien from a nontreaty country,
U.S. income tax laws. Certain interest-related dividends. There is worked for an overseas office of a U.S. partner-
no 30% tax on interest-related dividends from ship. Henry, who uses the calendar year as his
Documentation is not required for interest on sources within the United States that you re- tax year, was temporarily present in the United
bearer obligations to qualify as portfolio interest. ceive from a mutual fund or other regulated in- States for 60 days during 2017 performing per-
In some cases, however, you may need docu- vestment company in 2017. The mutual fund sonal services for the overseas office of the
mentation for purposes of Form 1099 reporting will designate in writing which dividends are in- partnership. That office paid him a total gross
and backup withholding. terest-related dividends. salary of $2,800 for those services. During
2017, he was not engaged in a trade or busi-
Interest that does not qualify as portfolio Certain short-term capital gain dividends. ness in the United States. The salary is not con-
interest. Payments to certain persons and There may not be any 30% tax on certain sidered U.S. source income and is exempt from
payments of contingent interest do not qualify short-term capital gain dividends from sources U.S. tax.
as portfolio interest. You must withhold at the within the United States that you receive from a
statutory rate on such payments unless some mutual fund or other regulated investment com- Example 2. The facts are the same as in
other exception, such as a treaty provision, ap- pany. The mutual fund will designate in writing Example 1, except that Henry's total gross sal-
plies. which dividends are short-term capital gain divi- ary for the services performed in the United
Contingent interest. Portfolio interest dends. This tax relief will not apply to you if you States during 2017 was $4,500. He received
does not include contingent interest. Contingent are present in the United States for 183 days or $2,875 in 2017, and $1,625 in 2018. During
interest is either of the following. more during your tax year. 2017, he was engaged in a trade or business in
the United States because the compensation
1. Interest that is determined by reference to: for his personal services in the United States
Services Performed was more than $3,000. Henry's salary is U.S.
a. Any receipts, sales, or other cash flow
of the debtor or related person,
for Foreign Employer source income and is taxed under the rules in
chapter 4.
b. Income or profits of the debtor or rela- If you were paid by a foreign employer, your
ted person, U.S. source income may be exempt from U.S. Crew members. Compensation for services
tax, but only if you meet one of the situations performed by a nonresident alien in connection
c. Any change in value of any property
discussed next. with the individual's temporary presence in the
of the debtor or a related person, or
United States as a regular crew member of a
d. Any dividend, partnership distribu- Employees of foreign persons, organiza- foreign vessel (for example, a boat or ship) en-
tions, or similar payments made by tions, or offices. Income for personal services gaged in transportation between the United
the debtor or a related person. performed in the United States as a nonresident States and a foreign country or U.S. possession
alien is not considered to be from U.S. sources is not U.S. source income and is exempt from

Chapter 3 Exclusions From Gross Income Page 15


U.S. tax. This exemption does not apply to Income affected by treaties. Income of any Eligible educational institution. An eligible
compensation for services performed on foreign kind that is exempt from U.S. tax under a treaty educational institution is one that maintains a
aircraft. to which the United States is a party is excluded regular faculty and curriculum and normally has
from your gross income. Income on which the a regularly enrolled body of students in attend-
Students and exchange visitors. Nonresi- tax is only limited by treaty, however, is inclu- ance at the place where it carries on its educa-
dent alien students and exchange visitors ded in gross income. See chapter 9. tional activities.
present in the United States under “F,” “J,” or
“Q” visas can exclude from gross income pay Qualified education expenses. These are
received from a foreign employer.
Gambling Winnings From expenses for:
This group includes bona fide students, Dog or Horse Racing Tuition and fees required to enroll at or at-
scholars, trainees, teachers, professors, re- tend an eligible educational institution, and
search assistants, specialists, or leaders in a You can exclude from your gross income win- Course-related expenses, such as fees,
field of specialized knowledge or skill, or per- nings from legal wagers initiated outside the books, supplies, and equipment that are
sons of similar description. It also includes the United States in a parimutuel pool with respect required for the courses at the eligible edu-
alien's spouse and minor children if they come to a live horse or dog race in the United States. cational institution. These items must be
with the alien or come later to join the alien. required of all students in your course of in-
struction.
A nonresident alien temporarily present in
the United States under a “J” visa includes an Gain From the Sale However, in order for these to be qualified edu-
alien individual entering the United States as an
exchange visitor under the Mutual Educational
of Your Main Home cation expenses, the terms of the scholarship or
fellowship cannot require that it be used for
and Cultural Exchange Act of 1961. other purposes, such as room and board, or
If you sold your main home, you may be able to
Foreign employer. A foreign employer is: exclude up to $250,000 of the gain on the sale specify that it cannot be used for tuition or
of your home. If you are married and file a joint course-related expenses.
A nonresident alien individual, foreign part-
nership, or foreign corporation, or return, you may be able to exclude up to Expenses that do not qualify. Qualified
An office or place of business maintained $500,000. For information on the requirements education expenses do not include the cost of:
in a foreign country or in a U.S. possession for this exclusion, see Pub. 523. Room and board,
by a U.S. corporation, a U.S. partnership, Travel,
This exclusion does not apply to non-
or an individual who is a U.S. citizen or res- Research,
! resident aliens who are subject to the
ident. CAUTION expatriation Clerical help, or
tax rules discussed in
The term “foreign employer” does not in- chapter 4. Equipment and other expenses that are
clude a foreign government. Pay from a foreign not required for enrollment in or attend-
government that is exempt from U.S. income ance at an eligible educational institution.
tax is discussed in chapter 10.
Scholarships and This is true even if the fee must be paid to the
institution as a condition of enrollment or at-
Income from certain annuities. Do not in-
clude in income any annuity received under a
Fellowship Grants tendance. Scholarship or fellowship amounts
used to pay these costs are taxable.
qualified annuity plan or from a qualified trust If you are a candidate for a degree, you may be
exempt from U.S. income tax if you meet both Amounts used to pay expenses that do not
able to exclude from your income part or all of
of the following conditions. qualify. A scholarship amount used to pay any
the amounts you receive as a qualified scholar-
1. You receive the annuity only because: ship. The rules discussed here apply to both expense that does not qualify is taxable, even if
resident and nonresident aliens. the expense is a fee that must be paid to the in-
a. You performed personal services out- stitution as a condition of enrollment or attend-
side the United States while you were If a nonresident alien receives a grant ance.
a nonresident alien, or TIP that is not from U.S. sources, it is not
subject to U.S. tax. See Scholarships, Payment for services. You cannot exclude
b. You performed personal services in-
Grants, Prizes, and Awards in chapter 2 to de- from income the portion of any scholarship, fel-
side the United States while you were
termine whether your grant is from U.S. sour- lowship, or tuition reduction that represents
a nonresident alien and you met the
ces. payment for past, present, or future teaching,
three conditions, described earlier,
under Employees of foreign persons, research, or other services. This is true even if
A scholarship or fellowship is excludable all candidates for a degree are required to per-
organizations, or offices.
from income only if: form the services as a condition for receiving
2. At the time the first amount is paid as an the degree.
1. You are a candidate for a degree at an eli-
annuity under the plan (or by the trust),
gible educational institution, and
90% or more of the employees for whom Example. On January 7, Maria Gomez is
contributions or benefits are provided un- 2. You use the scholarship or fellowship to notified of a scholarship of $2,500 for the spring
der the annuity plan (or under the plan of pay qualified education expenses. semester. As a condition for receiving the
which the trust is a part) are U.S. citizens scholarship, Maria must serve as a part-time
or residents. Candidate for a degree. You are a candidate teaching assistant. Of the $2,500 scholarship,
for a degree if you: $1,000 represents payment for her services.
If the annuity qualifies under condition (1)
1. Attend a primary or secondary school or Assuming that Maria meets all other conditions,
but not condition (2) above, you do not have to
are pursuing a degree at a college or uni- she can exclude no more than $1,500 from in-
include the amount in income if:
versity, or come as a qualified scholarship.
You are a resident of a country that gives a
substantially equal exclusion to U.S. citi- 2. Attend an accredited educational institu-
zens and residents, or tion that is authorized to provide:
You are a resident of a beneficiary devel-
oping country under Title V of the Trade a. A program that is acceptable for full
Act of 1974. credit toward a bachelor's or higher
degree, or
If you are not sure whether the annuity is
from a qualified annuity plan or qualified trust, b. A program of training to prepare stu-
ask the person who made the payment. dents for gainful employment in a rec-
ognized occupation.

Page 16 Chapter 3 Exclusions From Gross Income


1. Income that is effectively connected with a products, or merchandise, you are, with certain
trade or business in the United States, and exceptions, engaged in a trade or business in
4. 2. Income that is not effectively connected
with a trade or business in the United
the United States.

Partnerships. If you are a member of a part-


States (discussed under The 30% Tax,
nership that at any time during the tax year is
How Income of later).
The difference between these two catego-
engaged in a trade or business in the United
States, you are considered to be engaged in a
trade or business in the United States.
Aliens Is Taxed ries is that effectively connected income, after
allowable deductions, is taxed at graduated
Beneficiary of an estate or trust. If you are
rates. These are the same rates that apply to
U.S. citizens and residents. Income that is not the beneficiary of an estate or trust that is en-
gaged in a trade or business in the United
Introduction effectively connected is taxed at a flat 30% (or
lower treaty) rate. States, you are treated as being engaged in the
same trade or business.
Resident and nonresident aliens are taxed in If you were formerly a U.S. citizen or
different ways. Resident aliens are generally resident alien, these rules may not ap-
taxed in the same way as U.S. citizens. Nonres-
! ply. See Expatriation Tax, later in this
Trading in stocks, securities, and commodi-
CAUTION
ties. If your only U.S. business activity is trad-
ident aliens are taxed based on the source of chapter. ing in stocks, securities, or commodities (includ-
their income and whether or not their income is ing hedging transactions) through a U.S.
effectively connected with a U.S. trade or busi- resident broker or other agent, you are not en-
ness. The following discussions will help you Trade or Business gaged in a trade or business in the United
determine if income you receive during the tax
year is effectively connected with a U.S. trade
in the United States States.
For transactions in stocks or securities, this
or business and how it is taxed.
Generally, you must be engaged in a trade or applies to any nonresident alien, including a
business during the tax year to be able to treat dealer or broker in stocks and securities.
Topics income received in that year as effectively con- For transactions in commodities, this applies
This chapter discusses: nected with that trade or business. Whether you to commodities that are usually traded on an or-
are engaged in a trade or business in the United ganized commodity exchange and to transac-
Income that is effectively connected with a States depends on the nature of your activities. tions that are usually carried out at such an ex-
U.S. trade or business. The discussions that follow will help you deter- change.
Income that is not effectively connected mine whether you are engaged in a trade or This discussion does not apply if you have a
with a U.S. trade or business. business in the United States. U.S. office or other fixed place of business at
Interrupted period of residence. any time during the tax year through which, or
Expatriation tax. by the direction of which, you carry out your
Personal Services
transactions in stocks, securities, or commodi-
Useful Items If you perform personal services in the United ties.
You may want to see: States at any time during the tax year, you usu- Trading for a nonresident alien's own
ally are considered engaged in a trade or busi- account. You are not engaged in a trade or
Publication ness in the United States. business in the United States if trading for your
544 Sales and Other Dispositions of Certain compensation paid to a non- own account in stocks, securities, or commodi-
Assets TIP resident alien by a foreign employer is ties is your only U.S. business activity. This ap-
1212 List of Original Issue Discount not included in gross income. For more plies even if the trading takes place while you
Instruments information, see Services Performed for For- are present in the United States or is done by
eign Employer in chapter 3. your employee or your broker or other agent.
Form (and Instructions) This does not apply to trading for your own
account if you are a dealer in stocks, securities,
6251 Alternative Minimum Other Trade or Business Activities or commodities. This does not necessarily
Tax—Individuals
mean, however, that as a dealer you are con-
Schedule D (Form 1040) Capital Gains Other examples of being engaged in a trade or sidered to be engaged in a trade or business in
and Losses business in the United States follow. the United States. Determine that based on the
See chapter 12 for information about getting facts and circumstances in each case or under
these publications and forms. Students and trainees. If you are temporarily the rules given above in Trading in stocks, se-
present in the United States as a nonimmigrant curities, and commodities.
under an “F,” “J,” “M,” or “Q” visa, and not other-
Resident Aliens wise engaged in a trade or business, you are
considered to be engaged in a trade or busi- Effectively
Resident aliens are generally taxed in the same
ness in the United States if you have taxable in- Connected Income
come from participation in a scholarship or fel-
way as U.S. citizens. This means that their lowship described in section 1441(b). The
worldwide income is subject to U.S. tax and If you are engaged in a U.S. trade or business,
taxable part of any scholarship or fellowship all income, gain, or loss for the tax year that you
must be reported on their U.S. tax return. In- grant that is U.S. source income is treated as
come of resident aliens is subject to the gradu- get from sources within the United States (other
effectively connected with a trade or business in than certain investment income) is treated as
ated tax rates that apply to U.S. citizens. Resi- the United States.
dent aliens use the Tax Table or Tax effectively connected income. This applies
Computation Worksheets located in the Form whether or not there is any connection between
Note. A nonresident alien temporarily the income and the trade or business being car-
1040 instructions, which apply to U.S. citizens. present in the United States under a “J” visa in- ried on in the United States during the tax year.
cludes a nonresident alien individual admitted
to the United States as an exchange visitor un-
Nonresident Aliens der the Mutual Educational and Cultural Ex-
Two tests, described next under Investment
Income, determine whether certain items of in-
change Act of 1961. vestment income (such as interest, dividends,
A nonresident alien's income that is subject to and royalties) are treated as effectively connec-
U.S. income tax must be divided into two cate- Business operations. If you own and operate ted with that business.
gories. a business in the United States selling services,

Chapter 4 How Income of Aliens Is Taxed Page 17


In limited circumstances, some kinds of for- ness. The business-activities test is most impor- schedule with repeated sailings or flights at reg-
eign source income may be treated as effec- tant when: ular intervals between the same points for voy-
tively connected with a trade or business in the Dividends or interest are received by a ages or flights that begin or end in the United
United States. For a discussion of these rules, dealer in stocks or securities, States. This definition applies to both scheduled
see Foreign Income, later. Royalties are received in the trade or busi- and chartered air transportation.
ness of licensing patents or similar prop-
Investment Income erty, or If you do not meet the two conditions above,
Service fees are earned by a servicing the income is not effectively connected and is
Investment income from U.S. sources that may business. taxed at a 4% rate. See Transportation Tax,
or may not be treated as effectively connected later in this chapter.
Under this test, if the conduct of the U.S. trade
with a U.S. trade or business generally falls into or business was a material factor in producing
the following three categories. the income, the income is considered effec- Business Profits and Losses
1. Fixed or determinable income (interest, tively connected. and Sales Transactions
dividends, rents, royalties, premiums, an-
All profits or losses from U.S. sources that are
nuities, etc.). Personal Service Income from the operation of a business in the United
2. Gains (some of which are considered cap- States are effectively connected with a trade or
You usually are engaged in a U.S. trade or busi-
ital gains) from the sale or exchange of the business in the United States. For example,
ness when you perform personal services in the
following types of property. profit from the sale in the United States of in-
United States. Personal service income you re-
ventory property purchased either in this coun-
a. Timber, coal, or domestic iron ore with ceive in a tax year in which you are engaged in
try or in a foreign country is effectively connec-
a retained economic interest. a U.S. trade or business is effectively connec-
ted trade or business income. A share of U.S.
ted with a U.S. trade or business. Income re-
b. Patents, copyrights, and similar prop- source profits or losses of a partnership that is
ceived in a year other than the year you per-
erty on which you receive contingent engaged in a trade or business in the United
formed the services is also effectively
payments after October 4, 1966. States is also effectively connected with a trade
connected if it would have been effectively con-
or business in the United States.
c. Patents transferred before October 5, nected if received in the year you performed the
1966. services. Personal service income includes wa-
ges, salaries, commissions, fees, per diem al- Real Property Gain or Loss
d. Original issue discount obligations. lowances, and employee allowances and bo-
3. Capital gains (and losses). nuses. The income may be paid to you in the Gains and losses from the sale or exchange of
form of cash, services, or property. U.S. real property interests (whether or not they
Use the two tests, described next, to deter- are capital assets) are taxed as if you are en-
mine whether an item of U.S. source income If you are engaged in a U.S. trade or busi- gaged in a trade or business in the United
falling in one of the three categories above and ness only because you perform personal serv- States. You must treat the gain or loss as effec-
received during the tax year is effectively con- ices in the United States during the tax year, in- tively connected with that trade or business.
nected with your U.S. trade or business. If the come and gains from assets, and gains and
tests indicate that the item of income is effec- losses from the sale or exchange of capital as- U.S. real property interest. This is any inter-
tively connected, you must include it with your sets are generally not effectively connected with est in real property located in the United States
other effectively connected income. If the item your trade or business. However, if there is a di- or the U.S. Virgin Islands or any interest (other
of income is not effectively connected, include it rect economic relationship between your hold- than as a creditor) in a domestic corporation
with all other income discussed under The 30% ing of the asset and your trade or business of that is a U.S. real property holding corporation.
Tax, later, in this chapter. performing personal services, the income, gain, Real property includes the following.
or loss is effectively connected. 1. Land and unsevered natural products of
Asset-use test. This test usually applies to in- the land, such as growing crops and tim-
come that is not directly produced by trade or Pensions. If you were a nonresident alien en- ber, and mines, wells, and other natural
business activities. Under this test, if an item of gaged in a U.S. trade or business after 1986 deposits.
income is from assets (property) used in, or because you performed personal services in
held for use in, the trade or business in the Uni- the United States, and you later receive a pen- 2. Improvements on land, including build-
ted States, it is considered effectively connec- sion or retirement pay attributable to these serv- ings, other permanent structures, and their
ted. ices, such payments are effectively connected structural components.
An asset is used in, or held for use in, the income in each year you receive them. This is 3. Personal property associated with the use
trade or business in the United States if the as- true whether or not you are engaged in a U.S. of real property, such as equipment used
set is: trade or business in the year you receive the re- in farming, mining, forestry, or construction
Held for the principal purpose of promoting tirement pay. or property used in lodging facilities or ren-
the conduct of a trade or business in the ted office space, unless the personal prop-
United States, Transportation Income erty is:
Acquired and held in the ordinary course of
the trade or business conducted in the Uni- a. Disposed of more than one year be-
Transportation income (defined in chapter 2) is
ted States (for example, an account receiv- fore or after the disposition of the real
effectively connected if you meet both of the fol-
able or note receivable arising from that property, or
lowing conditions.
trade or business), or b. Separately sold to persons unrelated
Otherwise held to meet the present needs 1. You had a fixed place of business in the
either to the seller or to the buyer of
of the trade or business in the United United States involved in earning the in-
the real property.
States and not its anticipated future needs. come.
2. At least 90% of your U.S. source transpor- U.S. real property holding corporation.
Generally, stock of a corporation is not treated A corporation is a U.S. real property holding
as an asset used in, or held for use in, a trade or tation income is attributable to regularly
scheduled transportation. corporation if the fair market value of the corpo-
business in the United States. ration's U.S. real property interests are at least
“Fixed place of business” generally means a 50% of the total fair market value of:
Business-activities test. This test usually ap-
place, site, structure, or other similar facility The corporation's U.S. real property inter-
plies when income, gain, or loss comes directly
through which you engage in a trade or busi- ests, plus
from the active conduct of the trade or busi-
ness. “Regularly scheduled transportation” The corporation's interests in real property
means that a ship or aircraft follows a published located outside the United States, plus

Page 18 Chapter 4 How Income of Aliens Is Taxed


The corporation's other assets that are foreign persons. The testing period is the Alternative minimum tax. There may be a
used in, or held for use in, a trade or busi- shorter of (a) the 5-year period ending on the minimum tax on your net gain from the disposi-
ness. date of disposition, or (b) the period during tion of U.S. real property interests. Figure the
which the entity was in existence. amount of this tax, if any, on Form 6251.
Gain or loss on the sale of the stock in any
For the purpose of determining whether a
domestic corporation is taxed as if you are en-
QIE is domestically controlled, the following Withholding of tax. If you dispose of a U.S.
gaged in a U.S. trade or business unless you
rules apply beginning on December 18, 2015. real property interest, the buyer may have to
establish that the corporation is not a U.S. real
withhold tax. See the discussion of Tax With-
property holding corporation. 1. A person holding less than 5% of any
held on Real Property Sales in chapter 8.
class of stock of the QIE, which is regularly
Publicly traded exception. A U.S. real
traded on an established securities market
property interest does not include a class of
in the United States at all times during the Foreign Income
stock of a corporation that is regularly traded on
testing period, would be treated as a U.S.
an established securities market, unless you You must treat three kinds of foreign source in-
person unless the QIE has actual knowl-
hold more than 5% of the fair market value of come as effectively connected with a trade or
edge that such person is not a U.S. per-
that class of stock (or for dispositions after De- business in the United States if:
son.
cember 17, 2015, more than 10% of that stock You have an office or other fixed place of
in the case of real estate investment trusts). An 2. Any stock in a QIE that is held by another business in the United States to which the
interest in a foreign corporation owning U.S. QIE will be treated as held by a foreign income can be attributed,
real property generally is not a U.S. real prop- person if: That office or place of business is a mate-
erty interest unless the corporation chooses to rial factor in producing the income, and
a. Any class of stock of such other QIE
be treated as a domestic corporation. The income is produced in the ordinary
is regularly traded on an established
securities market, or course of the trade or business carried on
Qualified investment entities. Special rules through that office or other fixed place of
apply to qualified investment entities (QIEs). A b. Such other QIE is a RIC that issues business.
QIE is any real estate investment trust (REIT) or certain redeemable securities. Not-
any regulated investment company (RIC) that is withstanding the above, the stock of
An office or other fixed place of business is
treated as a U.S. real property holding corpora- the QIE will be treated as held by a
a material factor if it significantly contributes to,
tion (after applying certain rules in section U.S. person if such other QIE is do-
and is an essential economic element in, the
897(h)(4)(A)(ii)). See U.S. Real Property Inter- mestically controlled.
earning of the income.
est in Pub. 515 for more information.
3. Stock in a QIE held by any other QIE not
Look-through rule for QIEs. In most ca- described above will be treated as held by The three kinds of foreign source income
ses, any distribution from a QIE to a nonresi- a U.S. person in proportion to the stock of are listed below.
dent alien, foreign corporation, or other QIE that such other QIE that is (or is treated as)
is attributable to the QIE’s gain from the sale or held by a U.S. person. 1. Rents and royalties for the use of, or for
exchange of a U.S. real property interest is trea- the privilege of using, intangible personal
Wash sale. If you dispose of an interest in property located outside the United States
ted as gain recognized by the nonresident alien,
a domestically controlled QIE in an applicable or from any interest in such property. In-
foreign corporation, or other QIE from the sale
wash sale transaction, special rules apply. An cluded are rents or royalties for the use, or
or exchange of a U.S. real property interest.
applicable wash sale transaction is one in which for the privilege of using, outside the Uni-
Certain exceptions apply to the look-through
you: ted States, patents, copyrights, secret pro-
rule for distributions by QIEs. A distribution by a
QIE with respect to stock regularly traded on an cesses and formulas, goodwill, trade-
1. Dispose of an interest in the domestically
established securities market in the United marks, trade brands, franchises, and
controlled QIE during the 30-day period
States is not treated as gain from the sale or ex- similar properties if the rents or royalties
before the ex-dividend date of a distribu-
change of a U.S. real property interest if the are from the active conduct of a trade or
tion that you would (but for the disposition)
shareholder owns 5% or less of that stock (or business in the United States.
have treated as gain from the sale or ex-
for distributions after December 17, 2015, the change of a U.S. real property interest, 2. Dividends, interest, or amounts received
shareholder owns 10% or less of that stock in and for the provision of a guarantee of indebt-
the case of real estate investment trusts) at any edness issued after September 27, 2010,
2. Acquire, or enter into a contract or option
time during the 1-year period ending on the from the active conduct of a banking, fi-
to acquire, a substantially identical interest
date of the distribution. nancing, or similar business in the United
in that entity during the 61-day period that
A distribution made after December 17, States. A substitute dividend or interest
began on the first day of the 30-day pe-
2015, by a REIT generally is not treated as gain payment received under a securities lend-
riod.
from the sale or exchange of a U.S. real prop- ing transaction or a sale-repurchase trans-
erty interest if the shareholder is a qualified If this occurs, you are treated as having a gain action is treated the same as the amounts
shareholder (as described in section 897(k)(3)). from the sale or exchange of a U.S. real prop- received on the transferred security.
A distribution that you do not treat as gain erty interest in an amount equal to the distribu-
from the sale or exchange of a U.S. real prop- 3. Income, gain, or loss from the sale outside
tion made after June 15, 2006, that would have
erty interest may be included in your gross in- the United States, through the U.S. office
been treated as such gain. This also applies to
come as a regular dividend. or other fixed place of business, of:
any substitute dividend payment.
A transaction is not treated as an applicable a. Stock in trade,
Disposition of REIT stock. Dispositions of
wash sale transaction if:
stock in a REIT after December 17, 2015, that is b. Property that would be included in in-
You actually receive the distribution from
held directly (or indirectly through one or more ventory if on hand at the end of the tax
the domestically controlled QIE related to
partnerships) by a qualified shareholder will not year, or
the interest disposed of, or acquired, in the
be treated as a U.S. real property interest. See
transaction, or c. Property held primarily for sale to cus-
sections 897(k)(2) through (4) for more informa-
You dispose of any class of stock in a QIE tomers in the ordinary course of busi-
tion.
that is regularly traded on an established ness.
Domestically controlled QIE. The sale of securities market in the United States but
only if you did not own more than 5% of Item (3) will not apply if you sold the
an interest in a domestically controlled QIE is
that class of stock at any time during the property for use, consumption, or disposi-
not the sale of a U.S. real property interest. The
1-year period ending on the date of the dis- tion outside the United States and an of-
entity is domestically controlled if at all times
tribution. fice or other fixed place of business in a
during the testing period less than 50% in value
foreign country was a material factor in the
of its stock was held, directly or indirectly, by
sale.

Chapter 4 How Income of Aliens Is Taxed Page 19


Any foreign source income that is equivalent Income is fixed when it is paid in amounts won in the United States if that income is not ef-
to any item of income described above is trea- known ahead of time. Income is determinable fectively connected with a U.S. trade or busi-
ted as effectively connected with a U.S. trade or whenever there is a basis for figuring the ness and is not exempted by treaty. However,
business. For example, foreign source interest amount to be paid. Income can be periodic if it no tax is imposed on nonbusiness gambling in-
and dividend equivalents are treated as U.S. ef- is paid from time to time. It does not have to be come a nonresident alien wins playing black-
fectively connected income if the income is de- paid annually or at regular intervals. Income can jack, baccarat, craps, roulette, or big-6 wheel in
rived by a foreign person in the active conduct be determinable or periodic even if the length of the United States.
of a banking, financing, or similar business time during which the payments are made is in-
within the United States. creased or decreased. Nonresident aliens are taxed at graduated
rates on net gambling income won in the United
Tax on Effectively Items specifically included as fixed or deter- States that is effectively connected with a U.S.
Connected Income minable income are interest (other than original trade or business.
issue discount), dividends, dividend equivalent
Income you receive during the tax year that is payments (defined in chapter 2), rents, premi- Social Security Benefits
effectively connected with your trade or busi- ums, annuities, salaries, wages, and other com-
ness in the United States is, after allowable de- pensation. A substitute dividend or interest pay- A nonresident alien must include 85% of any
ductions, taxed at the rates that apply to U.S. ment received under a securities lending U.S. social security benefit (and the social se-
citizens and residents. transaction or a sale-repurchase transaction is curity equivalent part of a tier 1 railroad retire-
treated the same as the amounts received on ment benefit) in U.S. source fixed or determina-
Generally, you can receive effectively con- the transferred security. Other items of income, ble annual or periodic income. Social security
nected income only if you are a nonresident such as royalties, also may be subject to the benefits include monthly retirement, survivor,
alien engaged in trade or business in the United 30% tax. and disability benefits. This income is exempt
States during the tax year. However, income Some fixed or determinable income under some tax treaties. See Table 1 in Pub.
you receive from the sale or exchange of prop- TIP may be exempt from U.S. tax. See 901 for a list of tax treaties that exempt U.S. so-
erty, the performance of services, or any other chapter 3 if you are not sure whether cial security benefits from U.S. tax.
transaction in another tax year is treated as ef- the income is taxable.
fectively connected in that year if it would have Sales or Exchanges
been effectively connected in the year the of Capital Assets
Original issue discount (OID). If you sold,
transaction took place or you performed the
exchanged, or received a payment on a bond or
services. These rules apply only to those capital gains
other debt instrument that was issued at a dis-
count, all or part of the original issue discount and losses from sources in the United States
Example. Ted Richards, a nonresident that are not effectively connected with a trade or
alien, entered the United States in August 2016, (OID) (other than portfolio interest) may be sub-
ject to the 30% tax. The amount of OID is the business in the United States. They apply even
to perform personal services in the U.S. office if you are engaged in a trade or business in the
of his overseas employer. He worked in the difference between the stated redemption price
at maturity and the issue price of the debt in- United States. These rules do not apply to the
U.S. office until December 25, 2016, but did not sale or exchange of a U.S. real property interest
leave this country until January 11, 2017. On strument. The 30% tax applies in the following
circumstances. or to the sale of any property that is effectively
January 8, 2017, he received his final paycheck connected with a trade or business in the Uni-
for services performed in the United States dur- 1. You received a payment on a debt instru- ted States. See Real Property Gain or Loss,
ing 2016. All of Ted's income during his stay ment. In this case, the amount of OID sub- earlier, under Effectively Connected Income.
here is U.S. source income. ject to tax is the OID that accrued while
During 2016, Ted was engaged in the trade you held the debt instrument minus the
or business of performing personal services in A capital asset is everything you own ex-
OID previously taken into account. But the
the United States. Therefore, all amounts paid cept:
tax on the OID cannot be more than the
to him in 2016 for services performed in the Uni- Inventory.
payment minus the tax on the interest pay-
ted States during 2016 are effectively connec- Business accounts or notes receivable.
ment on the debt instrument.
ted with that trade or business during 2016. Depreciable property used in a trade or
The salary payment Ted received in January 2. You sold or exchanged the debt instru- business.
2017 is U.S. source income to him in 2017. It is ment. The amount of OID subject to tax is Real property used in a trade or business.
effectively connected with a trade or business in the OID that accrued while you held the Supplies regularly used in a trade or busi-
the United States because he was engaged in a debt instrument minus the amount already ness.
trade or business in the United States during taxed in (1) above. Certain copyrights, literary or musical or ar-
2016 when he performed the services that tistic compositions, letters or memoranda,
Report on your return the amount of OID or similar property.
earned the income. shown on Form 1042-S if you bought the debt Certain U.S. government publications.
instrument at original issue. However, you must Certain commodities derivative financial in-
Real property income. You may be able to recompute your proper share of OID shown on
choose to treat all income from real property as struments held by a commodities deriva-
Form 1042-S if any of the following apply. tives dealer.
effectively connected. See Income From Real You bought the debt instrument at a pre-
Property, later in this chapter. Hedging transactions.
mium or paid an acquisition premium.
The debt instrument is a stripped bond or a
A capital gain is a gain on the sale or ex-
The 30% Tax stripped coupon (including zero coupon in-
change of a capital asset. A capital loss is a
struments backed by U.S. Treasury securi-
ties). loss on the sale or exchange of a capital asset.
Tax at a 30% (or lower treaty) rate applies to
certain items of income or gains from U.S. sour- The debt instrument is a contingent pay-
ment or inflation-indexed debt instrument. If the sale is in foreign currency, for the pur-
ces but only if the items are not effectively con-
pose of determining gain, the cost and selling
nected with your U.S. trade or business. For the definition of premium and acquisition
price of the property should be expressed in
premium and instructions on how to recompute
U.S. currency at the rate of exchange prevailing
Fixed or Determinable Income OID, see Pub. 1212.
as of the date of the purchase and date of the
sale, respectively.
The 30% (or lower treaty) rate applies to the Gambling Winnings
gross amount of U.S. source fixed or determi-
You can use Pub. 544. to determine what is
nable annual or periodic gains, profits, or in- In general, nonresident aliens are subject to the
a sale or exchange of a capital asset, or what is
come. 30% tax on the gross proceeds from gambling

Page 20 Chapter 4 How Income of Aliens Is Taxed


treated as such. Specific tax treatment that ap- Reporting. Report your gains and losses from United States. Give the legal identification
plies to U.S. citizens or residents generally the sales or exchanges of capital assets that of U.S. timber, coal, or iron ore in which
does not apply to you. are not effectively connected with a trade or you have an interest.
business in the United States on page 4 of The extent of your ownership in the prop-
The following gains are subject to the 30% Form 1040NR. Report gains and losses from erty.
(or lower treaty) rate without regard to the sales or exchanges of capital assets (including The location of the property.
183-day rule, discussed later. real property) that are effectively connected A description of any major improvements
with a trade or business in the United States on to the property.
1. Gains on the disposal of timber, coal, or a separate Schedule D (Form 1040), Form The dates you owned the property.
domestic iron ore with a retained eco- 4797, or both. Attach them to Form 1040NR. Your income from the property.
nomic interest. Details of any previous choices and revo-
cations of the real property income choice.
2. Gains on contingent payments received Income From Real Property
from the sale or exchange of patents, This choice stays in effect for all later tax
copyrights, and similar property after Oc- If you have income from real property located in years unless you revoke it.
tober 4, 1966. the United States that you own or have an inter-
3. Gains on certain transfers of all substantial est in and hold for the production of income, Revoking the choice. You can revoke the
rights to, or an undivided interest in, pat- you can choose to treat all income from that choice without IRS approval by filing Form
ents if the transfers were made before Oc- property as income effectively connected with a 1040X for the year you made the choice and for
tober 5, 1966. trade or business in the United States. The later tax years. You must file Form 1040X within
choice applies to all income from real property 3 years from the date your return was filed or 2
4. Gains on the sale or exchange of original located in the United States and held for the years from the time the tax was paid, whichever
issue discount obligations. production of income and to all income from is later. If this time period has expired for the
any interest in such property. This includes in- year of choice, you cannot revoke the choice for
Gains in (1) are not subject to the 30% (or come from rents, royalties from mines, oil or that year. However, you may revoke the choice
lower treaty) rate if you choose to treat the gas wells, or other natural resources. It also in- for later tax years only if you have IRS approval.
gains as effectively connected with a U.S. trade cludes gains from the sale or exchange of tim- For information on how to get IRS approval, see
or business. See Income From Real Property, ber, coal, or domestic iron ore with a retained Regulations section 1.871-10(d)(2).
later. economic interest.

183-day rule. If you were in the United States


You can make this choice only for real prop- Transportation Tax
erty income that is not otherwise effectively
for 183 days or more during the tax year, your connected with your U.S. trade or business. A 4% tax rate applies to transportation income
net gain from sales or exchanges of capital as- that is not effectively connected because it
sets is taxed at a 30% (or lower treaty) rate. For If you make the choice, you can claim de-
ductions attributable to the real property income does not meet the two conditions listed earlier
purposes of the 30% (or lower treaty) rate, net under Transportation Income. If you receive
gain is the excess of your capital gains from and only your net income from real property is
taxed. transportation income subject to the 4% tax,
U.S. sources over your capital losses from U.S. you should figure the tax and show it on line 58
sources. This rule applies even if any of the This choice does not treat a nonresident of Form 1040NR. Attach a statement to your re-
transactions occurred while you were not in the alien, who is not otherwise engaged in a U.S. turn that includes the following information (if
United States. trade or business, as being engaged in a trade applicable).
To determine your net gain, consider the or business in the United States during the year. Your name, taxpayer identification number,
amount of your gains and losses that would be and tax year.
recognized and taken into account only if, and Example. You are a nonresident alien and A description of the types of services per-
to the extent that, they would be recognized are not engaged in a U.S. trade or business. formed (whether on or off board).
and taken into account if you were in a U.S. You own a single-family house in the United Names of vessels or registration numbers
trade or business during the year and the gains States that you rent out. Your rental income for of aircraft on which you performed the
and losses were effectively connected with that the year is $10,000. This is your only U.S. services.
trade or business during the tax year. source income. As discussed earlier under The Amount of U.S. source transportation in-
In arriving at your net gain, do not take the 30% Tax, the rental income is subject to a tax at come derived from each type of service for
following into consideration. a 30% (or lower treaty) rate. You received a each vessel or aircraft for the calendar
The four types of gains listed earlier. Form 1042-S showing that your tenants prop- year.
The deduction for a capital loss carryover. erly withheld this tax from the rental income. Total amount of U.S. source transportation
Capital losses in excess of capital gains. You do not have to file a U.S. tax return (Form income derived from all types of services
Exclusion for gain from the sale or ex- 1040NR) because your U.S. tax liability is satis- for the calendar year.
change of qualified small business stock fied by the withholding of tax.
(section 1202 exclusion). If you make the choice discussed earlier, This 4% tax applies to your U.S. source
Losses from the sale or exchange of prop- you can offset the $10,000 income by certain gross transportation income. This only includes
erty held for personal use. However, los- rental expenses. (See Pub. 527.) Any resulting transportation income that is treated as derived
ses resulting from casualties or thefts may net income is taxed at graduated rates. If you from sources in the United States if the trans-
be deductible on Schedule A (Form make this choice, report the rental income and portation begins or ends in the United States.
1040NR). See Itemized Deductions in expenses on Schedule E (Form 1040) and at- For transportation income from personal serv-
chapter 5. tach the schedule to Form 1040NR. For the first ices, the transportation must be between the
year you make the choice, also attach the state- United States and a U.S. possession. For per-
If you are not engaged in a trade or business ment discussed next. sonal services of a nonresident alien, this only
in the United States and have not established a applies to income derived from, or in connec-
tax year for a prior period, your tax year will be Making the choice. Make the initial choice by tion with, an aircraft.
the calendar year for purposes of the 183-day attaching a statement to your return, or amen-
rule. Also, you must file your tax return on a cal- ded return, for the year of the choice. Include
endar-year basis.
If you were in the United States for less than
the following in your statement. Interrupted Period
That you are making the choice.
183 days during the tax year, capital gains Whether the choice is under Internal Reve- of Residence
(other than gains listed earlier) are tax exempt nue Code section 871(d) (explained ear-
unless they are effectively connected with a lier) or a tax treaty. You are subject to tax under a special rule if you
trade or business in the United States during A complete list of all your real property, or interrupt your period of U.S. residence with a
your tax year. any interest in real property, located in the period of nonresidence. The special rule

Chapter 4 How Income of Aliens Is Taxed Page 21


applies if you meet all of the following condi- of the United States in at least 8 of the last 15 Tax consequences of presence in the Uni-
tions. tax years ending with the year your residency ted States. The following rules apply if you do
ends. In determining if you meet the 8-year re- not meet the exception above for dual-citizens
1. You were a U.S. resident for a period that
quirement, do not count any year that you are and certain minors and the expatriation rules
includes at least 3 consecutive calendar
treated as a resident of a foreign country under would otherwise apply to you.
years.
a tax treaty and do not waive treaty benefits. The expatriation tax does not apply to any
2. You were a U.S. resident for at least 183 tax year during the 10-year period if you are
days in each of those years.
Expatriation After physically present in the United States for more
than 30 days during the calendar year ending in
3. You ceased to be treated as a U.S. resi- June 3, 2004, and that year. Instead, you are treated as a U.S. citi-
dent.
Before June 17, 2008 zen or resident and taxed on your worldwide in-
4. You then again became a U.S. resident come for that tax year. You must file Form 1040,
before the end of the third calendar year If you expatriated after June 3, 2004, and be- 1040A, or 1040EZ and figure your tax as pre-
after the end of the period described in (1) fore June 17, 2008, the expatriation rules under scribed in the instructions for those forms.
above. section 877 apply to you if any of the following When counting the number of days of pres-
statements apply. ence during a calendar year, count any day you
Under this special rule, you are subject to
1. Your average annual net income tax for were physically present in the United States at
tax on your U.S. source gross income and gains
the 5 tax years ending before the date of any time during the day. However, do not count
on a net basis at the graduated rates applicable
expatriation or termination of residency is any days (up to a limit of 30 days) on which you
to individuals (with allowable deductions) for the
more than: performed personal services in the United
period you were a nonresident alien, unless you
States for an employer who is not related to you
would be subject to a higher tax under the 30%
a. $124,000 if you expatriated or termi- if either of the following apply.
tax (discussed earlier) on income not connec-
nated residency in 2004.
ted with a U.S. trade or business. For informa- 1. You have ties with other countries. You
tion on how to figure the special tax, see Expa- b. $127,000 if you expatriated or termi- have ties with other countries if:
triation Tax below. nated residency in 2005.
a. You became (within a reasonable pe-
c. $131,000 if you expatriated or termi- riod after your expatriation or termina-
Example. John Willow, a citizen of New
nated residency in 2006. tion of residency) a citizen or resident
Zealand, entered the United States on April 1,
2012, as a lawful permanent resident. On Au- d. $136,000 if you expatriated or termi- of the country in which you, your
gust 1, 2014, John ceased to be a lawful per- nated residency in 2007. spouse, or either of your parents were
manent resident and returned to New Zealand. born, and
e. $139,000 if you expatriated or termi-
During his period of residence, he was present b. You became fully liable for income tax
nated residency in 2008.
in the United States for at least 183 days in in that country.
each of 3 consecutive years (2012, 2013, and 2. Your net worth is $2 million or more on the
2014). He returned to the United States on Oc- date of your expatriation or termination of 2. You were physically present in the United
tober 5, 2017, as a lawful permanent resident. residency. States for 30 days or less during each
He became a resident before the close of the year in the 10-year period ending on the
3. You fail to certify on Form 8854 that you date of expatriation or termination of resi-
third calendar year (2017) beginning after the
have complied with all U.S. federal tax ob- dency. Do not count any day you were an
end of his first period of residence (August 1,
ligations for the 5 tax years preceding the exempt individual or were unable to leave
2014). Therefore, he is subject to tax under the
date of your expatriation or termination of the United States because of a medical
special rule for the period of nonresidence (Au-
residency. condition that arose while you were in the
gust 2, 2014 through October 4, 2017) if it is
more than the tax that would normally apply to United States. See Exempt individual and
Exception for dual-citizens and certain mi- Medical condition in chapter 1 under Sub-
him as a nonresident alien.
nors. Certain dual-citizens and certain minors stantial Presence Test, but disregard the
(defined next) are not subject to the expatriation information about Form 8843.
Reporting requirements. If you are subject to
tax even if they meet (1) or (2), earlier. How-
this tax for any year in the period you were a Related employer. If your employer in the
ever, they still must provide the certification re-
nonresident alien, you must file Form 1040NR United States is any of the following, then your
quired in (3).
for that year. The return is due by the due date employer is related to you. You must count any
(including extensions) for filing your U.S. in- Certain dual-citizens. You may qualify for days you performed services in the United
come tax return for the year that you again be- the exception described above if all of the fol- States for that employer as days of presence in
come a U.S. resident. If you already filed re- lowing apply. the United States.
turns for that period, you must file amended You became at birth a U.S. citizen and a Members of your family. This includes only
returns. You must attach a statement to your re- citizen of another country and you continue your brothers and sisters, half brothers and
turn that identifies the source of all of your U.S. to be a citizen of that other country. half sisters, spouse, ancestors (parents,
and foreign gross income and the items of in- You were never a resident alien of the Uni- grandparents, etc.), and lineal descend-
come subject to this special rule. ted States (as defined in chapter 1). ants (children, grandchildren, etc.).
You never held a U.S. passport. A partnership in which you directly or indi-
You were present in the United States for rectly own more than 50% of the capital in-
Expatriation Tax no more than 30 days during any calendar terest or the profits interest.
year that is 1 of the 10 calendar years pre- A corporation in which you directly or indi-
The expatriation tax provisions apply to U.S. ceding your loss of U.S. citizenship. rectly own more than 50% in value of the
citizens who have renounced their citizenship outstanding stock. (See Pub. 550, chap-
Certain minors. You may qualify for the
and long-term residents (LTRs) who have ter 4, Constructive ownership of stock, for
exception described above if you meet all of the
ended their residency. The rules that apply are how to determine whether you directly or
following requirements.
based on the dates of expatriation, which are indirectly own outstanding stock.)
You became a U.S. citizen at birth.
described in the following sections. A tax-exempt charitable or educational or-
Neither of your parents was a U.S. citizen
Expatriation After June 3, 2004, and Be- ganization that is directly or indirectly con-
at the time of your birth.
fore June 17, 2008. trolled, in any manner or by any method,
Expatriation After June 16, 2008. You expatriated before you were 181 2.
by you or by a member of your family,
You were present in the United States for
whether or not this control is legally en-
Long-term resident (LTR) defined. You are not more than 30 days during any calendar
forceable.
an LTR if you were a lawful permanent resident year that is 1 of the 10 calendar years pre-
ceding your expatriation.

Page 22 Chapter 4 How Income of Aliens Is Taxed


Date of tax expatriation. For purposes of Other information. For more information on Certain dual-citizens. You may qualify for
U.S. tax rules, the date of your expatriation or the expatriation tax provisions, including excep- the exception described above if both of the fol-
termination of residency is the later of the dates tions to the tax and special U.S. source rules, lowing apply.
on which you perform the following actions. see section 877 of the Internal Revenue Code. You became at birth a U.S. citizen and a
You notify either the Department of State citizen of another country and, as of the ex-
or the Department of Homeland Security Expatriation Tax Return patriation date, you continue to be a citizen
(whichever is appropriate) of your expatri- of, and are taxed as a resident of, that
ating act or termination of residency. If you expatriated or terminated your U.S. resi- other country.
You file Form 8854 in accordance with the dency, or you are subject to the expatriation tax, You have been a resident of the United
form instructions. you must file Form 8854, Initial and Annual Ex- States for not more than 10 years during
patriation Statement. Attach it to Form 1040NR the 15-year tax period ending with the tax
Annual return. If the expatriation tax ap- year during which the expatriation occurs.
plies to you, you must file Form 8854 each year if you are required to file that form. If you are
present in the United States following your ex- For the purpose of determining U.S. resi-
during the 10-year period following the date of dency, use the substantial presence test
expatriation. You must file this form even if you patriation and are subject to tax as a U.S. citi-
zen or resident, file Form 8854 with Form 1040. described in chapter 1.
owe no U.S. tax.
Certain minors. You may qualify for the
Penalty. If you fail to file Form 8854 for any
tax year, fail to include all information required
Expatriation After exception described earlier if you meet both of
to be shown on the form, or include incorrect in- June 16, 2008 the following requirements.
You expatriated before you were 181 2.
formation, you may have to pay a penalty of
If you expatriated after June 16, 2008, the expa- You have been a resident of the United
$10,000. You will not have to pay a penalty if
triation rules under section 877A apply to you if States for not more than 10 tax years be-
you show that the failure is due to reasonable
you meet any of the following conditions. fore the expatriation occurs. For the pur-
cause and not to willful neglect.
pose of determining U.S. residency, use
1. Your average annual net income tax for the substantial presence test described in
How To Figure the Expatriation the 5 years ending before the date of ex- chapter 1.
Tax (If You Expatriated Before patriation or termination of residency is
June 17, 2008) more than: Expatriation date. Your expatriation date is
a. $139,000 if you expatriated or termi- the date you relinquish U.S. citizenship (in the
If the expatriation tax applies to you, for a nated residency in 2008. case of a former citizen) or terminate your
10-year period beginning on the date of your long-term residency (in the case of a former
expatriation, you are generally subject to tax on b. $145,000 if you expatriated or termi- U.S. resident).
your U.S. source gross income and gains on a nated residency in 2009 or 2010.
net basis at the graduated rates applicable to Former U.S. citizen. You are considered
c. $147,000 if you expatriated or termi- to have relinquished your U.S. citizenship on
individuals (with allowable deductions) unless nated residency in 2011.
you would be subject to a higher tax under the the earliest of the following dates.
30% tax (discussed earlier) on income not con- d. $151,000 if you expatriated or termi- 1. The date you renounced U.S. citizenship
nected with a U.S. trade or business. nated residency in 2012. before a diplomatic or consular officer of
e. $155,000 if you expatriated or termi- the United States (provided that the volun-
For this purpose, U.S. source gross income tary renouncement was later confirmed by
nated residency in 2013.
(defined in chapter 2) includes gains from the the issuance of a certificate of loss of na-
sale or exchange of: f. $157,000 if you expatriated or termi- tionality).
Property (other than stock or debt obliga- nated residency in 2014.
tions) located in the United States, 2. The date you furnished to the State De-
g. $160,000 if you expatriated or termi- partment a signed statement of voluntary
Stock issued by a U.S. domestic corpora-
nated residency in 2015. relinquishment of U.S. nationality confirm-
tion, and
Debt obligations of U.S. persons or of the h. $161,000 if you expatriated or termi- ing the performance of an expatriating act
United States, a state or political subdivi- nated residency in 2016. (provided that the voluntary relinquish-
sion thereof, or the District of Columbia. ment was later confirmed by the issuance
i. $162,000 if you expatriated or termi- of a certificate of loss of nationality).
nated residency in 2017.
U.S. source income also includes any in- 3. The date the State Department issued a
come or gain derived from stock in certain con- 2. Your net worth is $2 million or more on the certificate of loss of nationality.
trolled foreign corporations if you owned, or date of your expatriation or termination of
were considered to own, at any time during the residency. 4. The date that a U.S. court canceled your
2-year period ending on the date of expatria- certificate of naturalization.
3. You fail to certify on Form 8854 that you
tion, more than 50% of: Former LTR. You are considered to have
have complied with all U.S. federal tax ob-
The total combined voting power of all terminated your long-term residency on the ear-
ligations for the 5 years preceding the date
classes of that corporation's stock, or liest of the following dates.
of your expatriation or termination of resi-
The total value of the stock.
dency. 1. The date you voluntarily relinquished your
The income or gain is considered U.S. source
4. You expatriated before 2017 and you: lawful permanent resident status by filing
income only to the extent of your share of earn-
Department of Homeland Security Form
ings and profits earned or accumulated before a. Deferred the payment of tax, I-407 with a U.S. consular or immigration
the date of expatriation and during the periods
b. Have an item of eligible deferred com- officer.
you met the ownership requirements discussed
above. pensation, or 2. The date you became subject to a final ad-
c. Have an interest in a nongrantor trust. ministrative order that you abandoned
Any exchange of property is treated as a your lawful permanent resident status (or,
sale of the property at its fair market value on Exception for dual-citizens and certain mi- if such order has been appealed, the date
the date of the exchange and any gain is trea- nors. Certain dual-citizens and certain minors of a final judicial order issued in connec-
ted as U.S. source gross income in the tax year (defined next) are not subject to the expatriation tion with such administrative order).
of the exchange unless you enter into a gain tax even if they meet (1) or (2) above. However, 3. The date you became subject to a final ad-
recognition agreement under Notice 97-19. they still must provide the certification required ministrative order for your removal from
in (3) above. the United States under the Immigration
and Nationality Act.

Chapter 4 How Income of Aliens Is Taxed Page 23


4. If you were a dual resident of the United are treated as receiving a distribution of your aliens should get publications, forms, and in-
States and a country with which the United entire interest in the account on the day before structions for U.S. citizens, because the infor-
States has an income tax treaty, the date your expatriation date. See Notice 2009-85 and mation for filing returns for resident aliens is
you began to be treated as a resident of the Instructions for Form 8854 for more informa- generally the same as for U.S. citizens.
that country under the provisions of the tion. If you are both a nonresident alien and a
treaty and notify the IRS of that treatment resident alien in the same tax year, see chap-
on Forms 8833 and 8854. See Effect of Expatriation Tax Return ter 6 for a discussion of dual-status aliens.
Tax Treaties in chapter 1 for more infor-
mation about dual residents. If you expatriated or terminated your U.S. resi- Topics
dency, or you are subject to the expatriation This chapter discusses:
How To Figure the rules (as discussed earlier in the first paragraph
Expatriation Tax (If You under Expatriation After June 16, 2008), you Identification numbers,
Expatriate After June 16, 2008) must file Form 8854. Attach it to Form 1040 or Filing status,
Form 1040NR if you are required to file either of Deductions,
In the year you expatriate, you are subject to in- those forms. Exemptions,
come tax on the net unrealized gain (or loss) in Tax credits and payments, and
your property as if the property had been sold Deferral of payment of mark-to-market tax. Special rules for bona fide residents of
for its fair market value on the day before your You can make an irrevocable election to defer American Samoa and Puerto Rico.
expatriation date (“mark-to-market tax”). This payment of the mark-to-market tax imposed on
applies to most types of property interests you the deemed sale of property. If you make this
held on the date of relinquishment of citizenship election, the following rules apply. Useful Items
You may want to see:
or termination of residency. But see Exceptions, 1. You can make the election on a prop-
later. erty-by-property basis.
Publication
Gains arising from deemed sales must be 2. The deferred tax attributable to a particular
463 Travel, Entertainment, Gift, and Car
taken into account for the tax year of the property is due on the return for the tax
Expenses
deemed sale without regard to other U.S. inter- year in which you dispose of the property.
nal revenue laws. Losses from deemed sales 501 Exemptions, Standard Deduction,
3. Interest is charged for the period the tax is
must be taken into account to the extent other- and Filing Information
deferred.
wise provided under U.S. internal revenue laws.
4. The due date for the payment of the defer- 521 Moving Expenses
However, Internal Revenue Code section 1091
(relating to the disallowance of losses on wash red tax cannot be extended beyond the 526 Charitable Contributions
sales of stock and securities) does not apply. earlier of the following dates.
The net gain that you otherwise must include in 535 Business Expenses
a. The due date of the return required for
your income is reduced (but not below zero) by: the year of death. 597 Information on the United States–
1. $600,000 if you expatriated or terminated Canada Income Tax Treaty
b. The time that the security provided for
residency before January 1, 2009.
the property fails to be adequate. See Form (and Instructions)
2. $626,000 if you expatriated or terminated item (6) below.
residency in 2009. W-7 Application for IRS Individual
5. You make the election on Form 8854. Taxpayer Identification Number
3. $627,000 if you expatriated or terminated
6. You must provide adequate security (such 1040 U.S. Individual Income Tax Return
residency in 2010.
as a bond).
4. $636,000 if you expatriated or terminated 1040NR U.S. Nonresident Alien Income
7. You must make an irrevocable waiver of Tax Return
residency in 2011.
any right under any treaty of the United
5. $651,000 if you expatriated or terminated States which would preclude assessment 1040NR-EZ U.S. Income Tax Return for
residency in 2012. or collection of the mark-to-market tax. Certain Nonresident Aliens With No
6. $668,000 if you expatriated or terminated Dependents
For more information about the deferral of
residency in 2013. payment, see the Instructions for Form 8854. 2106 Employee Business Expenses
7. $680,000 if you expatriated or terminated 2106-EZ Unreimbursed Employee
residency in 2014. Business Expenses
8. $690,000 if you expatriated or terminated 3903 Moving Expenses
residency in 2015.
4563 Exclusion of Income for Bona Fide
9. $693,000 if you expatriated or terminated
residency in 2016. 5. Residents of American Samoa
8959 Additional Medicare Tax
10. $699,000 if you expatriated or terminated
residency in 2017. See chapter 12 for information about getting

Exceptions. The mark-to-market tax does not


Figuring these publications and forms.

apply to the following.


1. Eligible deferred compensation items. Your Tax Tax Year
2. Ineligible deferred compensation items.
You must figure your income and file a tax re-
3. Interests in nongrantor trusts.
Introduction turn on the basis of an annual accounting pe-
riod called a tax year. If you have not previously
4. Specified tax deferred accounts.
After you have determined your alien status, the established a fiscal tax year, your tax year is the
Instead, items (1) and (3) may be subject to source of your income, and if and how that in- calendar year. A calendar year is 12 consecu-
withholding at source. In the case of item (2), come is taxed in the United States, your next tive months ending on December 31. If you
you are treated as receiving the present value step is to figure your tax. The information in this have previously established a regular fiscal year
of your accrued benefit as of the day before the chapter is not as comprehensive for resident (12 consecutive months ending on the last day
expatriation date. In the case of item (4), you aliens as it is for nonresident aliens. Resident of a month other than December or a 52–53

Page 24 Chapter 5 Figuring Your Tax


week year) and are considered to be a U.S. res- States. If you are outside the United States, call choices discussed in chapter 1 to treat your
ident for any calendar year, you will be treated 267-941-1000 (not a toll-free number). spouse as a resident alien for the entire tax
as a U.S. resident for any part of your fiscal year If you already have an ITIN, enter it wher- year.
that falls within that calendar year. ever an SSN is required on your tax return.
An ITIN is for tax use only. It does not entitle Qualifying widow(er). If your spouse died in
you to social security benefits or change your 2015 or 2016 and you did not remarry before
Identification Number employment or immigration status under U.S. the end of 2017, you may qualify to file as a
law. qualifying widow(er) and use the joint return tax
A taxpayer identification number must be fur- In addition to those aliens who are required rates. This applies only if you could have filed a
nished on returns, statements, and other tax-re- to furnish a taxpayer identification number and joint return with your spouse for the year your
lated documents. For an individual, this is a so- are not eligible for an SSN, a Form W-7 must be spouse died.
cial security number (SSN). If you do not have filed for: For more information on the qualifying
and are not eligible to get an SSN, you must ap- Alien individuals who are claimed as de- widow(er) filing status, see Line 5–Qualifying
ply for an individual taxpayer identification num- pendents and are not eligible for an SSN, widow(er) under Filing Status in the 2017 In-
ber (ITIN). An employer identification number and structions for Form 1040.
(EIN) is required if you are engaged in a trade Alien spouses who are claimed as exemp-
or business as a sole proprietor and have em- tions and are not eligible for an SSN. Head of household. You can qualify as head
ployees or a qualified retirement plan. of household if you are unmarried or considered
Additional information on obtaining an ITIN unmarried on the last day of the year and you
You must furnish a taxpayer identification is available in the Instructions for Form W-7 and pay more than half the cost of keeping up a
number if you are: at IRS.gov/Individuals/General-ITIN- home for you and a qualifying person. You must
An alien who has income effectively con- Information. be a resident alien for the entire tax year.
nected with the conduct of a U.S. trade or Expired ITIN. Generally, ITINs issued after You are considered unmarried for this pur-
business at any time during the year, December 31, 2012, will remain in effect as pose if your spouse was a nonresident alien at
An alien who has a U.S. office or place of long as the individual to whom the ITIN was is- any time during the year and you do not make
business at any time during the year, sued files a tax return (or is included as a de- one of the choices discussed in chapter 1 to
A nonresident alien spouse treated as a pendent on the tax return of another taxpayer) treat your spouse as a resident alien for the en-
resident, as discussed in chapter 1, or for 3 consecutive tax years. Otherwise, the ITIN tire tax year.
Any other alien who files a tax return, an will expire at the end of the third consecutive tax
amended return, or a refund claim (but not year. All expired ITINs must be renewed before Note. Even if you are considered unmarried
information returns). being used on a U.S. tax return. for head of household purposes because you
ITINs issued before January 1, 2013, will be- are married to a nonresident alien, you may still
Social security number (SSN). Generally, gin to expire if the individual to whom the ITIN be considered married for purposes of the
you can get an SSN if you have been lawfully was issued does not file a tax return (or is not earned income credit. In that case, you will not
admitted to the United States for permanent included as a dependent on the tax return of an- be entitled to the credit. See Pub. 596 for more
residence or under other immigration catego- other taxpayer) for 3 consecutive tax years. Re- information.
ries that authorize U.S. employment. gardless, all ITINs issued before 2008 expired
To apply for this number, get Form SS-5
from your local Social Security Administration
on January 1, 2017, starting with ITIN numbers Nonresident Aliens
that have middle digits of 78 and 79 (for exam-
(SSA) office or call the SSA at 800-772-1213. ple, 9XX-78-XXXX). ITINs issued in 2008 ex-
You also can download Form SS-5 from the If you are a nonresident alien filing Form
pired on January 1, 2018; ITINs issued in 2009
SSA's website at SSA.gov/SSNumber/ 1040NR, you may be able to use one of the fil-
and 2010 will expire on January 1, 2019; and
SS5.htm. You must visit an SSA office in person ing statuses discussed later. If you are filing
ITINs issued in 2011 and 2012 will expire on
and submit your Form SS-5 along with original Form 1040NR-EZ, you can only claim “Single
January 1, 2020.
documentation showing your age, identity, im- nonresident alien” or “Married nonresident
For more information, go to IRS.gov/
migration status, and authority to work in the alien” as your filing status.
Individuals/ITIN-Expiration-FAQS.
United States. Generally, you will receive your
card about 2 weeks after the SSA has all of the Married nonresident alien. Married nonresi-
Employer identification number (EIN). An
necessary information. dent aliens who are not married to U.S. citizens
individual may use an SSN (or ITIN) for individ-
or residents generally must use the Tax Table
ual taxes and an EIN for business taxes. To ap-
F-1 and M-1 visa holders. If you are an column or the Tax Computation Worksheet for
ply for an EIN, file Form SS-4 with the IRS.
F-1 or M-1 student, you must also show your married filing separate returns when determin-
Form I-20. For more information, see SSA Pub. ing the tax on income effectively connected with
05-10181, available online at SSA.gov/Pubs/
10181.html. Filing Status a U.S. trade or business.
Exceptions. Married nonresident aliens
J-1 visa holders. If you are a J-1 ex- The amount of your tax depends on your filing normally cannot use the Tax Table column or
change visitor, you will also need to show your status. Your filing status is important in deter- the Tax Computation Worksheet for single indi-
Form DS-2019. For more information, see SSA mining whether you can take certain deductions viduals. However, you may be able to file as
Pub. 05-10107, available online at SSA.gov/ and credits. The rules for determining your filing single if you lived apart from your spouse during
Pubs/10107.html. status are different for resident aliens and non- the last 6 months of the year and you are a mar-
resident aliens. ried resident of Canada, Mexico, South Korea,
Individual taxpayer identification number or are a married U.S. national. See the Instruc-
(ITIN). If you do not have and are not eligible to tions for Form 1040NR or Form 1040NR-EZ to
get an SSN, you must apply for an ITIN. For de- Resident Aliens see if you qualify. U.S. national is defined later
tails on how to do so, see Form W-7 and its in- in this section under Qualifying widow(er).
structions. Resident aliens can use the same filing sta- A nonresident alien generally cannot file as
If you qualify for an ITIN and your application tuses available to U.S. citizens. See your form married filing jointly. However, a nonresident
is complete, you will receive a letter from the instructions or Pub. 501 for more information on alien who is married to a U.S. citizen or resident
IRS assigning your tax identification number filing status. can choose to be treated as a resident and file a
usually within seven weeks. If you have not re- joint return on Form 1040, Form 1040A, or Form
ceived your ITIN or other correspondence Married filing jointly. Generally, you can file 1040EZ. For information on these choices, see
seven weeks after applying, call the IRS as married filing jointly only if both you and your chapter 1. If you do not make the choice to file
toll-free number at 800-829-1040 to request the spouse were U.S. citizens or resident aliens for jointly, file Form 1040NR or Form 1040NR-EZ
status of your application if you are in the United the entire tax year, or if you make one of the and use the Tax Table column or the Tax

Chapter 5 Figuring Your Tax Page 25


Computation Worksheet for married individuals However, nonresident aliens generally can them. If you made nondeductible contributions
filing separately. claim only deductions related to income that is to a traditional IRA for 2017, you must report
effectively connected with their U.S. trade or them on Form 8606.
Qualifying widow(er). You may be eligible to business. For more information, see Pub. 590-A.
file as a qualifying widow(er) and use the joint
return tax rates.
For more information on the qualifying
Resident Aliens Moving expenses. If you are a nonresident
alien temporarily in the United States earning
widow(er) filing status, see Line 6–Qualifying taxable income for performing personal serv-
widow(er) under Filing Status in the 2017 In- You can claim the same deductions allowed to ices, you can deduct moving expenses to the
structions for Form 1040NR. U.S. citizens if you are a resident alien for the United States if you meet both of the following
U.S. national is an individual who, although entire tax year. While the discussion that follows tests.
not a U.S. citizen, owes his or her allegiance to contains some of the same general rules and You are a full-time employee for at least 39
the United States. U.S. nationals include Ameri- guidelines that apply to you, it is specifically di- weeks during the 12 months right after you
can Samoans and Northern Mariana Islanders rected toward nonresident aliens. You should move, or if you are self-employed, you
who chose to become U.S. nationals instead of get Form 1040 and its instructions for more in- work full time for at least 39 weeks during
U.S. citizens. formation on how to claim your allowable de- the first 12 months and 78 weeks during
ductions. the first 24 months right after you move.
Head of household. You cannot file as head Your new job location is at least 50 miles
of household if you are a nonresident alien at Nonresident Aliens farther (by the shortest commonly traveled
any time during the tax year. However, if you route) from your former home than your
are married, your spouse can qualify as a head former job location was. If you had no for-
You can claim deductions to figure your effec-
of household if: mer job location, the new job location must
tively connected taxable income. You generally
Your spouse is a resident alien or U.S. citi- be at least 50 miles from your former
cannot claim deductions related to income that
zen for the entire tax year, home.
is not connected with your U.S. business activi-
You do not choose to be treated as a resi- You cannot deduct the moving expense you
ties. Except for personal exemptions, and cer-
dent alien, and have when returning to your home abroad or
tain itemized deductions, discussed later, you
Your spouse meets the other requirements moving to a foreign job site.
can claim deductions only to the extent they are
for this filing status, as discussed earlier
connected with your effectively connected in- Figure your deductible moving expenses to
under Resident Aliens.
come. the United States on Form 3903, and deduct
them on line 26 of Form 1040NR.
Note. Even if your spouse is considered un-
Ordinary and necessary business expen- For more information on the moving ex-
married for head of household purposes be-
ses. You can deduct all ordinary and neces- pense deduction, see Pub. 521.
cause you are a nonresident alien, your spouse
sary expenses in the operation of your U.S.
may still be considered married for purposes of For tax years beginning in 2018, you
trade or business to the extent they relate to in-
the earned income credit. In that case, your TIP cannot take a deduction for moving ex-
come effectively connected with that trade or
spouse will not be entitled to the credit. See penses unless you are a member of
business. The deduction for travel expenses
Pub. 596 for more information. the U.S. Armed Forces who moves pursuant to
while in the United States is discussed under
Itemized Deductions, later. For information a military order incident to a permanent change
Estates and trusts. A nonresident alien estate of station.
about other business expenses, see Pub. 535.
or trust using Form 1040NR must use Tax Rate
Schedule W in the Form 1040NR instructions Reimbursements. If your employer reim-
Losses. You can deduct losses resulting from
when determining the tax on income effectively bursed you for allowable moving expenses un-
transactions that you entered into for profit and
connected with a U.S. trade or business. der an accountable plan, your employer should
that you were not reimbursed for by insurance,
etc. to the extent that they relate to income that have excluded these reimbursements from your
Special rules for aliens from certain U.S. income. You can only deduct allowable moving
is effectively connected with a trade or business
possessions. A nonresident alien who is a expenses that were not reimbursed by your em-
in the United States.
bona fide resident of American Samoa or Pu- ployer or that were reimbursed but the reim-
erto Rico for the entire tax year and who is tem- bursement was included in your income. For
Educator expenses. If you were an eligible
porarily working in the United States should see more information, see Pub. 521.
educator in 2017, you can deduct as an adjust-
Bona Fide Residents of American Samoa or
ment to income up to $250 in unreimbursed
Puerto Rico, at the end of this chapter, for infor- Moving expense or travel expense. If
qualified expenses you paid or incurred during
mation about special rules. you deduct moving expenses to the United
2017 for certain professional development cour-
States, you cannot also deduct travel expenses
ses, and for books, supplies (other than nonath-
(discussed later under Itemized Deductions)
Reporting Your Income letic supplies for courses of instruction in health
or physical education), computer equipment (in-
while temporarily away from your tax home in a
foreign country. Moving expenses are based on
cluding related software and services), and
You must report each item of income that is tax- a change in your principal place of business
other supplementary equipment and materials
able according to the rules in chapters 2, 3, and while travel expenses are based on your tem-
you use in the classroom. For more information,
4. For resident aliens, this includes income from porary absence from your principal place of
see your tax form instructions.
sources both within and outside the United business.
States. For nonresident aliens, this includes Individual retirement arrangement (IRA). If
both income that is effectively connected with a Self-employed SEP, SIMPLE, and qualified
you made contributions to a traditional IRA for
trade or business in the United States (subject retirement plans. If you are self-employed,
2017, you may be able to take an IRA deduc-
to graduated tax rates) and income from U.S. you may be able to deduct contributions to a
tion. But you must have taxable compensation
sources that is not effectively connected (sub- SEP, SIMPLE, or qualified retirement plan that
effectively connected with a U.S. trade or busi-
ject to a flat 30% tax rate or lower tax treaty provides retirement benefits for yourself and
ness to do so. A Form 5498 should be sent to
rate). your common-law employees, if any. To make
you by May 31, 2018, that shows all contribu-
deductible contributions for yourself, you must
tions to your traditional IRA for 2017. If you were
have net earnings from self-employment that
covered by a retirement plan (qualified pension,
Deductions profit-sharing (including 401(k)), annuity, SEP,
are effectively connected with your U.S. trade
or business.
SIMPLE, etc.) at work or through self-employ-
Get Pub. 560 for further information.
Resident and nonresident aliens can claim simi- ment, your IRA deduction may be reduced or
lar deductions on their U.S. tax returns. eliminated. But you can still make contributions
to a traditional IRA even if you cannot deduct

Page 26 Chapter 5 Figuring Your Tax


Penalty on early withdrawal of savings. You exemption even if your spouse has not been a $8,000 of income from sources outside the Uni-
must include in income all effectively connected resident alien for a full tax year or is an alien ted States that is not effectively connected with
interest income you receive or that is credited to who has not come to the United States. his U.S. trade or business. Thus, his total in-
your account during the year. Do not reduce it come for the year is $32,000. Mr. Park meets all
by any penalty you must pay on an early with- You can claim an exemption for each per- requirements for claiming exemptions for his
drawal from a time savings account. However, if son who qualifies as a dependent according to spouse and two children. The additional deduc-
the interest income is effectively connected with the rules for U.S. citizens. The dependent must tion for 2017 is $9,112.50 figured as follows.
your U.S. trade or business during the year, you be a citizen or national (defined earlier) of the
can deduct on line 30 of Form 1040NR the United States or be a resident of the United $24,000
States, Canada, or Mexico for some part of the × $12,150* = $9,112.50
amount of the early withdrawal penalty that the $32,000
banking institution charged. calendar year in which your tax year begins.
Get Pub. 501 for more information. *3 × $4,050 = $12,150
Student loan interest expense. If you paid
Your spouse and each dependent for
interest on a student loan in 2017, you may be Students and business apprentices from In-
! whom you claim an exemption must
able to deduct up to $2,500 of the interest you dia. Students and business apprentices who
CAUTION have either an SSN or an ITIN. See
paid. Generally, you can claim the deduction if are eligible for the benefits of Article 21(2) of the
Identification Number, earlier.
all the following requirements are met. United States–India Income Tax Treaty may be
1. Your filing status is any filing status except able to claim exemptions for their spouse and
married filing separately. Nonresident Aliens dependents.
You can claim an exemption for your spouse
2. Your modified adjusted gross income is if he or she had no gross income during the
less than $80,000. Generally, if you are a nonresident alien en-
gaged in a trade or business in the United year and cannot be claimed as a dependent on
3. No one else is claiming an exemption for States, you can claim only one personal ex- another U.S. taxpayer's return.
you on his or her 2017 tax return. emption ($4,050 for 2017). You may be able to You can claim exemptions for each of your
claim an exemption for a spouse and a depend- dependents not admitted to the United States
4. You paid interest on a loan taken out only
ent if you are described in any of the following on “F-2,” “J-2,” or “M-2” visas if they meet the
to pay tuition and other qualified higher
discussions. same rules that apply to U.S. citizens. See Pub.
education expenses for yourself, your
501 for these rules.
spouse, someone who was your depend- Your spouse and each dependent for
ent when the loan was taken out, or some- List your spouse and dependents on line 7c
! whom you claim an exemption must of Form 1040NR. Enter the total on the appro-
one you could have claimed as a depend- CAUTION have either an SSN or an ITIN. See
ent for the year the loan was taken out priate line to the right of line 7c.
Identification Number, earlier.
except that: For tax years beginning in 2018, you
a. The person filed a joint return, Residents of Mexico or Canada or U.S. na- TIP cannot take a deduction for a personal
exemption for yourself, your spouse, or
tionals. If you are a resident of Mexico or Can-
b. The person had gross income that your dependents.
ada or a national of the United States (defined
was equal to or more than $4,050 for
earlier), you also can claim a personal exemp-
2017, or
tion for your spouse if your spouse had no gross
c. You could be claimed as a dependent income for U.S. tax purposes and cannot be Itemized Deductions
on someone else's return. claimed as the dependent on another U.S. tax-
payer's return. In addition, you can claim ex- Nonresident aliens can claim some of the same
5. The loan is not from a related person or a
emptions for your dependents who meet certain itemized deductions that resident aliens can
person who borrowed the proceeds under
tests. Residents of Mexico, Canada, or nation- claim. However, nonresident aliens can claim
a qualified employer plan or a contract
als of the United States must use the same itemized deductions only if they have income
purchased under such a plan.
rules as U.S. citizens to determine who is a de- effectively connected with their U.S. trade or
6. The education expenses were paid or in- pendent and for which dependents exemptions business.
curred within a reasonable period of time can be claimed. See Pub. 501 for these rules.
before or after the loan was taken out. For purposes of these rules, dependents who
are U.S. nationals meet the citizenship test dis- Resident Aliens
7. The person for whom the expenses were
cussed in Pub. 501.
paid or incurred was an eligible student. You can claim the same itemized deductions as
Use the worksheet in the Form 1040NR or Form Residents of South Korea. Nonresident ali- U.S. citizens, using Schedule A of Form 1040.
1040NR-EZ instructions to figure the deduction. ens who are residents of South Korea may be These deductions include certain medical and
For more information, see Pub. 970. able to claim exemptions for a spouse and chil- dental expenses, state and local income taxes,
dren. The income tax treaty with South Korea real estate taxes, interest you paid on a home
imposes two additional requirements on South mortgage, charitable contributions, casualty
Exemptions Korean residents. and theft losses, and miscellaneous deduc-
tions.
1. The spouse and all children claimed must
Resident aliens can claim personal exemptions live with the alien in the United States at If you do not itemize your deductions, you
and exemptions for dependents in the same some time during the tax year, and can claim the standard deduction for your par-
way as U.S. citizens. However, nonresident ali- ticular filing status. For further information, see
ens generally can claim only a personal exemp- 2. The additional deduction for the exemp-
Form 1040 and its instructions.
tion for themselves on their U.S. tax return. tions must be prorated based on the ratio
of the alien's U.S. source gross income ef-
fectively connected with a U.S. trade or Nonresident Aliens
Resident Aliens business for the tax year to the alien's en-
tire income from all sources during the tax You can deduct certain itemized deductions if
You can claim personal exemptions and ex- year. you receive income effectively connected with
emptions for dependents according to the de- your U.S. trade or business. These deductions
pendency rules for U.S. citizens. You can claim Example. Mr. Park, a nonresident alien include state and local income taxes, charitable
an exemption for your spouse on a separate re- who is a resident of South Korea, lives tempora- contributions to U.S. organizations, casualty
turn if your spouse had no gross income for rily in the United States with his wife and two and theft losses, and miscellaneous deduc-
U.S. tax purposes and was not the dependent children. During the tax year he receives U.S. tions. Use Schedule A of Form 1040NR to claim
of another taxpayer. You can claim this compensation of $24,000. He also receives itemized deductions.

Chapter 5 Figuring Your Tax Page 27


Worksheet 5-1. 2017 Standard Deduction Worksheet for
Students and Business Apprentices From India Keep for Your Records
Caution. If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. You cannot take the
standard deduction even if you were born before January 2, 1953, or are blind.

1. Enter the amount shown below for your filing status.


Single or married filing separately—$6,350
Qualifying widow(er)—$12,700 . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 1.
2. Can you be claimed as a dependent on someone else's U.S. income tax
return?
No. Enter the amount from line 1 on line 4. Skip line 3 and go to line 5.
Yes. Go to line 3.
3. Is your earned income* more than $700?
Yes. Add $350 to your earned income. Enter the total.
No. Enter $1,050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter the smaller of line 1 or line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. If born before January 2, 1953, OR blind, enter $1,250 ($1,550 if single). If born before January 2,
1953, AND blind, enter $2,500 ($3,100 if single). Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter any net disaster loss from the 2017 Form 4684, line 15** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Add lines 4, 5, and 6. Enter the total here and on Form 1040NR, line 38 (or Form 1040NR-EZ,
line 11). Print “Standard Deduction Allowed Under U.S.–India Income Tax Treaty” in the space to the
left of these lines. This is your standard deduction for 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
*Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also
includes any amount received as a scholarship that you must include in your income. Generally, your earned income is the total of the amount(s)
you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount
on line 8).
** If the amount on line 6 of this worksheet is more than zero, you cannot file Form 1040NR-EZ; you must file Form 1040NR.

If you are filing Form 1040NR-EZ, you can To determine if you qualify to make this For more information about organizations
only claim a deduction for state or local income election, see Pub. 976, Disaster Relief. that qualify to receive charitable contributions,
taxes. If you are claiming any other itemized de- see Pub. 526.
duction, you must file Form 1040NR. State and local income taxes. You can de-
duct state and local income taxes you paid on Contributions from which you benefit. If
Standard deduction. Nonresident aliens can- income that is effectively connected with a trade you receive a benefit as a result of making a
not claim the standard deduction. However, for or business in the United States. If you received contribution to a qualified organization, you can
a special rule, see next. a refund or rebate in 2017 of taxes you paid in deduct only the amount of your contribution that
an earlier year, do not reduce your deduction by is more than the value of the benefit you re-
Students and business apprentices from that amount. Instead, you must include the re- ceive.
India. A special rule applies to students and fund or rebate in income if you deducted the If you pay more than the fair market value to
business apprentices who are eligible for the taxes in the earlier year and the deduction re- a qualified organization for merchandise,
benefits of Article 21(2) of the United States–In- duced your tax. See Recoveries in Pub. 525 for goods, or services, the amount you pay that is
dia Income Tax Treaty. You can claim the details on how to figure the amount to include in more than the value of the item can be a chari-
standard deduction provided you do not claim income. table contribution. For the excess amount to
itemized deductions. qualify, you must pay it with the intent to make a
Use Worksheet 5-1 to figure your standard Charitable contributions. You can deduct charitable contribution.
deduction for 2017. If you are married and your your charitable contributions or gifts to qualified
spouse files a return and itemizes deductions, Cash contributions. You cannot deduct a
organizations subject to certain limits. Qualified cash contribution, regardless of the amount, un-
you cannot take the standard deduction. organizations include organizations that are reli- less you keep as a record of the contribution a
Disaster tax relief. If you are a student or gious, charitable, educational, scientific, or liter- bank record (such as a canceled check, a bank
business apprentice eligible for the benefits of ary in nature, or that work to prevent cruelty to copy of a canceled check, or a bank statement
Article 21(2) of the United States–India Income children or animals. Certain organizations that containing the name of the charity, the date,
Tax Treaty who was affected by Hurricane Har- promote national or international amateur and the amount) or a written record from the
vey, Irma, or Maria, you may be able to elect to sports competition are also qualified organiza- charity. The written record must include the
take any related casualty and theft losses on tions. name of the charity, date of the contribution,
your 2016 tax return. Use Worksheet 5-2 to cal- Foreign organizations. Contributions and the amount of the contribution.
culate your standard deduction. made directly to a foreign organization are not You may deduct a cash contribution of $250
If you have already filed your 2016 Form deductible. However, you can deduct contribu- or more only if you have a written statement
1040NR or 1040NR-EZ, you must file an amen- tions to a U.S. organization that transfers funds from the charitable organization showing:
ded 2016 Form 1040NR return. Use Worksheet to a charitable foreign organization if the U.S. 1. The amount of any money contributed,
5-2 to calculate your standard deduction for organization controls the use of the funds or if
purposes of filing your amended 2016 Form the foreign organization is only an administra- 2. Whether the organization gave you any
1040NR. For more information, see Amended tive arm of the U.S. organization. goods or services in return for your contri-
Returns and Claims for Refund in chapter 7. bution, and

Page 28 Chapter 5 Figuring Your Tax


Worksheet 5-2. 2016 Standard Deduction Worksheet for
Students and Business Apprentices From India For an
Original or Amended 2016 Form 1040NR for Casualty Losses
From Hurricane Harvey, Irma, or Maria Keep for Your Records
Caution. If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. You cannot take the
standard deduction even if you were born before January 2, 1952, or are blind.

1. Enter the amount shown below for your filing status.


Single or married filing separately—$6,300
Qualifying widow(er)—$12,600 . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 1.
2. Can you be claimed as a dependent on someone else's U.S. income tax
return?
No. Enter the amount from line 1 on line 4. Skip line 3 and go to line 5.
Yes. Go to line 3.
3. Is your earned income* more than $700?
Yes. Add $350 to your earned income. Enter the total.
No. Enter $1,050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter the smaller of line 1 or line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. If born before January 2, 1952, OR blind, enter $1,250 ($1,550 if single). If born before January 2,
1952, AND blind, enter $2,500 ($3,100 if single). Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter any net disaster loss from the 2016 Form 4684, line 15** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Add lines 4, 5, and 6. Enter the total here and on your original or amended Form 1040NR, line 38 (or
Form 1040NR-EZ, line 11). Print “Standard Deduction Allowed Under U.S.–India Income Tax Treaty”
in the space to the left of these lines. This is your standard deduction for 2016 . . . . . . . . . . . . . . 7.
*Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also
includes any amount received as a scholarship that you must include in your income. Generally, your earned income is the total of the amount(s)
you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount
on line 8).
**If the amount on line 6 of this worksheet is more than zero, you cannot file Form 1040NR-EZ; you must file Form 1040NR.

3. A description and estimate of the value of appreciation (increase in value) when you figure value of property immediately after a theft is
any goods or services described in (2). your deduction. Your basis in the property is considered zero, because you no longer have
generally what you paid for it. If you need more the property.
If you received only intangible religious benefits, information about basis, see Pub. 551. If your property is covered by insurance, you
the organization must state this, but it does not Different rules apply to figuring your deduc- should file a timely insurance claim for reim-
have to describe or value the benefit. tion, depending on whether the property is: bursement. If you do not, you cannot deduct
Noncash contributions. For contributions Ordinary income property, or this loss as a casualty or theft loss.
not made in cash, the records you must keep Capital gain property. Figure your deductible casualty and theft
depend on the amount of your deduction. See For information about these rules, see Pub. losses on Form 4684.
Pub. 526 for details. For example, if you make a 526. Disaster tax relief. If you were affected by
noncash contribution and the amount of your
Limit. The amount you can deduct in a tax Hurricane Harvey, Irma, or Maria, or were a res-
deduction is more than $500, you must com-
year is limited in the same way it is for a citizen ident in the California Wildfire Disaster Area,
plete Form 8283 and attach it to your tax return.
or resident of the United States. For a discus- see Pub. 976 for more information.
If you deduct more than $500 for a contribution
of a motor vehicle, boat, or airplane, you also sion of limits on charitable contributions and Losses from personal use property.
must attach a statement from the charitable or- other information, see Pub. 526. Generally, you cannot deduct the first $100 of
ganization to your return. If your total deduction each casualty or theft loss to property held for
is over $5,000, you also may have to get ap- Casualty and theft losses. You can deduct
personal use. You can deduct only the total of
praisals of the values of the property. If the do- your loss from fire, storm, shipwreck, or other
these losses for the year (reduced by the $100
nated property is valued at more than $5,000, casualty, or theft of property even though your
limit) that is more than 10% of your adjusted
you must obtain a qualified appraisal. You gen- property is not connected with a U.S. trade or
gross income (line 37, Form 1040NR) for the
erally must attach to your tax return an ap- business. The property can be personal use
year.
praisal of any property if your deduction for the property or income-producing property not con-
property is more than $500,000. See Form nected with a U.S. trade or business. The prop- Losses from income-producing prop-
8283 and its instructions for details. erty must be located in the United States at the erty. These losses are not subject to the limita-
time of the casualty or theft. You can deduct tions that apply to personal use property. Use
Contributions of appreciated property. If theft losses only in the year in which you dis- Section B of Form 4684 to figure your deduction
you contribute property to a qualified organiza- cover the loss. for these losses.
tion, the amount of your charitable contribution The amount of the loss is the fair market
is generally the fair market value of the property value of the property immediately before the Job expenses and other miscellaneous de-
at the time of the contribution. However, if you casualty or theft less its fair market value imme- ductions. You can deduct job expenses, such
contribute property with a fair market value that diately after the casualty or theft (but not more as allowable unreimbursed travel expenses
is more than your basis in it, you may have to than its cost or adjusted basis) less any insur- (discussed next), and other miscellaneous de-
reduce the fair market value by the amount of ance or other reimbursement. The fair market ductions. Generally, the allowable deductions

Chapter 5 Figuring Your Tax Page 29


must be related to effectively connected in- Use Form 2106 or 2106-EZ to figure your al- Credit for the elderly or the disabled. You
come. Deductible expenses include: lowable expenses that you claim on line 7 of may qualify for this credit if you are 65 or older
Union dues, Schedule A (Form 1040NR). or if you retired on permanent and total disabil-
Safety equipment and small tools needed ity. For more information on this credit, see Pub.
for your job, Expenses allocable to U.S. tax-exempt 524 and Schedule R (Form 1040A or 1040).
Dues to professional organizations, income. You cannot deduct an expense, or
Subscriptions to professional journals, part of an expense, that is allocable to U.S. Education credits. You may qualify for these
Tax return preparation fees, and tax-exempt income, including income exempt credits if you paid qualified education expenses
Casualty and theft losses of property used by tax treaty. for yourself, your spouse, or your dependent.
in performing services as an employee There are two education credits: the American
Example. Irina Oak, a citizen of Poland, re- Opportunity Credit and the lifetime learning
(employee property).
sided in the United States for part of the year to credit. You cannot claim these credits if you are
You cannot deduct health insurance acquire business experience from a U.S. com- married filing separately. Use Form 8863 to fig-
! premiums as a miscellaneous deduc- pany. During her stay in the United States, she ure the credit. For more information, see Pub.
CAUTION tion if you are a nonresident alien. received a salary of $8,000 from her Polish em- 970.
Medical expenses, including health insurance, ployer. She received no other U.S. source in-
Nonresident aliens, see Education credits
are personal expenses, not job expenses. come. She spent $3,000 on travel expenses, of
under Nonresident Aliens, later.
which $1,000 were for meals. None of these ex-
Most miscellaneous itemized deductions are
penses were reimbursed. Under the tax treaty Retirement savings contributions credit.
deductible only if they are more than 2% of your
with Poland, $5,000 of her salary is exempt You may qualify for this credit (also known as
adjusted gross income (line 37, Form 1040NR).
from U.S. income tax. In filling out Form the saver's credit) if you made eligible contribu-
For more information on miscellaneous deduc-
2106-EZ, she must reduce her deductible meal tions to an employer-sponsored retirement plan
tions, see the Instructions for Form 1040NR.
expenses by half ($500). She must reduce the or to an individual retirement arrangement (IRA)
For tax years beginning in 2018, you remaining $2,500 of travel expenses by 62.5% in 2017. You cannot claim this credit if:
TIP cannot take a deduction for certain ($1,563) because 62.5% ($5,000 ÷ $8,000) of
miscellaneous itemized deductions her salary is exempt from tax. She enters the re- 1. You were born after January 1, 2000,
subject to the 2% floor. maining total of $937 on line 7 of Schedule A 2. You were a full-time student,
(Form 1040NR). She completes the remaining
lines according to the instructions for Sched- 3. Your exemption is claimed by someone
Travel expenses. You may be able to deduct
ule A. else on his or her 2017 tax return, or
your ordinary and necessary travel expenses
while you are temporarily performing personal More information. For more information 4. Your adjusted gross income is more than:
services in the United States. Generally, a tem- about deductible expenses, reimbursements, a. $62,000, if your filing status is married
porary assignment in a single location is one and recordkeeping, see Pub. 463. filing jointly,
that is realistically expected to last (and does in
fact last) for one year or less. You must be able b. $46,500, if your filing status is head of
to show you were present in the United States
on an activity that required your temporary ab-
Tax Credits household, or
c. $31,000, if your filing status is single,
sence from your regular place of work. and Payments married filing separately, or qualifying
For example, if you have established a “tax widow(er).
home” through regular employment in a foreign This discussion covers tax credits and pay-
country, and intend to return to similar employ- ments for resident aliens, followed by a discus- Use Form 8880 to figure the credit. For more in-
ment in the same country at the end of your sion of the credits and payments for nonresi- formation, see Pub. 590-A.
temporary stay in the United States, you can dent aliens.
deduct reasonable travel expenses you paid. Child tax credit. You may be able to take this
You cannot deduct travel expenses for other credit if you have a qualifying child.
members of your family or party. However, if Resident Aliens A qualifying child for purposes of the child
you did not work in your home country, and tax credit is a child who:
therefore did not establish a "tax home" in that Resident aliens generally claim tax credits and Was under age 17 at the end of 2017.
country, then you cannot deduct your travel ex- report tax payments, including withholding, us- Is your son, daughter, stepchild, foster
penses to the United States for the temporary ing the same rules that apply to U.S. citizens. child, brother, sister, stepbrother, stepsis-
performance of personal services. See Pub. ter, half brother, half sister, or a descend-
463 for information about determining your tax The following items are some of the credits ant of any of them (for example, your
home. you may be able to claim. grandchild, niece, or nephew).
Is a U.S. citizen, a U.S. national, or a resi-
Deductible travel expenses. If you qual- Foreign tax credit. You can claim a credit, dent alien.
ify, you can deduct your expenses for: subject to certain limits, for income tax you paid Did not provide over half of his or her own
Transportation—airfare, local transporta- or accrued to a foreign country on foreign support for 2017.
tion, including train, bus, etc., source income. You cannot claim a credit for Lived with you more than half of 2017.
Lodging—rent paid, utilities (do not include taxes paid or accrued on excluded foreign Temporary absences, such as for school,
telephone), hotel or motel room expenses, earned income. To claim a credit for income vacation, or medical care, count as time
and taxes paid or accrued to a foreign country, you lived in the home.
Meal expenses—actual expenses allowed generally will file Form 1116 with your Form Is claimed as a dependent on your return.
if you keep records of the amounts, or, if 1040.
you do not wish to keep detailed records, An adopted child is always treated as your own
For more information, see Pub. 514. child. An adopted child includes a child lawfully
you are generally allowed a standard meal
allowance amount depending on the date placed with you for legal adoption. See your
Child and dependent care credit. You may form instructions for additional details.
and area of your travel. You generally can be able to take this credit if you pay someone to
deduct only 50% of unreimbursed meal ex- If you did not have an SSN (or ITIN) by the
care for your qualifying child who is under age
penses. The standard meal allowance due date of your 2017 return (including exten-
13, or your disabled dependent or disabled
rates for high-cost areas are available at sions), you cannot claim the child tax credit on
spouse, so that you can work or look for work.
GSA.gov/Perdiem. The rates for other either your original or an amended 2017 return,
Generally, you must be able to claim an exemp-
areas are in Pub. 463. even if you later get an SSN (or ITIN). Also, no
tion for your dependent.
credit is allowed on either your original or an
For more information, see Pub. 503 and amended 2017 return with respect to a child
Form 2441. who did not have an SSN, ATIN, or ITIN by the

Page 30 Chapter 5 Figuring Your Tax


due date of your return (including extensions), Credits or to an individual retirement arrangement (IRA)
even if that child later gets one of those num- in 2017. You cannot claim this credit if:
bers. Credits are allowed only if you receive effec- You were born after January 1, 2000,
tively connected income. You may be able to You were a full-time student,
Adoption credit. You may qualify to take a tax claim some of the following credits. Your exemption is claimed by someone
credit of up to $13,570 for qualifying expenses else on his or her 2017 tax return, or
paid to adopt an eligible child. This amount may Foreign tax credit. If you receive foreign Your adjusted gross income is more than
be allowed for the adoption of a child with spe- source income that is effectively connected with $31,000.
cial needs regardless of whether you have qual- a trade or business in the United States, you
Use Form 8880 to figure the credit. For more in-
ifying expenses. To claim the adoption credit, can claim a credit for any income taxes paid or
formation, see Pub. 590-A.
file Form 8839 with your Form 1040. accrued to any foreign country or U.S. posses-
sion on that income. Child tax credit. You may be able to take this
Earned income credit (EIC). You may qualify If you do not have foreign source income ef- credit if you have a qualifying child.
for an earned income credit of up to $3,400 if a fectively connected with a U.S. trade or busi- A qualifying child for purposes of the child
child lived with you in the United States and ness, you cannot claim credits against your tax credit is a child who:
your earned income and adjusted gross income U.S. tax for taxes paid or accrued to a foreign Was under age 17 at the end of 2017.
were each less than $39,617 ($45,007 if mar- country or U.S. possession. Is your son, daughter, stepchild, foster
ried filing jointly). If two children lived with you in You cannot take any credit for taxes im- child, brother, sister, stepbrother, stepsis-
the United States and your earned income and posed by a foreign country or U.S. possession ter, half brother, half sister, or a descend-
adjusted gross income were each less than on your U.S. source income if those taxes were ant of any of them (for example, your
$45,007 ($50,597 if married filing jointly), your imposed only because you are a citizen or resi- grandchild, niece, or nephew).
credit could be as much as $5,616. If three or dent of the foreign country or possession. Is a U.S. citizen, a U.S. national, or a resi-
more children lived with you in the United If you claim a foreign tax credit, you gener- dent alien.
States and your earned income and adjusted ally will have to attach to your return a Form Did not provide over half of his or her own
gross income were each less than $48,340 1116. See Pub. 514 for more information. support for 2017.
($53,930 if married filing jointly), your credit
Lived with you more than half of 2017.
could be as much as $6,318. If you do not have Child and dependent care credit. You may Temporary absences, such as for school,
a qualifying child and your earned income and qualify for this credit if you pay someone to care vacation, or medical care, count as time
adjusted gross income were each less than for your qualifying child who is under age 13, or lived in the home.
$15,010 ($20,600 if married filing jointly), your your disabled dependent or disabled spouse,
credit could be as much as $510. You cannot Is claimed as a dependent on your return.
so that you can work or look for work. Gener-
claim the earned income credit if your filing sta- ally, you must be able to claim an exemption for An adopted child is always treated as your own
tus is married filing separately. your dependent. child. An adopted child includes a child lawfully
You and your spouse (if filing a joint return) Married nonresident aliens can claim the placed with you for legal adoption. See your
and any qualifying child must have valid SSNs credit only if they choose to file a joint return form instructions for additional details.
to claim the EIC. You cannot claim the EIC us- with a U.S. citizen or resident spouse as dis- If you did not have an SSN (or ITIN) by the
ing an ITIN. cussed in chapter 1, or if they qualify as certain due date of your 2017 return (including exten-
If you did not have an SSN by the due date married individuals living apart (see Joint Re- sions), you cannot claim the child tax credit on
of the 2017 return (including extensions), you turn Test in Pub. 503). either your original or an amended 2017 return,
cannot claim the EIC on either your original or The amount of your child and dependent even if you later get an SSN (or ITIN). Also, no
an amended 2017 return, even if you later get care expense that qualifies for the credit in any credit is allowed on either your original or an
an SSN. Also, if a child did not have an SSN by tax year cannot be more than your earned in- amended 2017 return with respect to a child
the due date of your return (including exten- come from the United States for that tax year. who did not have an SSN, ATIN, or ITIN by the
sions), you cannot count that child as a qualify- Earned income generally means wages, salar- due date of your return (including extensions),
ing child in figuring the EIC on either your origi- ies, and professional fees for personal services even if that child later gets one of those num-
nal or an amended 2017 return, even if that performed. bers.
child later gets an SSN. For more information, see Pub. 503.
Adoption credit. You may qualify to take a tax
If a social security card has a legend credit of up to $13,570 for qualifying expenses
that says Not Valid for Employment Education credits. If you are a nonresident
!
CAUTION and the number was issued so that you alien for any part of the year, you generally can-
paid to adopt an eligible child. This amount may
be allowed for the adoption of a child with spe-
(or your spouse or your qualifying child) could not claim the education credits. However, you
cial needs regardless of whether you have qual-
receive a federally funded benefit, you cannot may be able to claim an education credit under
ifying expenses. To claim the adoption credit,
claim the EIC. An example of a federally funded the following circumstances.
file Form 8839 with your Form 1040NR.
benefit is Medicaid. If a card has this legend 1. You are married and choose to file a joint Married nonresident aliens can claim the
and the individual's immigration status has return with a U.S. citizen or resident credit only if they choose to file a joint return
changed so that the individual is now a U.S. citi- spouse as discussed under Nonresident with a U.S. citizen or resident spouse as dis-
zen or lawful permanent resident, ask the SSA Spouse Treated as a Resident in chap- cussed in chapter 1, or if they qualify as certain
to issue a new social security card without the ter 1. married individuals living apart (see Married
legend.
Persons Not Filing Jointly in the Form 8839 in-
2. You are a dual-status alien, and choose to
structions).
Other information. There are other eligibil- be treated as a U.S. resident for the entire
ity rules that are not discussed here. For more year. See Choosing Resident Alien Status
Credit for prior-year minimum tax. If you
information, see Pub. 596. in chapter 1.
paid alternative minimum tax in a prior-year, get
Additional information on the American Op- Form 8801 to see if you qualify for this credit.
Nonresident Aliens portunity tax credit is available at IRS.gov/
Individuals/AOTC. Earned income credit. If you are a nonresi-
You can claim some of the same credits that dent alien for any part of the tax year, you gen-
resident aliens can claim. You also can report Retirement savings contributions credit. erally cannot get the earned income credit.
certain taxes you paid, are considered to have You may qualify for this credit (also known as However, if you are married and choose to file a
paid, or that were withheld from your income. the saver's credit) if you made eligible contribu- joint return with a U.S. citizen or resident
tions to an employer-sponsored retirement plan spouse as discussed in chapter 1, you may be
eligible for the credit.

Chapter 5 Figuring Your Tax Page 31


You and your spouse (if filing a joint return) will receive information on Form 2439, which can exclude the income discussed in the follow-
and any qualifying child must have valid SSNs you must attach to your return. ing paragraphs.
to claim the EIC. You cannot claim the EIC us- For tax purposes other than reporting in-
ing an ITIN. Tax withheld at the source. You can claim as come, however, you will be treated as a nonres-
If you did not have an SSN by the due date a payment any tax withheld at the source on in- ident alien. For example, you are not allowed
of the 2017 return (including extensions), you vestment and other fixed or determinable an- the standard deduction, you cannot file a joint
cannot claim the EIC on either your original or nual or periodic income paid to you. Fixed or return, and you are not allowed a deduction for
an amended 2017 return, even if you later get determinable income includes interest, divi- a dependent unless that person is a citizen or
an SSN. Also, if a child did not have an SSN by dend, rental, and royalty income that you do not national of the United States. There are also
the due date of your return (including exten- claim to be effectively connected income. Wage limits on what deductions and credits are al-
sions), you cannot count that child as a qualify- or salary payments can be fixed or determina- lowed. See Nonresident Aliens under Deduc-
ing child in figuring the EIC on either your origi- ble income to you, but usually are subject to tions, Itemized Deductions, and Tax Credits
nal or an amended 2017 return, even if that withholding as discussed above. Taxes on fixed and Payments in this chapter.
child later gets an SSN. or determinable income are withheld at a 30%
rate or at a lower treaty rate. Residents of Puerto Rico. If you are a bona
If a social security card has a legend
that says Not Valid for Employment fide resident of Puerto Rico for the entire year,
!
CAUTION and the number was issued so that you
Tax withheld on partnership income. If you you can exclude from gross income all income
are a foreign partner in a partnership, the part- from sources in Puerto Rico (other than
(or your spouse or your qualifying child) could nership will withhold tax on your share of effec-
receive a federally funded benefit, you cannot amounts for services performed as an em-
tively connected taxable income from the part- ployee of the United States or any of its agen-
claim the EIC. An example of a federally funded nership. The partnership will give you a
benefit is Medicaid. If a card has this legend cies).
statement on Form 8805, showing the tax with-
and the individual's immigration status has If you report income on a calendar year ba-
held. A partnership that is publicly traded may
changed so that the individual is now a U.S. citi- sis and you do not have wages subject to with-
withhold on your actual distributions of effec-
zen or lawful permanent resident, ask the SSA holding for 2017, file your return and pay your
tively connected income. In this case, the part-
to issue a new social security card without the tax by June 15, 2018. You also must make your
nership will give you a statement on Form
legend. first payment of estimated tax for 2018 by June
1042-S. Claim the tax withheld as a payment on
15, 2018. You cannot file a joint income tax re-
See Pub. 596 for more information on the line 62b or 62d of Form 1040NR, as appropri-
turn or make joint payments of estimated tax.
credit. ate.
However, if you are married to a U.S. citizen or
resident, see Nonresident Spouse Treated as a
Tax withheld on dispositions of U.S. real
Tax Withheld property interests. You can claim as a pay-
Resident in chapter 1.
ment any tax withheld with respect to a disposi- If you earn wages subject to withholding,
You can claim the tax withheld during the year your U.S. income tax return is due by April 17,
tion of a U.S. real property interest (or income
as a payment against your U.S. tax. You claim it 2018. Your first payment of estimated tax is
treated as derived from the disposition of a U.S.
on line 62 of Form 1040NR or on line 18 of also due by April 17, 2018. For information on
real property interest). See Real Property Gain
Form 1040NR-EZ. The tax withheld reduces withholding and estimated tax, see chapter 8.
or Loss in chapter 4, earlier. The buyer will give
any tax you owe with Form 1040NR or Form you a statement of the amount withheld on
1040NR-EZ. Residents of American Samoa. If you are a
Form 8288-A. Claim the tax withheld as a pay-
bona fide resident of American Samoa for the
ment on line 62c of Form 1040NR.
Withholding from wages. Any federal income entire year, you can exclude from gross income
tax withheld from your wages during the tax all income from sources in American Samoa
Claiming tax withheld on your return. When
year while you were a nonresident alien is al- (other than amounts for services performed as
you fill out your tax return, take extra care to en-
lowed as a payment against your U.S. income an employee of the U.S. government or any of
ter the correct amount of any tax withheld
tax liability for the same year. You can claim the its agencies). An employee of the American Sa-
shown on your information documents. The fol-
income tax withheld whether or not you were moan government is not considered an em-
lowing table lists some of the more common in-
engaged in a trade or business in the United ployee of the U.S. government or any of its
formation documents and shows where to find
States during the year, and whether or not the agencies for purposes of the exclusion. For
the amount of tax withheld.
wages (or any other income) were connected more information about this exclusion, see
with a trade or business in the United States. Form 4563 and Pub. 570.
Location
Excess social security tax withheld. If you
of tax
have two or more employers, you may be able Form number withheld
to claim a credit against your U.S. income tax li-
RRB-1042S . . . . . . . . . . . . . . . . . . . Box 12
ability for social security tax withheld in excess
SSA-1042S . . . . . . . . . . . . . . . . . . . . Box 9
of the maximum required. See Social Security
and Medicare Taxes in chapter 8 for more infor-
mation.
W-2 . . . . . . . . . . . . . . . . . . . . . . . . .
W-2c . . . . . . . . . . . . . . . . . . . . . . . .
1042-S . . . . . . . . . . . . . . . . . . . . . . .
Box 2
Box 2
Box 10
6.
8805 . . . . . . . . . . . . . . . . . . . . . . . . Line 10
Additional Medicare Tax. Your employer is 8288-A . . . . . . . . . . . . . . . . . . . . . . . Box 2
responsible for withholding the 0.9% (0.009)
Additional Medicare Tax on Medicare wages or
Dual-Status
RRTA compensation it pays to you in excess of
$200,000 in 2017. If you do not owe Additional
Bona Fide Residents Tax Year
Medicare Tax, you can claim a credit for any of American Samoa
withheld Additional Medicare Tax against the
total tax liability shown on your tax return by fil- or Puerto Rico Introduction
ing Form 8959.
If you are a nonresident alien who is a bona fide You have a dual-status tax year when you have
Tax paid on undistributed long-term capital resident of American Samoa or Puerto Rico for been both a resident alien and a nonresident
gains. If you are a shareholder in a mutual fund the entire tax year, you generally are taxed the alien in the same year. Dual status does not re-
(or other regulated investment company) or real same as resident aliens. You should file Form fer to your citizenship; it refers only to your resi-
estate investment trust, you can claim a credit 1040 and report all income from sources both in dent status in the United States. In determining
for your share of any taxes paid by the company and outside the United States. However, you your U.S. income tax liability for a dual-status
on its undistributed long-term capital gains. You tax year, different rules apply for the part of the

Page 32 Chapter 6 Dual-Status Tax Year


year you are a resident of the United States and it while you were a nonresident alien or if you filing jointly or single. However, you may be
the part of the year you are a nonresident. became a nonresident alien after receiving it able to file as single if you lived apart from your
The most common dual-status tax years are and before the end of the year. spouse during the last 6 months of the year and
the years of arrival and departure. See you are a:
Dual-Status Aliens in chapter 1. For the part of the year you are a nonresi- Married resident of Canada, Mexico, or
If you are married and choose to be treated dent alien, you are taxed on income from U.S. South Korea, or
as a U.S. resident for the entire year, as ex- sources and on certain foreign source income Married U.S. national.
plained in chapter 1, the rules of this chapter do treated as effectively connected with a U.S.
trade or business. The rules for treating foreign See the Instructions for Form 1040NR to see if
not apply to you for that year.
source income as effectively connected are dis- you qualify.
cussed in chapter 4 under Foreign Income. A U.S. national is an individual who, al-
Topics though not a U.S. citizen, owes his or her alle-
This chapter discusses: Income from sources outside the United giance to the United States. U.S. nationals in-
States that is not effectively connected with a clude American Samoans and Northern
Income subject to tax, trade or business in the United States is not tax- Mariana Islanders who chose to become U.S.
Restrictions for dual-status taxpayers, able if you receive it while you are a nonresident nationals instead of U.S. citizens.
Exemptions, alien. The income is not taxable even if you
How to figure the tax, earned it while you were a resident alien or if 6) Tax credits. You cannot claim the educa-
Forms to file, you became a resident alien or a U.S. citizen af- tion credits, the earned income credit, or the
When and where to file, and ter receiving it and before the end of the year. credit for the elderly or the disabled unless:
How to fill out a dual-status return. You are married, and
Income from U.S. sources is taxable You choose to be treated as a resident for
whether you receive it while a nonresident alien all of 2017 by filing a joint return with your
Useful Items or a resident alien unless specifically exempt spouse who is a U.S. citizen or resident, as
You may want to see: under the Internal Revenue Code or a tax treaty discussed in chapter 1.
provision. Generally, tax treaty provisions apply
Publication only to the part of the year you were a nonresi-
503 Child and Dependent Care Expenses
dent. In certain cases, however, treaty provi-
sions may apply while you were a resident
Exemptions
514 Foreign Tax Credit for Individuals alien. See chapter 9 for more information.
As a dual-status taxpayer, you usually will be
575 Pension and Annuity Income When determining what income is taxed in able to claim your own personal exemption.
the United States, you must consider exemp- Subject to the general rules for qualification,
Form (and Instructions) tions under U.S. tax law as well as the reduced you can claim exemptions for your spouse and
tax rates and exemptions provided by tax trea- dependents when you figure taxable income for
1040 U.S. Individual Income Tax Return ties between the United States and certain for- the part of the year you are a resident alien. The
1040-C U.S. Departing Alien Income Tax eign countries. For a further discussion of tax amount you can claim for these exemptions is
Return treaties, see chapter 9. limited to your taxable income (figured before
subtracting exemptions) for the part of the year
1040-ES Estimated Tax for Individuals you are a resident alien. You cannot use ex-
1040-ES (NR) U.S. Estimated Tax for Restrictions for emptions (other than your own) to reduce taxa-
ble income to less than zero for that period.
Nonresident Alien Individuals
Dual-Status Taxpayers
1040NR U.S. Nonresident Alien Income Special rules apply to exemptions for the
Tax Return The following restrictions apply if you are filing a part of the tax year you are a nonresident alien
tax return for a dual-status tax year. if you are a:
1116 Foreign Tax Credit
1. Resident of Canada, Mexico, or South Ko-
See chapter 12 for information about getting 1) Standard deduction. You cannot use the
rea,
these publications and forms. standard deduction allowed on Form 1040.
However, you can itemize any allowable deduc- 2. U.S. national, or
tions.
3. Student or business apprentice from India.
Tax Year 2) Exemptions. Your total deduction for the For more information, see Exemptions in chap-
exemptions for your spouse and allowable de- ter 5.
You must file your tax return on the basis of an
pendents cannot be more than your taxable in-
annual accounting period called a tax year. If
come (figured without deducting personal ex-
you have not previously established a fiscal tax
year, your tax year is the calendar year. A cal-
emptions) for the period you are a resident
alien.
How To Figure Tax
endar year is 12 consecutive months ending on
December 31. If you have previously estab- When you figure your U.S. tax for a dual-status
3) Head of household. You cannot use the
lished a regular fiscal year (12 consecutive year, you are subject to different rules for the
head of household Tax Table column or Tax
months ending on the last day of a month other part of the year you are a resident and the part
Computation Worksheet.
than December, or a 52–53 week year) and are of the year you are a nonresident.
considered to be a U.S. resident for any calen- 4) Joint return. You cannot file a joint return.
dar year, you will be treated as a U.S. resident
for any part of your fiscal year that falls within
However, see Choosing Resident Alien Status Income
under Dual-Status Aliens in chapter 1.
that calendar year.
All income for your period of residence and all
5) Tax rates. If you are married and a nonresi-
income that is effectively connected with a trade
dent of the United States for all or part of the tax
Income Subject to Tax year and you do not choose to file jointly as dis-
or business in the United States for your period
of nonresidence, after allowable deductions, is
cussed in chapter 1, you must use the Tax Ta-
added and taxed at the rates that apply to U.S.
For the part of the year you are a resident alien, ble column or Tax Computation Worksheet for
citizens and residents. Income that is not con-
you are taxed on income from all sources. In- married filing separately to figure your tax on in-
nected with a trade or business in the United
come from sources outside the United States is come effectively connected with a U.S. trade or
States for your period of nonresidence is sub-
taxable if you receive it while you are a resident business. You cannot use the Tax Table col-
ject to the flat 30% rate or lower treaty rate. You
alien. The income is taxable even if you earned umn or Tax Computation Worksheet for married

Chapter 6 Dual-Status Tax Year Page 33


cannot take any deductions against this in- your disabled dependent or disabled spouse so Payments
come. that you can work or look for work. Generally,
you must be able to claim an exemption for your You can report as payments against your U.S.
Social security and railroad retirement ben- dependent. income tax liability certain taxes you paid, are
efits. During the part of the year you are a non- Married dual-status aliens can claim the considered to have paid, or that were withheld
resident alien, 85% of any U.S. social security credit only if they choose to file a joint return as from your income. These include:
benefits (and the equivalent portion of tier 1 rail- discussed in chapter 1, or if they qualify as cer- Tax withheld from wages earned in the
road retirement benefits) you receive is subject tain married individuals living apart. United States,
to the flat 30% tax, unless exempt, or subject to The amount of your child and dependent Taxes withheld at the source from various
a lower treaty rate. (See The 30% Tax in chap- care expense that qualifies for the credit in any items of income from U.S. sources other
ter 4.) tax year cannot be more than your earned in- than wages,
During the part of the year you are a resident come for that tax year. Estimated tax paid with Form 1040-ES or
alien, part of the social security and the equiva- For more information, see Pub. 503 and Form 1040-ES (NR), and
lent portion of tier 1 railroad retirement benefits Form 2441. Tax paid with Form 1040-C, at the time of
will be taxed at graduated rates if your modified departure from the United States.
adjusted gross income plus half of these bene- Retirement savings contributions credit.
fits is more than a certain base amount. You may qualify for this credit (also known as
Use the Social Security Benefits Worksheet the saver's credit) if you made eligible contribu- Forms To File
in the Form 1040 instructions to help you figure tions to an employer-sponsored retirement plan
the taxable part of your social security and or to an individual retirement arrangement (IRA) The U.S. income tax return you must file as a
equivalent tier 1 railroad retirement benefits for in 2017. You cannot claim this credit if: dual-status alien depends on whether you are a
the part of the year you were a resident alien. You were born after January 1, 2000, resident alien or a nonresident alien at the end
You were a full-time student, of the tax year.
If you received U.S. social security benefits Your exemption is claimed by someone
while you were a nonresident alien, the Social else on his or her 2017 tax return, or Resident at end of year. You must file Form
Security Administration will send you Form Your adjusted gross income is more than 1040 if you are a dual-status taxpayer who be-
SSA-1042S showing your combined benefits $31,000. comes a resident during the year and who is a
for the entire year and the amount of tax with- U.S. resident on the last day of the tax year.
Use Form 8880 to figure the credit. For more in-
held. You will not receive separate statements Write “Dual-Status Return” across the top of the
formation, see Pub. 590-A.
for the benefits received during your periods of return. Attach a statement to your return to
U.S. residence and nonresidence. Therefore, it show the income for the part of the year you are
Child tax credit. You may be able to take this
is important for you to keep careful records of a nonresident. You can use Form 1040NR or
credit if you have a qualifying child.
these amounts. You will need this information to Form 1040NR-EZ as the statement, but be sure
properly complete your return and determine A qualifying child for purposes of the child
to mark “Dual-Status Statement” across the top.
your tax liability. tax credit is a child who:
Was under age 17 at the end of 2017. Nonresident at end of year. You must file
If you received railroad retirement benefits Is your son, daughter, stepchild, foster Form 1040NR or Form 1040NR-EZ if you are a
while you were a nonresident alien, the U.S. child, brother, sister, stepbrother, stepsis- dual-status taxpayer who gives up residence in
Railroad Retirement Board (RRB) will send you ter, half brother, half sister, or a descend- the United States during the year and who is not
Form RRB-1042S, Statement for Nonresident ant of any of them (for example, your a U.S. resident on the last day of the tax year.
Alien Recipients of Payments by the Railroad grandchild, niece, or nephew). Write “Dual-Status Return” across the top of the
Retirement Board, and/or Form RRB-1099-R, Is a U.S. citizen, a U.S. national, or a resi- return. Attach a statement to your return to
Annuities or Pensions by the Railroad Retire- dent alien. show the income for the part of the year you are
ment Board. If your country of legal residence Did not provide over half of his or her own a resident. You can use Form 1040 as the
changed or your rate of tax changed during the support for 2017. statement, but be sure to mark “Dual-Status
tax year, you may receive more than one form. Lived with you more than half of 2017. Statement” across the top.
Temporary absences, such as for school,
If you expatriated or terminated your resi-
Tax Credits and Payments vacation, or medical care, count as time
lived in the home.
dency in 2017, you may be required to file an
expatriation statement (Form 8854) with your
Is claimed as a dependent on your return.
This discussion covers tax credits and pay- tax return. For more information, see Expatria-
ments for dual-status aliens. An adopted child is always treated as your own tion Tax in chapter 4.
child. An adopted child includes a child lawfully
Credits placed with you for legal adoption. Statement. Any statement must have your
See your form instructions for additional de- name, address, and taxpayer identification
As a dual-status alien, you generally can claim tails. number on it. You do not need to sign a sepa-
tax credits using the same rules that apply to rate statement or schedule accompanying your
resident aliens. There are certain restrictions Adoption credit. You may qualify to take a tax return, because your signature on the return
that may apply. These restrictions are dis- credit of up to $13,570 for qualifying expenses also applies to the supporting statements and
cussed here, along with a brief explanation of paid to adopt an eligible child. This amount may schedules.
credits often claimed by individuals. be allowed for the adoption of a child with spe-
cial needs regardless of whether you have qual-
Foreign tax credit. If you have paid or are lia- ifying expenses. To claim the adoption credit, When and
file Form 8839 with the U.S. income tax return
ble for the payment of income tax to a foreign
country on income from foreign sources, you that you file. Where To File
may be able to claim a credit for the foreign Married dual-status aliens can claim the
taxes. credit only if they choose to file a joint return If you are a resident alien on the last day of your
If you claim the foreign tax credit, you gener- with a U.S. citizen or resident spouse as dis- tax year and report your income on a calendar
ally must file Form 1116 with your income tax cussed in chapter 1, or if they qualify as certain year basis, you must file no later than April 15 of
return. For more information, see the Instruc- married individuals living apart (see Married the year following the close of your tax year (but
tions for Form 1116 and Pub. 514. Persons Not Filing Jointly in the Form 8839 in- see the Tip, later). If you report your income on
structions). other than a calendar year basis, file your return
Child and dependent care credit. You may no later than the 15th day of the 4th month fol-
qualify for this credit if you pay someone to care lowing the close of your tax year. In either case,
for your qualifying child who is under age 13, or file your return with the address for dual-status

Page 34 Chapter 6 Dual-Status Tax Year


aliens shown on the back page of the Form 1040NR U.S. Nonresident Alien Income Nonresident Aliens
1040 instructions. Tax Return
If you are a nonresident alien on the last day 1040NR-EZ U.S. Income Tax Return for Nonresident aliens who are required to file an
of your tax year and you report your income on Certain Nonresident Aliens With No income tax return should use Form 1040NR or,
a calendar year basis, you must file no later Dependents if qualified, Form 1040NR-EZ.
than April 15 of the year following the close of See chapter 12 for information about getting If you are any of the following, you must file
your tax year if you receive wages subject to these forms. a return.
withholding. If you report your income on other
than a calendar year basis, file your return no 1. A nonresident alien individual engaged or
later than the 15th day of the 4th month follow- What, When, and considered to be engaged in a trade or
business in the United States during 2017.
ing the close of your tax year. If you did not re-
ceive wages subject to withholding and you re- Where To File (But see Exceptions, later.)
port your income on a calendar year basis, you You must file even if:
must file no later than June 15 of the year fol- What return you must file as well as when and a. Your income did not come from a
lowing the close of your tax year. If you report where you file that return, depends on your sta- trade or business conducted in the
your income on other than a calendar year ba- tus at the end of the tax year as a resident or a United States,
sis, file your return no later than the 15th day of nonresident alien.
the 6th month following the close of your tax b. You have no income from U.S. sour-
year. In any case, mail your return to: ces, or
Resident Aliens
c. Your income is exempt from income
Department of the Treasury
Resident aliens should file Form 1040EZ, tax.
Internal Revenue Service
1040A, or 1040 at the address shown in the in-
Austin, TX 73301-0215 2. A nonresident alien individual not engaged
structions for that form. The due date for filing
in a trade or business in the United States
the return and paying any tax due is April 15 of
If enclosing a payment, mail your return to: with U.S. income on which the tax liability
the year following the year for which you are fil-
was not satisfied by the withholding of tax
ing a return (but see the Tip, later). at the source.
Internal Revenue Service
P.O. Box 1303 Under U.S. immigration law, a lawful perma-
nent resident who is required to file a tax return 3. A representative or agent responsible for
Charlotte, NC 28201-1303 filing the return of an individual described
as a resident and fails to do so may be regar-
ded as having abandoned status and may lose in (1) or (2).
If the regular due date for filing falls on permanent resident status. 4. A fiduciary for a nonresident alien estate
TIP a Saturday, Sunday, or legal holiday, or trust.
the due date is the next day that is not Extensions of time to file. You are allowed
a Saturday, Sunday, or legal holiday. an automatic extension to June 15 to file if your You must also file if you want to:
main place of business and the home you live in Claim a refund of overwithheld or overpaid
are outside the United States and Puerto Rico tax, or
on April 15. You can get an extension of time to Claim the benefit of any deductions or
October 15 to file your return if you get an ex- credits. For example, if you have no U.S.
tension by April 15 (June 15 if you qualify for the business activities but have income from
June 15 extension). Use Form 4868 to get the real property that you choose to treat as ef-
7. extension to October 15. In addition to this
6-month extension, taxpayers who are out of
fectively connected income (discussed in
chapter 4), you must timely file a true and
the country (as defined in the Form 4868 in- accurate return to take any allowable de-
structions) can request a discretionary 2-month ductions against that income. For informa-
Filing additional extension of time to file their returns tion on what is timely, see When to file for
deductions and credits under When To
(to December 15 for calendar year taxpayers).
Information To request this extension, you must send the
IRS a letter explaining the reasons why you
File, later.

need the additional 2 months. Send the letter by Exceptions. You do not need to file Form
the extended due date (October 15 for calendar 1040NR or Form 1040NR-EZ if you meet either

Introduction year taxpayers) to the following address. of the following conditions.


1. Your only U.S. trade or business was the
This chapter provides the basic filing informa- Department of the Treasury performance of personal services, and
tion that you may need. Internal Revenue Service Center
Austin, TX 73301-0215 a. Your wages were less than $4,050,
and
Topics
This chapter discusses: You will not receive any notification from the b. You have no other need to file a return
IRS unless your request is denied for being un- to claim a refund of overwithheld
timely. taxes, to satisfy additional withholding
Forms aliens must file,
When and where to file, The discretionary 2-month additional exten- at source, or to claim income exempt
Penalties, and sion is not available to taxpayers who have an or partly exempt by treaty.
Amended returns and claims for refund. approved extension of time to file on Form 2350
2. You were a nonresident alien student,
(for U.S. citizens and resident aliens abroad
teacher, or trainee who was temporarily
who expect to qualify for special tax treatment).
Useful Items present in the United States under an “F,”
You may want to see: If the due date for filing falls on a Satur- “J,” “M,” or “Q” visa and you have no in-
TIP day, Sunday, or legal holiday, the due come that is subject to tax, such as wa-
date is the next day which is not a Sat- ges, tips, scholarship and fellowship
Forms (and Instructions)
urday, Sunday, or legal holiday. grants, dividends, etc.
1040 U.S. Individual Income Tax Return
1040A U.S. Individual Income Tax Return You may be able to file
your return electronically.
1040EZ Income Tax Return for Single and
See IRS e-file at IRS.gov.
Joint Filers With No Dependents

Chapter 7 Filing Information Page 35


Even if you have left the United States owe and/or the amount of Additional Medi- Credit for tax paid by a mutual fund (or
! and filed a Form 1040-C, U.S. Depart- care Tax withheld by your employer, if other regulated investment company) or a
CAUTION ing Alien Income Tax Return, on depar- any. real estate investment trust on undistrib-
ture, you still must file an annual U.S. income uted long-term capital gains.
tax return. If you are married and both you and If you do not meet all of the above condi-
your spouse are required to file, you must each tions, you must file Form 1040NR. Protective return. If your activities in the
file a separate return. United States were limited and you do not be-
lieve that you had any gross income effectively
When To File connected with a U.S. trade or business during
Foreign-owned domestic disregarded enti- the year, you can file a protective return (Form
ties. For tax years beginning on or after Janu- If you are an employee and you receive wages 1040NR) by the deadline explained above. By
ary 1, 2017, and ending on or after December subject to U.S. income tax withholding, you will filing a protective return, you protect your right
13, 2017, if a foreign person wholly owns a do- generally file by the 15th day of the 4th month to receive the benefit of deductions and credits
mestic disregarded entity (DE), the domestic after your tax year ends. For the 2017 calendar in the event it is later determined that some or
DE is treated as a domestic corporation sepa- year, file your return by April 17, 2018. all of your income is effectively connected. You
rate from its owner (the foreign person) for the are not required to report any effectively con-
limited purposes of the requirements under sec- If you are not an employee who receives
nected income or any deductions on the protec-
tion 6038A that apply to 25% foreign-owned do- wages subject to U.S. income tax withholding,
tive return, but you must give the reason the re-
mestic corporations. See the Instructions for you must file by the 15th day of the 6th month
turn is being filed.
Form 5472 for additional information and coor- after your tax year ends. For the 2017 calendar
If you believe some of your activities resul-
dination with Form 5472 filing by the domestic year, file your return by June 15, 2018.
ted in effectively connected income, file your re-
DE. Also, note that because the domestic DE is turn reporting that income and related deduc-
generally a transparent entity, the foreign per- Extensions of time to file. If you cannot file
tions by the regular due date. To protect your
son will include (or continue to include) on Form your return by the due date, file Form 4868 or
right to claim deductions or credits resulting
1040NR any of the domestic DE's tax items that use one of the electronic filing options ex-
from other activities, attach a statement to that
are subject to reporting. plained in the Form 4868 instructions. For the
return explaining that you wish to protect your
2017 calendar year, this will extend the due
right to claim deductions and credits if it is later
date to October 15, 2018 (December 17, 2018,
Form 1040NR-EZ if the regular due date of your return is June 15,
determined that the other activities produced ef-
fectively connected income.
2018). You must file the extension by the regu-
You can use Form 1040NR-EZ if all of the fol- You can follow the same procedure if you
lar due date of your return.
lowing conditions are met. believe you have no U.S. tax liability because of
In addition to the 6-month extension to Octo- a U.S. tax treaty. Be sure to also complete item
1. You do not claim any dependents. ber 15, taxpayers whose main place of busi- L on page 5 of Form 1040NR.
2. You cannot be claimed as a dependent on ness is outside the United States and Puerto
someone else's U.S. tax return. Rico and who live outside those jurisdictions Waiver of filing deadline. The IRS may
can request a discretionary 2-month extension waive the filing deadline if you establish that,
3. If you were married, you do not claim an of time to file their returns (to December 15 for based on the facts and circumstances, you ac-
exemption for your spouse. calendar year taxpayers). To request this exten- ted reasonably and in good faith in failing to file
4. Your taxable income is less than sion, you must send the IRS a letter explaining a U.S. income tax return (including a protective
$100,000. the reasons why you need the additional 2 return) and you cooperate with the IRS in deter-
months. Send the letter by the extended due mining your U.S. income tax liability for the tax
5. The only itemized deduction you can claim date (October 15 for calendar year taxpayers) year for which you did not file a return.
is for state and local income taxes. to the following address.
Note. Residents of India who were stu-
dents or business apprentices may be
Where To File
Department of the Treasury
able to take the standard deduction in- Internal Revenue Service Center If you are not enclosing a payment, file
stead of the itemized deduction for state Austin, TX 73301-0215 Form 1040NR-EZ and Form 1040NR
and local income taxes. See chapter 5. at the following address.
6. Your only U.S. source income is from wa- You will not receive any notification from the
IRS unless your request is denied for being un- Department of the Treasury
ges, salaries, tips, taxable refunds of state
timely. Internal Revenue Service Center
and local income taxes, scholarship or fel-
Austin, TX 73301-0215
lowship grants, and nontaxable interest or
dividends. (If you had taxable interest or When to file for deductions and credits. To
dividend income, you cannot use this get the benefit of any allowable deductions or
form.) credits, you must timely file a true and accurate If enclosing a payment, mail your return to:
return. For this purpose, a return is timely if it is
7. You are not claiming any adjustments to filed within 16 months of the due date just dis- Internal Revenue Service
income other than the student loan inter- cussed. However, if you did not file a 2016 tax P.O. Box 1303
est deduction or scholarship and fellow- return and 2017 is not the first year for which Charlotte, NC 28201-1303
ship grants excluded. you are required to file one, your 2017 return is
8. You are not claiming any tax credits. timely for this purpose if it is filed by the earlier Aliens from the U.S. Virgin Islands.
of:
9. This is not an “expatriation return.” See The date that is 16 months after the due If you are a bona fide resident of the
Expatriation Tax in chapter 4. date for filing your 2017 return, or U.S. Virgin Islands during your entire
10. The only taxes you owe are: The date the IRS notifies you that your tax year and work temporarily in the
2017 return has not been filed and that you United States, you must pay your income taxes
a. The income tax from the Tax Table. cannot claim certain deductions and cred- to the U.S. Virgin Islands and file your income
b. The social security and Medicare tax its. tax returns at the following address.
from Form 4137 or Form 8919. The allowance of the following credits is not af- Virgin Islands Bureau of Internal Revenue
11. You are not claiming a credit for excess fected by this time requirement. 6115 Estate Smith Bay
social security and tier 1 RRTA tax with- Credit for withheld taxes. Suite 225
held. Credit for excise tax on certain uses of St. Thomas, VI 00802
gasoline and special fuels.
12. You are not filing Form 8959, to figure the
amount of Additional Medicare Tax you

Page 36 Chapter 7 Filing Information


Report all income from U.S. sources, as well FinCEN Form 105 Penalties. Civil and criminal penalties are pro-
as income from other sources, on your return. vided for failing to file a report, filing a report
For information on filing U.S. Virgin Islands re- FinCEN Form 105 must be filed by each person containing material omissions or misstate-
turns, contact the U.S. Virgin Islands Bureau of who physically transports, mails, or ships, or ments, or filing a false or fraudulent report. Also,
Internal Revenue. causes to be physically transported, mailed, or the entire amount of the currency or monetary
Chapter 8 discusses withholding from U.S. shipped, currency or other monetary instru- instrument may be subject to seizure and forfei-
wages of U.S. Virgin Islanders. ments in a total amount of more than $10,000 at ture.
one time from the United States to any place
Aliens from Guam or the Commonwealth of outside the United States, or into the United More information. More information regard-
the Northern Mariana Islands. If you are a States from any place outside the United ing the filing of FinCEN Form 105 can be found
bona fide resident of Guam or the Common- States. The filing requirement also applies to in the instructions on the back of the form.
wealth of the Northern Mariana Islands (CNMI) each person who receives in the United States
during your entire tax year, you must file your currency or monetary instruments totaling more Form 8938
return with, and pay any tax due to, Guam or than $10,000 at one time from any place out-
the CNMI. Report all income, including income side of the United States. You may have to file Form 8938 to report the
from U.S. sources, on your return. It is not nec- ownership of specified foreign financial asset(s)
essary to file a separate U.S. income tax return. The term “monetary instruments” means the if you are one of the following individuals.
following. A resident alien of the United States for
Bona fide residents of Guam should file Coin and currency of the United States or
their Guam returns at the following ad- any part of the tax year.
of any other country, A resident alien of the United States who
dress. Travelers' checks in any form, elects to be treated as a resident of a for-
Investment securities or stock in bearer eign country under the provisions of a U.S.
Department of Revenue and Taxation form or otherwise in such form that title to income tax treaty. See Effect of Tax Trea-
Government of Guam them passes upon delivery, ties in chapter 1.
P.O. Box 23607
Negotiable instruments (including checks, A nonresident alien who makes an election
GMF, GU 96921
promissory notes, and money orders) in to be treated as a resident alien for purpo-
bearer form, endorsed without restriction, ses of filing a joint income tax return. See
made out to a fictitious payee, or otherwise chapter 1 for information about this elec-
Bona fide residents of the CNMI should in such form that title to them passes upon tion.
file their CNMI income tax returns at delivery, and A nonresident alien who is a bona fide resi-
the following address. Checks, promissory notes, and money or- dent of American Samoa or Puerto Rico.
ders which are signed but on which the See Pub. 570 for a definition of bona fide
Department of Finance name of the payee has been omitted. resident.
Division of Revenue and Taxation
Commonwealth of the Northern Mariana However, the term does not include:
Islands Checks or money orders made payable to You must file Form 8938 if the total value of
P.O. Box 5234 CHRB the order of a named person which have those assets exceeds an applicable threshold
Saipan, MP 96950 not been endorsed or which contain re- (the “reporting threshold”). The reporting
strictive endorsements, threshold varies depending on whether you live
Warehouse receipts, or in the United States, are married, or file a joint
If you are not a bona fide resident of Guam Bills of lading. income tax return with your spouse. Specified
or the CNMI, see Pub. 570 for information on foreign financial assets include any financial ac-
where to file your return. A transfer of funds through normal banking count maintained by a foreign financial institu-
procedures (wire transfer) that does not involve tion and, to the extent held for investment, any
the physical transportation of currency or mone- stock, securities, or any other interest in a for-
Amended Returns tary instruments is not required to be reported eign entity and any financial instrument or con-
and Claims for Refund on FinCEN Form 105. tract with an issuer or counterparty that is not a
U.S. person.
If you find changes in your income, deductions, Filing requirements. FinCEN Form 105 filing
or credits after you mail your return, file Form requirements follow.
You may have to pay penalties if you are re-
1040X, Amended U.S. Individual Income Tax
Recipients. Each person who receives cur- quired to file Form 8938 and fail to do so, or if
Return. Also use Form 1040X if you should
rency or other monetary instruments in the Uni- you have an understatement of tax due to any
have filed Form 1040, 1040A, or 1040EZ in-
ted States must file FinCEN Form 105 within 15 transaction involving an undisclosed foreign fi-
stead of Form 1040NR or 1040NR-EZ, or vice
days after receipt, with the Customs officer in nancial asset.
versa. If you amend Form 1040NR or Form
1040NR-EZ or file the correct return, attach the charge at any port of entry or departure, or by
corrected return (Form 1040, Form 1040NR, mail at the following address. More information about the filing of Form
etc.) to Form 1040X. Print “Amended” across 8938 can be found in the separate instructions
the top. Ordinarily, an amended return claiming Commissioner of Customs for Form 8938.
a refund must be filed within 3 years from the Attention: Currency Transportation
date your return was filed or within 2 years from Reports
the time the tax was paid, whichever is later. A Washington, DC 20229 Penalties
return filed before the final due date is consid-
ered to have been filed on the due date. Shippers or mailers. If the currency or The law provides penalties for failure to file re-
other monetary instrument does not accompany turns or pay taxes as required.
the person entering or departing the United
Other Forms You States, FinCEN Form 105 can be filed by mail
May Have To File at the above address on or before the date of Civil Penalties
entry, departure, mailing, or shipping.
You may be required to file information returns If you do not file your return and pay your tax by
to report certain foreign income or assets, or Travelers. Travelers must file FinCEN the due date, you may have to pay a penalty.
monetary transactions. Form 105 with the Customs officer in charge at You may also have to pay a penalty if you sub-
any Customs port of entry or departure, when stantially understate your tax, file a frivolous tax
entering or departing the United States.

Chapter 7 Filing Information Page 37


submission, or fail to supply your taxpayer iden- You fail to disclose a foreign financial as- Use Form 8275-R to disclose items or posi-
tification number. If you provide fraudulent infor- set. tions contrary to regulations.
mation on your return, you may have to pay a The penalty is equal to 20% of the underpay- Transaction lacking economic sub-
civil fraud penalty. ment. The penalty is 40% of any portion of the stance. For more information on economic
underpayment that is attributable to an undis- substance, see section 7701(o).
Filing late. If you do not file your return by the
closed noneconomic substance transaction or
due date (including extensions), you may have Foreign financial asset. For more infor-
an undisclosed foreign financial asset transac-
to pay a failure-to-file penalty. The penalty is mation on undisclosed foreign financial assets,
tion. The penalty will not be figured on any part
based on the tax not paid by the due date (with- see section 6662(j) or the Instructions for Form
of an underpayment on which the fraud penalty
out regard to extensions). The penalty is usually 8938.
(discussed later) is charged.
5% for each month or part of a month that a re-
turn is late, but not more than 25%. Negligence or disregard. The term “negli- Reasonable cause. You will not have to
gence” includes a failure to make a reasonable pay a penalty if you show a good reason (rea-
Fraud. If your failure to file is due to fraud, sonable cause) for the way you treated an item.
attempt to comply with the tax law or to exercise
the penalty is 15% for each month or part of a You must also show that you acted in good
ordinary and reasonable care in preparing a re-
month that your return is late, up to a maximum faith. This does not apply to a transaction that
turn. Negligence also includes failure to keep
of 75%. lacks economic substance.
adequate books and records. You will not have
Return over 60 days late. If you file your to pay a negligence penalty if you have a rea-
return more than 60 days after the due date or sonable basis for a position you took. Filing erroneous claim for refund or credit.
extended due date, the minimum penalty is the The term “disregard” includes any careless, You may have to pay a penalty if you file an er-
smaller of $210 or 100% of the unpaid tax. reckless, or intentional disregard. roneous claim for refund or credit. The penalty
is equal to 20% of the disallowed amount of the
Exception. You will not have to pay the Adequate disclosure. You can avoid the claim, unless you can show a reasonable basis
penalty if you show that you failed to file on time penalty for disregard of rules or regulations if for the way you treated an item. However, any
because of reasonable cause and not because you adequately disclose on your return a posi- disallowed amount due to a transaction that
of willful neglect. tion that has at least a reasonable basis. See lacks economic substance will not be treated as
Disclosure statement, later. having a reasonable basis. The penalty will not
Paying tax late. You will have to pay a fail- This exception will not apply to an item that be figured on any part of the disallowed amount
ure-to-pay penalty of 1 2 of 1% (0.50%) of your is attributable to a tax shelter. In addition, it will of the claim that relates to the earned income
unpaid taxes for each month, or part of a month, not apply if you fail to keep adequate books and credit or on which the accuracy-related or fraud
after the due date that the tax is not paid. This records, or substantiate items properly. penalties are charged.
penalty does not apply during the automatic
Substantial understatement of income
6-month extension of time to file period, if you Frivolous tax submission. You may have to
tax. You understate your tax if the tax shown
paid at least 90% of your actual tax liability on pay a penalty of $5,000 if you file a frivolous tax
on your return is less than the correct tax. The
or before the due date of your return and pay return or other frivolous submissions. A frivo-
understatement is substantial if it is more than
the balance when you file the return. lous tax return is one that does not include
the larger of 10% of the correct tax or $5,000.
The monthly rate of the failure-to-pay pen- enough information to figure the correct tax or
However, the amount of the understatement is
alty is half the usual rate (0.25% instead of that contains information clearly showing that
reduced to the extent the understatement is due
0.50%) if an installment agreement is in effect the tax you reported is substantially incorrect.
to:
for that month. You must have filed your return For more information on frivolous returns, frivo-
by the due date (including extensions) to qualify 1. Substantial authority, or lous submissions, and a list of positions that are
for this reduced penalty. identified as frivolous, see Notice 2010-33,
2. Adequate disclosure and a reasonable ba-
If a notice of intent to levy is issued, the rate 2010-17 I.R.B. 609 available at IRS.gov/irb/
sis.
will increase to 1% at the start of the first month 2010-17_IRB/ar13.html.
beginning at least 10 days after the day that the If an item on your return is attributable to a You will have to pay the penalty if you filed
notice is issued. If a notice and demand for im- tax shelter, there is no reduction for an ade- this kind of return or submission based on a friv-
mediate payment is issued, the rate will in- quate disclosure. However, there is a reduction olous position or a desire to delay or interfere
crease to 1% at the start of the first month be- for a position with substantial authority, but only with the administration of federal tax laws. This
ginning after the day that the notice and if you reasonably believed that your tax treat- includes altering or striking out the preprinted
demand is issued. ment was more likely than not the proper treat- language above the space provided for your
This penalty cannot be more than 25% of ment. signature.
your unpaid tax. You will not have to pay the This penalty is added to any other penalty
Substantial authority. Whether there is or provided by law.
penalty if you can show that you had a good was substantial authority for the tax treatment of
reason for not paying your tax on time. an item depends on the facts and circumstan- Fraud. If there is any underpayment of tax on
ces. Consideration will be given to court opin- your return due to fraud, a penalty of 75% of the
Combined penalties. If both the failure-to-file
ions, Treasury regulations, revenue rulings, rev- underpayment due to fraud will be added to
penalty and the failure-to-pay penalty (dis-
enue procedures, and notices and your tax.
cussed earlier) apply in any month, the 5% (or
announcements issued by the IRS and pub-
15%) failure-to-file penalty is reduced by the
lished in the Internal Revenue Bulletin that in- Failure to supply taxpayer identification
failure-to-pay penalty. However, if you file your
volve the same or similar circumstances as number. If you do not include your social se-
return more than 60 days after the due date or
yours. curity number (SSN) or individual taxpayer
extended due date, the minimum penalty is the
smaller of $210 or 100% of the unpaid tax. Disclosure statement. To adequately dis- identification number (ITIN) or the SSN or ITIN
close the relevant facts about your tax treat- of another person where required on a return,
Accuracy-related penalty. You may have to ment of an item, use Form 8275. You must also statement, or other document, you will be sub-
pay an accuracy-related penalty if you under- have a reasonable basis for treating the item ject to a penalty of $50 for each failure. You will
pay your tax because: the way you did. also be subject to a penalty of $50 if you do not
You show negligence or disregard of rules In cases of substantial understatement only, give your SSN or ITIN to another person when it
or regulations, items that meet the requirements of Revenue is required on a return, statement, or other
You substantially understate your income Procedure 2016-13 available at IRS.gov/irb/ document.
tax, 2016-04_IRB/ar08.html (or later update) are For example, if you have a bank account
You claim tax benefits for a transaction that considered adequately disclosed on your return that earns interest, you must give your SSN or
lacks economic substance, or without filing Form 8275. ITIN to the bank. The number must be shown
on the Form 1099-INT or other statement the

Page 38 Chapter 7 Filing Information


bank sends you. If you do not give the bank Income subject to withholding of income the withholding agent (generally, the payer of
your SSN or ITIN, you will be subject to the $50 tax, the income) so the agent will not withhold tax on
penalty. (You also may be subject to “backup” Exemptions from withholding, the income at the 30% (or lower treaty) rate. If
withholding of income tax.) Social security and Medicare taxes, and you receive this type of income as a nonresi-
You will not have to pay the penalty if you Estimated tax rules. dent alien, file Form W-8BEN with the withhold-
are able to show that the failure was due to rea- ing agent so that the agent will withhold tax at
sonable cause and not willful neglect. Useful Items the 30% (or lower treaty) rate. However, if the
You may want to see: income is effectively connected with a U.S.
trade or business, file Form W-8ECI instead.
Criminal Penalties
Publication
You may be subject to criminal prosecution
(brought to trial) for actions such as:
515 Withholding of Tax on Nonresident Withholding From
1. Tax evasion,
Aliens and Foreign Entities
Compensation
901 U.S. Tax Treaties
2. Willful failure to file a return, supply infor- The following discussion generally applies only
mation, or pay any tax due, Form (and Instructions) to nonresident aliens. Tax is withheld from resi-
3. Fraud and false statements, or W-4 Employee's Withholding Allowance dent aliens in the same manner as U.S. citi-
Certificate zens.
4. Preparing and filing a fraudulent return.
W-8BEN Certificate of Foreign Status of Wages and other compensation paid to a
Beneficial Owner for United States nonresident alien for services performed as an
Tax Withholding and Reporting employee are usually subject to graduated with-
(Individuals) holding at the same rates as resident aliens and
W-8ECI Certificate of Foreign Person's U.S. citizens. Therefore, your compensation,
unless it is specifically excluded from the term
8. Claim That Income Is Effectively
Connected With the Conduct of a “wages” by law, or is exempt from tax by treaty,
Trade or Business in the United is subject to graduated withholding.
States
Paying Tax W-9 Request for Taxpayer Identification Withholding on Wages
Number and Certification
Through 1040-ES (NR) U.S. Estimated Tax for
Nonresident Alien Individuals
If you are an employee and you receive wages
subject to graduated withholding, you will be re-
quired to fill out a Form W-4. Also fill out Form
Withholding or 8233 Exemption From Withholding on
Compensation for Independent (and
W-4 for a scholarship or fellowship grant to the
extent it represents payment for past, present,

Estimated Tax Certain Dependent) Personal


Services of a Nonresident Alien
or future services and for which you are not
claiming a tax treaty withholding exemption on
Individual Form 8233 (discussed later under Income Enti-
tled to Tax Treaty Benefits). These are services
8288-B Application for Withholding
Introduction Certificate for Dispositions by Foreign
you are required to perform as an employee
and as a condition of receiving the scholarship
Persons of U.S. Real Property or fellowship (or tuition reduction).
This chapter discusses how to pay your U.S. in- Interests
come tax as you earn or receive income during
13930 Application for Central Withholding Nonresident aliens should fill out Form W-4
the year. In general, the federal income tax is a
Agreement using the following instructions instead of the in-
pay as you go tax. There are two ways to pay
structions on the Form W-4. This is because of
as you go. See chapter 12 for information about getting the restrictions on a nonresident alien's filing
1. Withholding. If you are an employee, these publications and forms. status, the limited number of personal exemp-
your employer probably withholds income tions a nonresident alien is allowed, and be-
tax from your pay. Tax may also be with- cause a nonresident alien cannot claim the
held from certain other income—including Notification of standard deduction.
pensions, bonuses, commissions, and
gambling winnings. In each case, the Alien Status 1. Enter your social security number (SSN)
on line 2. Do not enter an individual tax-
amount withheld is paid to the U.S. Treas-
You must let your employer know whether you payer identification number (ITIN).
ury in your name.
are a resident or a nonresident alien so your 2. Check only “Single” marital status on line 3
2. Estimated tax. If you do not pay your tax employer can withhold the correct amount of (regardless of your actual marital status).
through withholding, or do not pay enough tax from your wages.
tax that way, you might have to pay esti- 3. Claim only one allowance on line 5, unless
mated tax. People who are in business for If you are a resident alien under the rules you are a resident of Canada, Mexico, or
themselves generally will have to pay their discussed in chapter 1, you must file Form W-9 South Korea, or a U.S. national.
tax this way. You may have to pay estima- or a similar statement with your employer. If you
are a nonresident alien under those rules, you 4. Write “Nonresident Alien” or “NRA” on the
ted tax if you receive income such as divi-
must furnish to your employer Form 8233 or dotted line on line 6. You can request ad-
dends, interest, rent, and royalties. Esti-
Form W-8BEN, establishing that you are a for- ditional withholding on line 6 at your op-
mated tax is used to pay not only income
eign person, or Form W-4, establishing that tion.
tax, but self-employment tax and alterna-
tive minimum tax as well. your compensation is subject to graduated with- 5. Do not claim “Exempt” withholding status
holding at the same rates as resident aliens or on line 7.
Topics U.S. citizens.
This chapter discusses: If you are a resident alien and you receive A U.S. national is an individual who, al-
income other than wages (such as dividends though not a U.S. citizen, owes his or her alle-
How to notify your employer of your alien and royalties) from sources within the United giance to the United States. U.S. nationals in-
status, States, file Form W-9 or similar statement with clude American Samoans, and Northern

Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 39


Mariana Islanders who chose to become U.S. not subject to withholding on their wages. income. In addition, tips received while working
nationals instead of U.S. citizens. These persons either: for one employer, amounting to $20 or more in
Perform duties in transportation service a month, are subject to graduated withholding.
See Withholding on Scholarships and Fel-
between the United States and Canada or
lowship Grants, later, for how to fill out Form
Mexico, or
W-4 if you receive a U.S. source scholarship or
Perform duties connected to the construc-
Independent Contractors
fellowship grant that is not a payment for serv-
tion, maintenance, or operation of a water-
ices. If there is no employee–employer relationship
way, viaduct, dam, or bridge crossed by, or
between you and the person for whom you per-
crossing, the boundary between the United
New withholding tables. To reflect changes form services, your compensation is subject to
States and Canada or the boundary be-
made by the tax reform legislation, the IRS has the 30% (or lower treaty) rate of withholding.
tween the United States and Mexico.
released updated income tax withholding ta- However, if you are engaged in a trade or busi-
bles. The new withholding tables are designed This employment is subject to with- ness in the United States during the tax year,
to work with the Form(s) W-4 you have already holding of social security and Medicare your compensation for personal services as an
filed with your employer. To see if you need to
!
CAUTION taxes unless the services are per- independent contractor (independent personal
have your withholding increased or decreased, formed for a railroad. services) may be entirely or partly exempt from
use the IRS Withholding Calculator at IRS.gov/ withholding if you reach an agreement with the
W4App. The calculator is being revised to take To qualify for the exemption from withhold-
IRS on the amount of withholding required. An
into account these changes and should be ing during a tax year, a Canadian or Mexican
agreement that you reach with the IRS regard-
available by the end of February. resident must give the employer a statement in
ing withholding from your compensation for in-
duplicate with name, address, and identification
dependent personal services is effective for
Students and business apprentices from In- number, certifying that the resident:
payments covered by the agreement after it is
dia. If you are eligible for the benefits of Article Is not a U.S. citizen or resident,
agreed to by all parties. You must agree to
21(2) of the United States–India Income Tax Is a resident of Canada or Mexico, which-
timely file an income tax return for the current
Treaty, you may claim an additional withholding ever applies, and
tax year.
allowance for the standard deduction. You can Expects to perform duties previously de-
claim an additional withholding allowance for scribed during the tax year in question. Central withholding agreements (CWA). If
your spouse only if your spouse will have no The statement can be in any form, but it you are a nonresident alien entertainer or ath-
gross income for 2017 and cannot be claimed must be dated and signed by the employee and lete performing or participating in athletic events
as a dependent on another U.S. taxpayer's must include a written declaration that it is in the United States, you may be able to enter
2017 return. You may also claim an additional made under penalties of perjury. into a withholding agreement with the IRS for
withholding allowance for each of your depend- reduced withholding provided certain require-
ents not admitted to the United States on “F-2,” Residents of American Samoa and Puerto ments are met. Under no circumstances will
“J-2,” or “M-2” visas if they meet the same rules Rico. If you are a nonresident alien employee such a withholding agreement reduce taxes
that apply to U.S. citizens. who is a resident of American Samoa or Puerto withheld to less than the anticipated amount of
Rico, wages for services performed in Ameri- income tax liability.
Household employees. If you work as a can Samoa or Puerto Rico are generally not File Form 13930 and the required attach-
household employee, your employer does not subject to withholding unless you are an em- ments with the IRS to request a central with-
have to withhold income tax. However, you may ployee of the United States or any of its agen- holding agreement. Either you or your author-
agree to voluntary income tax withholding by fil- cies in American Samoa or Puerto Rico. ized representative can file the form. It should
ing a Form W-4 with your employer. The agree- be sent to the IRS at least 45 days before the
ment goes into effect when your employer ac- Residents of the U.S. Virgin Islands. Non- tour begins or the event occurs. Exceptions will
cepts the agreement by beginning the resident aliens who are bona fide residents of be considered on a case by case basis.
withholding. You or your employer may end the the U.S Virgin Islands are not subject to with- For more information on the CWA program,
agreement by letting the other know in writing. holding of U.S. tax on income earned while tem- go to IRS.gov/Individuals/International-
porarily employed in the United States. This is Taxpayers/Central-Withholding-Agreements.
Agricultural workers. If you are an agricul- because those persons pay their income tax to
tural worker on an H-2A visa, your employer the U.S. Virgin Islands. To avoid having tax Final payment exemption. Your final pay-
does not have to withhold income tax. However, withheld on income earned in the United States, ment of compensation during the tax year for in-
your employer will withhold income tax only if bona fide residents of the U.S. Virgin Islands dependent personal services may be entirely or
you and your employer agree to withhold. In should write a letter, in duplicate, to their em- partly exempt from withholding. This exemption
that case, you must provide your employer with ployers, stating that they are bona fide resi- is available only once during your tax year and
a properly completed Form W-4. You can find dents of the U.S. Virgin Islands and expect to applies to a maximum of $5,000 of compensa-
more information about not having tax withheld pay tax on all income to the U.S. Virgin Islands. tion. To obtain this exemption, you or your
at IRS.gov/Individuals/International-Taxpayers/ agent must give the following statements and
Foreign-Agricultural-Workers.
Withholding on Pensions information to the Commissioner or his dele-
gate.
Wages Exempt From Withholding If you receive a pension as a result of personal A statement by each withholding agent
services performed in the United States, the from whom you have received gross in-
Wages that are exempt from U.S. income tax pension income is subject to the 30% (or lower come effectively connected with a trade or
under an income tax treaty are generally ex- treaty) rate of withholding. You may, however, business in the United States during the
empt from withholding. For information on how have tax withheld at graduated rates on the por- tax year, showing the amount of income
to claim this exemption from withholding, see tion of the pension that arises from the perform- paid and the tax withheld. Each statement
Income Entitled to Tax Treaty Benefits, later. ance of services in the United States after De- must be signed by the withholding agent
cember 31, 1986. You must fill out Form and verified by a declaration that it is made
Wages paid to aliens who are residents of under penalties of perjury.
W-8BEN and give it to the withholding agent or
American Samoa, Canada, Mexico, Puerto A statement by the withholding agent from
payer before the income is paid or credited to
Rico, or the U.S. Virgin Islands may be exempt whom you expect to receive the final pay-
you.
from withholding. The following paragraphs ex- ment of compensation, showing the
plain these exemptions. amount of the payment and the amount of
Withholding on Tip Income tax that would be withheld if a final pay-
Residents of Canada or Mexico engaged in ment exemption were not granted. This
transportation-related employment. Certain Tips you receive during the year for services
residents of Canada or Mexico who enter or performed in the United States are subject to
leave the United States at frequent intervals are U.S. income tax. Include them in taxable

Page 40 Chapter 8 Paying Tax Through Withholding or Estimated Tax


statement must also be signed by the with- ted States during each of the taxable years chapter 4. It also includes 85% of social security
holding agent and verified by a declaration to which the compensation is attributable. benefits paid to nonresident aliens.
that it is made under penalties of perjury. A copy of any documents or records that
A statement by you that you do not intend show the number of days you actually Other income not subject to withholding of
to receive any other income effectively were present in the United States during 30% (or lower treaty) rate. The following in-
connected with a trade or business in the the years listed. come is not subject to withholding at the 30%
United States during the current tax year. A statement providing (a) the number of (or lower treaty) rate if you file Form W-8ECI
The amount of tax that has been withheld days (or unit of time less than a day, if ap- with the payer of the income.
or paid under any other provision of the In- propriate) that personal services were per- Income (other than compensation) that is
ternal Revenue Code or regulations for any formed in the United States in connection effectively connected with your U.S. trade
income effectively connected with your with recruiting, training, and supporting or business.
trade or business in the United States dur- your lower-tier distributors; and (b) the total Income from real property that you choose
ing the current tax year. number of days (or unit of time less than a to treat as effectively connected with a
The amount of your outstanding tax liabili- day, if appropriate) that personal services U.S. trade or business. See Income From
ties, if any, including interest and penalties, were performed globally in connection with Real Property in chapter 4 for details about
from the current tax year or prior tax peri- recruiting, training, and supporting your this choice.
ods. lower-tier distributors. Special rules for withholding on partnership
Any provision of an income tax treaty un- Any further relevant document or record income, scholarships, and fellowships are ex-
der which a partial or complete exemption supporting your claim that the taxes were plained next.
from withholding may be claimed, the withheld in error.
country of your residence, and a statement
of sufficient facts to justify an exemption Refund of taxes withheld in error on social Tax Withheld on
under the treaty. security benefits paid to resident aliens. Partnership Income
A statement signed by you, and verified by Social security benefits paid to a lawful perma-
a declaration that it is made under penal- nent resident (green card holder) are not sub- If you are a foreign partner in a U.S. or foreign
ties of perjury, that all the information given ject to 30% withholding. For U.S. income tax partnership, the partnership will withhold tax on
is true and that to your knowledge no rele- purposes, green card holders continue to be your share of effectively connected taxable in-
vant information has been omitted. resident aliens until their lawful permanent resi- come (ECTI) from the partnership. Your part-
dent status under immigration laws is either nership may be able to reduce withholding on
If satisfied with the information, the IRS will
taken away or is administratively or judicially your share of ECTI by considering certain part-
determine the amount of your tentative income
determined to have been abandoned. See ner-level deductions. Generally, you must sub-
tax for the tax year on gross income effectively
Green Card Test in chapter 1. If you are a green mit Form 8804-C for this purpose. See the In-
connected with your trade or business in the
card holder and tax was withheld in error on structions for Form 8804-C to the partnership
United States. Ordinary and necessary busi-
your social security benefits because you have for more information.
ness expenses can be taken into account if pro-
a foreign address, the withholding tax is refund-
ven to the satisfaction of the Commissioner or The withholding rate on your share of effec-
able by the Social Security Administration
his delegate. tively connected income is generally the highest
(SSA) or the IRS. The SSA will refund taxes er-
The Commissioner or his delegate will send rate of tax specified under section 1 of the Code
roneously withheld if the refund can be pro-
you a letter, directed to the withholding agent, (39.6% for 2017). However, the partnership
cessed during the same calendar year in which
showing the amount of the final payment of may withhold at the highest rate that applies to
the tax was withheld. If the SSA cannot refund
compensation that is exempt from withholding a particular type of income allocable to you if
the taxes withheld, you must file a Form 1040 or
and the amount that can be paid to you be- you gave the partnership the appropriate docu-
1040A with the Department of the Treasury, In-
cause of the exemption. You must give two cop- mentation. Long-term capital gain is an exam-
ternal Revenue Service Center, Austin, TX
ies of the letter to the withholding agent and ple of a particular type of income to which the
73301 to determine if you are entitled to a re-
must also attach a copy of the letter to your in- highest tax rate applies. Claim the tax withheld
fund. You must also attach the following to your
come tax return for the tax year for which the as a credit on your 2018 Form 1040NR.
Form 1040 or 1040A.
exemption is effective. A copy of Form SSA-1042S, Social Secur- For tax years beginning in 2018, the
ity Benefit Statement. TIP highest rate of tax specified under sec-
Refund of Taxes Withheld in Error A copy of the “green card.” tion 1 of the Code has decreased to
A signed declaration that includes the fol- 37%.
lowing statements: The SSA should not
Multilevel marketing. If you are a distributor have withheld income tax from my social The partnership will give you a statement on
for a multilevel marketing company who had security benefits because I am a U.S. law- Form 8805 showing the tax withheld. A partner-
taxes withheld in error, file a U.S. income tax re- ful permanent resident and my green card ship that is publicly traded will withhold tax on
turn (Form 1040NR, Form 1040NR-EZ, or Form has been neither revoked nor administra- your actual distributions of effectively connec-
1120-F) or, if a tax return has already been tively or judicially determined to have been ted income. In this case the partnership will give
filed, a claim for refund (Form 1040X or amen- abandoned. I am filing a U.S. income tax you a statement on Form 1042-S.
ded Form 1120-F) to recover the amount with- return for the tax year as a resident alien
held in error. You must also attach to the U.S. reporting all of my worldwide income. I
income tax return or claim for refund supporting have not claimed benefits for the tax year Withholding on Scholarships
information that includes, but is not limited to, under an income tax treaty as the resident and Fellowship Grants
the following items. of a country other than the United States.
A copy of your Form W-2, Form 1042-S, or There is no withholding on a qualified scholar-
Form 1099 to prove the amount of taxes ship received by a candidate for a degree. See
withheld.
A statement explaining why income repor-
Withholding From chapter 3.

ted on your Form W-2, Form 1042-S, or Other Income If you are a nonresident alien student or
grantee with an “F,” “J,” “M,” or “Q” visa and you
Form 1099 is not subject to U.S. taxation.
A statement listing all the dates you en- receive a U.S. source grant or scholarship that
Other income subject to 30% withholding gen-
tered and left the United States during the is not fully exempt, the withholding agent (usu-
erally includes fixed or determinable income
taxable year. If the compensation is multi- ally the payer of the scholarship) withholds tax
such as interest (other than portfolio interest),
year compensation, the statement must list at 14% (or lower treaty rate) of the taxable part
dividends, pensions and annuities, and gains
all the dates you entered and left the Uni- of the grant or scholarship that is not a payment
from certain sales and exchanges, discussed in
for services. However, if you are not a
candidate for a degree and the grant does not

Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 41


meet certain requirements, tax will be withheld you should notify the payor of the income (the to 10% of the amount realized on the disposi-
at the 30% (or lower treaty) rate. withholding agent) of your foreign status to tion.
claim a tax treaty withholding exemption. Gen-
Any part of a scholarship or fellowship grant For dispositions of a U.S. real property inter-
erally, you do this by filing either Form W-8BEN
that is a payment for services is subject to grad- est after February 16, 2016, the rate of with-
or Form 8233 with the withholding agent.
uated withholding as discussed earlier under holding has generally increased to 15%. How-
Withholding on Wages. File Form W-8BEN for income that is not ever, if the property is acquired after February
personal services income. File Form 8233 for 16, 2016, by the buyer for use as a residence
Alternate Withholding Procedure personal services income as discussed next. and the amount realized does not exceed
$1,000,000, the rate of withholding remains at
Your withholding agent may choose to use an Employees and independent contractors. If 10%.
alternate procedure by asking you to fill out you perform personal services as an employee
Form W-4. See below for items that may reduce or as an independent contractor and you can The amount realized is the sum of:
your withholding. claim an exemption from withholding on that The cash paid, or to be paid (principal
personal service income because of a tax only),
Expenses. Include expenses that will be de- treaty, give Form 8233 to each withholding The fair market value of other property
ductible on your return. These include the IRA agent from whom amounts will be received. transferred, or to be transferred, and
deduction discussed under Deductions in chap- Even if you submit Form 8233, the withhold- The amount of any liability assumed by the
ter 5. ing agent may have to withhold tax from your in- transferee or to which the property is sub-
come. This is because the factors on which the ject immediately before and after the trans-
Nontaxable grant or scholarship. You can treaty exemption is based may not be determi- fer.
exclude the part of your grant or scholarship nable until after the close of the tax year. In this
that is not taxable under U.S. law or under a tax case, you must file Form 1040NR (or Form If the property transferred was owned jointly
treaty. 1040NR-EZ if you qualify) to recover any over- by U.S. and foreign persons, the amount real-
withheld tax and to provide the IRS with proof ized is allocated between the transferors based
Standard deduction. If you are a student who that you are entitled to the treaty exemption. on the capital contribution of each transferor.
qualifies under Article 21(2) of the United
Students, teachers, and researchers. A distribution by a qualified investment entity
States–India Income Tax Treaty, you can take
Students, teachers, and researchers must at- to a nonresident alien shareholder that is trea-
the standard deduction. The standard deduc-
tach the appropriate statement shown in Ap- ted as gain from the sale or exchange of a U.S.
tion amount for 2018 is $12,000.
pendix A (for students) or Appendix B (for real property interest by the shareholder is sub-
teachers and researchers) at the end of this ject to withholding at 35% (21% for dispositions
Form W-4. Complete the appropriate lines of
publication to the Form 8233 and give it to the in tax years beginning in 2018). Withholding is
Form W-4. Sign and date the form and give it to
withholding agent. For treaties not listed in the also required on certain distributions and other
your withholding agent.
appendices, attach a statement in a format sim- transactions by domestic or foreign corpora-
If you file a Form W-4 to reduce or eliminate
ilar to those for other treaties. tions, partnerships, trusts, and estates. These
the withholding on your scholarship or grant,
If you received a scholarship or fellowship rules are covered in Pub. 515.
you must file an annual U.S. income tax return
to be allowed any deductions you claimed on and personal services income from the same
For information on the tax treatment of dis-
that form. If you are in the United States during withholding agent, use Form 8233 to claim an
positions of U.S. real property interests, see
more than one tax year, you must attach a exemption from withholding based on a tax
Real Property Gain or Loss in chapter 4.
statement to your yearly Form W-4 indicating treaty for both types of income.
that you have filed a U.S. income tax return for If you are a partner in a domestic partner-
the previous year. If you have not been in the Special events and promotions. Withholding ship, and the partnership disposes of a U.S.
United States long enough to be required to file at the full 30% rate is required for payments real property interest at a gain, the partnership
a return, you must attach a statement to your made to a nonresident alien or foreign corpora- will withhold tax on the amount of gain allocable
Form W-4 saying you will file a U.S. income tax tion for gate receipts (or television or other re- to its foreign partners. Your share of the income
return when required. ceipts) from rock music festivals, boxing promo- and tax withheld will be reported to you on Form
tions, and other entertainment or sporting 8805, or Form 1042-S (in the case of a publicly
After the withholding agent has accepted events, unless the withholding agent has been traded partnership).
your Form W-4, tax will be withheld on your specifically advised otherwise by letter from the
scholarship or grant at the graduated rates that IRS. Form 13930 is used to request a reduction Withholding is not required in the following
apply to wages. The gross amount of the in- in withholding. Withholding may be required situations.
come is reduced by the applicable amount(s) even if the income may be exempt from taxation
by provisions of a tax treaty. One reason for this 1. The property is acquired by the buyer for
on Form W-4, and the withholding tax is figured use as a residence and the amount real-
on the remainder. is that the partial or complete exemption is usu-
ally based on factors that cannot be determined ized is not more than $300,000.
You will receive a Form 1042-S from the until after the close of the tax year. 2. The property disposed of is an interest in a
withholding agent (usually the payer of your You will be required to pay U.S. tax, at domestic corporation if any class of stock
grant) showing the gross amount of your taxa- the time of your departure from the Uni- of the corporation is regularly traded on an
ble scholarship or fellowship grant less any !
CAUTION ted States, on any income for which
established securities market. However,
withholding allowance amount, the tax rate, and you incorrectly claimed a treaty exemption. For this exception does not apply to certain
the amount of tax withheld. Use this form to pre- more details on treaty provisions that apply to dispositions of substantial amounts of
pare your annual U.S. income tax return. compensation, see Pub. 901. nonpublicly traded interests in publicly tra-
ded corporations.
For more information, see the Form W-4
3. The property disposed of is an interest in a
(2018).
Tax Withheld on U.S. corporation that is not regularly tra-
ded on an established market and you
Income Entitled to Real Property Sales (the seller) give the buyer a copy of a
statement issued by the corporation certi-
Tax Treaty Benefits If you are a nonresident alien and you disposed fying that the interest is not a U.S. real
property interest.
of a U.S. real property interest before February
If a tax treaty between the United States and 17, 2016, the transferee (buyer) of the property 4. You (the seller) give the buyer a certifica-
your country provides an exemption from, or a generally was required to withhold a tax equal tion stating, under penalties of perjury, that
reduced rate of, tax for certain items of income, you are not a foreign person, and

Page 42 Chapter 8 Paying Tax Through Withholding or Estimated Tax


containing your name, U.S. taxpayer iden- Withholding certificates. The tax required to If any one employer deducted more than
tification number, and home address. be withheld on a disposition can be reduced or $7,886.40, you cannot claim a credit for that
You can give the certification to a quali- eliminated under a withholding certificate is- amount. Ask your employer to refund the ex-
fied substitute. The qualified substitute sued by the IRS. In most cases, either you or cess. If your employer does not refund the ex-
gives the buyer a statement, under penal- the buyer can request a withholding certificate. cess, you can file a claim for refund using Form
ties of perjury, that the certification is in the A withholding certificate can be issued due 843.
possession of the qualified substitute. For to any of the following.
this purpose, a qualified substitute is (a) In general, U.S. social security and Medi-
1. The IRS determines that reduced with- care taxes apply to payments of wages for serv-
the person (including any attorney or title
holding is appropriate because either: ices performed as an employee in the United
company) responsible for closing the
transaction, other than your agent, and (b) a. The amount required to be withheld States, regardless of the citizenship or resi-
the buyer's agent. would exceed your maximum tax lia- dence of either the employee or the employer.
bility, or In limited situations, these taxes apply to wages
5. The buyer receives a withholding certifi- for services performed outside the United
cate from the IRS. b. Withholding of the reduced amount States. Your employer should be able to tell you
would not jeopardize collection of the if social security and Medicare taxes apply to
6. You give the buyer written notice that you
tax. your wages. You cannot make voluntary pay-
are not required to recognize any gain or
loss on the transfer because of a nonre- 2. All of your realized gain is exempt from ments if no taxes are due.
cognition provision in the Internal Revenue U.S. tax and you have no unsatisfied with-
Code or a provision in a U.S. tax treaty. holding liability. Additional Medicare Tax. In addition to the
The buyer must file a copy of the notice Medicare tax, a 0.9% (0.009) Additional Medi-
3. You or the buyer enters into an agreement care Tax applies to Medicare wages, Railroad
with the Ogden Service Center, P.O. Box with the IRS for the payment of tax and
409101, Ogden, UT 84409. You must ver- Retirement Tax Act (RRTA) compensation, and
provide security for the tax liability. self-employment income that are more than:
ify the notice as true and sign it under pen-
alties of perjury. The notice must contain See Pub. 515 and Form 8288-B for informa- $250,000 if married filing jointly,
the following information. tion on procedures to request a withholding cer- $125,000 if married filing separately, or
tificate. $200,000 for any other filing status.
a. A statement that the notice is a notice
of nonrecognition under Regulations There are no special rules for nonresident
Credit for tax withheld. The buyer must re- aliens for purposes of Additional Medicare Tax.
section 1.1445-2(d)(2).
port and pay over the withheld tax within 20 Wages, RRTA compensation, and self-employ-
b. Your name, taxpayer identification days after the transfer using Form 8288. This ment income that are subject to Medicare tax
number, and home address. form is filed with the IRS with copies A and B of will also be subject to Additional Medicare Tax if
Form 8288-A. Copy B of this statement will be in excess of the applicable threshold.
c. A statement that you are not required
stamped received by the IRS and returned to Your employer is responsible for withholding
to recognize any gain or loss on the
you (the seller) if the statement is complete and the 0.9% (0.009) Additional Medicare Tax on
transfer.
includes your taxpayer identification number Medicare wages or RRTA compensation it pays
d. A brief description of the transfer. (TIN). You must file Copy B with your tax return to you in excess of $200,000 in the calendar
to take credit for the tax withheld. year. If you intend to file a joint return and you
e. A brief summary of the law and facts
A stamped copy of Form 8288-A will not be anticipate that you and your spouse's individual
supporting your claim that recognition
provided to you if your TIN is not included on wages are not going to be more than $200,000
of gain or loss is not required.
that form. The IRS will send you a letter re- but your combined wages and self-employment
You may not give the buyer a written questing the TIN and provide instructions for income are going to be more than $250,000,
notice for any of the following transfers: how to get a TIN. When you provide the IRS you may want to request additional withholding
the sale of your main home on which you with a TIN, the IRS will provide you with a stam- on Form W-4 and/or make estimated tax pay-
exclude gain, a like-kind exchange that ped Copy B of Form 8288-A. ments.
does not qualify for nonrecognition treat- If you file Form 1040NR, you must pay Addi-
ment in its entirety, or a deferred like-kind tional Medicare Tax if the total of your wages
exchange that has not been completed at Social Security and and your self-employment income was more
the time the buyer must file Form 8288. In-
stead, a withholding certificate (described Medicare Taxes than $125,000 if married (Box 3, 4, or 5 on
page 1 of Form 1040NR), or $200,000 if single
next) must be obtained. or qualifying widow(er) (Box 1, 2, or 6 on page 1
If you work as an employee in the United of Form 1040NR).
7. The amount you realize on the transfer of States, you must pay social security and Medi-
a U.S. real property interest is zero. See Form 8959 and its separate instructions
care taxes in most cases. Your payments of to determine whether you are required to pay
8. The property is acquired by the United these taxes contribute to your coverage under Additional Medicare Tax. For more information
States, a U.S. state or possession, a politi- the U.S. social security system. Social security on Additional Medicare Tax, go to IRS.gov and
cal subdivision, or the District of Columbia. coverage provides retirement benefits, survi- enter “Additional Medicare Tax” in the search
vors and disability benefits, and medical insur- box.
9. The distribution is from a domestically ance (Medicare) benefits to individuals who
controlled qualified investment entity (QIE) Self-employed individuals may also be re-
meet certain eligibility requirements.
and is treated as a distribution of a U.S. quired to pay Additional Medicare Tax. See
real property interest only because an in- In most cases, the first $127,200 of taxable Self-Employment Tax, later.
terest in the entity was disposed of in an wages received in 2017 for services performed
in the United States is subject to social security
applicable wash sale transaction. For the
tax. All taxable wages are subject to Medicare Students and
definition of a QIE, see Qualified invest-
ment entities under Real Property Gain or tax. Your employer deducts these taxes from Exchange Visitors
Loss, earlier. See Wash sale under Real each wage payment. Your employer must de-
Property Gain or Loss in chapter 4. duct these taxes even if you do not expect to Generally, services performed by you as a non-
qualify for social security or Medicare benefits. resident alien temporarily in the United States
The certifications in (3) and (4) must be dis- You can claim a credit for excess social security as a nonimmigrant under subparagraph (F), (J),
regarded by the buyer if the buyer or qualified tax on your income tax return if you have more (M), or (Q) of section 101(a)(15) of the Immigra-
substitute has actual knowledge, or receives than one employer and the amount deducted tion and Nationality Act are not covered under
notice from a seller's or buyer's agent (or substi- from your combined wages for 2017 is more the social security program if the services are
tute), that they are false. This also applies to the than $7,886.40. Use the appropriate worksheet performed to carry out the purpose for which
qualified substitute's statement under (4). in chapter 3 of Pub. 505 to figure your credit. you were admitted to the United States. This

Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 43


means that there will be no withholding of social If services performed by an exchange visitor the prior year in which the wages or compensa-
security or Medicare taxes from the pay you re- are not considered as performed to carry out tion were originally received to recover the Ad-
ceive for these services. These types of serv- the purpose for which the visitor was admitted ditional Medicare Tax withheld in error. See the
ices are very limited, and generally include only to the United States, social security and Medi- Instructions for Form 1040X.
on-campus work, practical training, and eco- care taxes are withheld from pay for the serv-
nomic hardship employment. ices unless the pay is exempt under the Internal
Revenue Code. Agricultural Workers
Social security and Medicare taxes will be
withheld from your pay for these services if you Nonresident aliens temporarily admitted to Agricultural workers temporarily admitted into
are considered a resident alien as discussed in the United States as participants in international the United States on H-2A visas are exempt
chapter 1, even though your nonimmigrant clas- cultural exchange programs under section from social security and Medicare taxes on
sification (“F,” “J,” “M,” or “Q”) remains the 101(a)(15)(Q) of the Immigration and National- compensation paid to them for services per-
same. ity Act may be exempt from social security and formed in connection with the H-2A visa. You
Medicare taxes. The employer must be the peti- can find more information about not having tax
Services performed by a spouse or minor tioner through whom the alien obtained the “Q” withheld at IRS.gov/Individuals/International-
child of nonimmigrant aliens with the classifica- visa. Social security and Medicare taxes are not Taxpayers/Foreign-Agricultural-Workers.
tion of “F-2,” “J-2,” “M-2,” and “Q-3” are covered withheld from pay for this work unless the alien
under social security. is considered a resident alien.
Self-Employment Tax
Nonresident Alien Students Refund of Taxes Withheld in Error
Self-employment tax is the social security and
If you are a nonresident alien temporarily admit- If social security or Medicare taxes were with- Medicare taxes for individuals who are self-em-
ted to the United States as a student, you gen- held in error from pay that is not subject to ployed. Nonresident aliens are not subject to
erally are not permitted to work for a wage or these taxes, contact the employer who withheld self-employment tax unless an international so-
salary or to engage in business while you are in the taxes for a refund. If you are unable to get a cial security agreement in effect determines that
the United States. In some cases, a student ad- full refund of the amount from your employer, they are covered under the U.S. social security
mitted to the United States in “F-1,” “M-1,” or file a claim for refund with the IRS on Form 843. system. Residents of the U.S. Virgin Islands,
“J-1” status is granted permission to work. So- Attach the following items to Form 843. Puerto Rico, Guam, the Commonwealth of the
cial security and Medicare taxes are not with- A copy of your Form W-2 to prove the Northern Mariana Islands, or American Samoa
held from pay for the work unless the student is amount of social security and Medicare are considered U.S. residents for this purpose
considered a resident alien. taxes withheld. and are subject to the self-employment tax.
A copy of your visa.
Any student who is enrolled and regu- Resident aliens must pay self-employment
Form I-94 (or other documentation show-
TIP larly attending classes at a school may ing your dates of arrival or departure).
tax under the same rules that apply to U.S. citi-
be exempt from social security and zens. However, a resident alien employed by
If you have an F-1 or J-1 visa, documenta-
Medicare taxes on pay for services performed an international organization, a foreign govern-
tion showing permission to work in the Uni-
for that school. ment, or a wholly-owned instrumentality of a for-
ted States.
eign government is not subject to the self-em-
If you are engaged in optional practical
ployment tax on income earned in the United
The U.S. Citizenship and Immigration Serv- training or employment due to severe eco-
States.
ices (USCIS) permits on-campus work for stu- nomic necessity, documentation showing
dents in “F-1” status if it does not displace a permission to work in the United States. Self-employment income you receive while
U.S. resident. On-campus work means work A statement from your employer indicating you are a resident alien is subject to self-em-
performed on the school's premises. On-cam- the amount of the reimbursement your em- ployment tax even if it was paid for services you
pus work includes work performed at an ployer provided and the amount of the performed as a nonresident alien.
off-campus location that is educationally affili- credit or refund your employer claimed or
ated with the school. On-campus work under you authorized your employer to claim. If Example. Bill Jones is an author. Bill had
the terms of a scholarship, fellowship, or assis- you cannot obtain this statement from your several books published in a foreign country
tantship is considered part of the academic pro- employer, you must provide this informa- while he was a citizen and resident of that coun-
gram of a student taking a full course of study tion on your own statement and explain try. During 2017, Bill entered the United States
and is permitted by the USCIS. Social security why you are not attaching a statement from as a resident alien. After becoming a U.S. resi-
and Medicare taxes are not withheld from pay your employer or on Form 8316 claiming dent, he continued to receive royalties from his
for this work unless the student is considered a your employer will not issue the refund. foreign publisher. Bill reports his income and
resident alien. If you were exempt from social security expenses on the cash basis (he reports income
and Medicare tax for only part of the year, on his tax return when received and deducts
pay statements showing the tax paid dur- expenses when paid). Bill's 2017 self-employ-
If services performed by a nonresident alien
ing the period you were exempt. ment income includes the royalties received af-
student are not considered as performed to
carry out the purpose for which the student was ter he became a U.S. resident even though the
File Form 843 (with attachments) with the books were published while he was a nonresi-
admitted to the United States, social security
Department of the Treasury, Internal Revenue dent alien. This royalty income is subject to
and Medicare taxes will be withheld from pay
Service Center, Ogden, UT 84201-0038. self-employment tax.
for the services unless the pay is exempt under
the Internal Revenue Code. Do not use Form 843 to request a re-
fund of Additional Medicare Tax. If Ad- Reporting self-employment tax. Use Sched-
!
CAUTION ditional Medicare Tax was withheld ule SE (Form 1040) to report and figure your
Exchange Visitors self-employment tax. Then enter the tax on
from your pay in error, you can claim a credit for
any withheld Additional Medicare Tax against Form 1040, line 57, or Form 1040NR, line 55.
Exchange visitors are temporarily admitted to
the total tax liability shown on your tax return by Attach Schedule SE to Form 1040 or Form
the United States under section 101(a)(15)(J) of
filing Form 8959 with Form 1040 or 1040NR. If 1040NR.
the Immigration and Nationality Act. Social se-
curity and Medicare taxes are not withheld on Additional Medicare Tax was withheld in error in
a prior year for which you already filed Form Additional Medicare Tax. Self-employed in-
pay for services of an exchange visitor who has
1040 or 1040NR, you must file Form 1040X for dividuals must pay a 0.9% (0.009) Additional
been given permission to work and who pos-
Medicare Tax on self-employment income that
sesses or obtains a letter of authorization from
exceeds one of the following threshold amounts
the sponsor unless the exchange visitor is con-
(based on your filing status).
sidered a resident alien.
Married filing jointly — $250,000,

Page 44 Chapter 8 Paying Tax Through Withholding or Estimated Tax


Married filing separately — $125,000, or To establish that your pay is subject only to estimate you will owe at the end of the year. If
Single, Head of household, or Qualifying foreign social security taxes and is exempt from so, you may have to pay estimated tax.
widow(er) — $200,000. U.S. social security taxes (including the Medi-
care tax) under an agreement, you or your em- Generally, you must make estimated tax
If you have both wages and self-employ- payments for 2018 if you expect to owe at least
ployer should request a certificate of coverage
ment income, the threshold amount for applying $1,000 in tax and you expect your withholding
from the appropriate agency of the foreign
the Additional Medicare Tax on the self-employ- and certain refundable credits to be less than
country. This will usually be the same agency to
ment income is reduced (but not below zero) by the smaller of:
which you or your employer pays your foreign
the amount of wages subject to Additional Med-
social security taxes. The foreign agency will be 1. 90% of the tax to be shown on your 2018
icare Tax. A self-employment loss should not
able to tell you what information is needed for income tax return, or
be considered for purposes of this tax.
them to issue the certificate. Your employer
If you file Form 1040NR, you must pay Addi- 2. 100% of the tax shown on your 2017 in-
should keep a copy of the certificate because it
tional Medicare Tax if the total of your wages come tax return (if your 2017 return cov-
may be needed to show why you are exempt
and your self-employment income was more ered all 12 months of the year).
from U.S. social security taxes. Only wages
than $125,000 if married (Box 3, 4, or 5 on
paid on or after the effective date of the agree- If your adjusted gross income for 2017 was
page 1 of Form 1040NR), or $200,000 if single
ment can be exempt from U.S. social security more than $150,000 ($75,000 if your filing sta-
or qualifying widow(er) (Box 1, 2, or 6 on page 1
taxes. tus for 2018 is married filing separately), substi-
of Form 1040NR).
See Form 8959 and its separate instructions Some of the countries with which the tute 110% for 100% in (2) above if you are not a
to determine whether you are required to pay United States has agreements will not farmer or fisherman. Item (2) does not apply if
Additional Medicare Tax. For more information issue certificates of coverage. In this you did not file a 2017 return.
on Additional Medicare Tax, go to IRS.gov and case, either you or your employer should re-
quest a statement that your wages are not cov- A nonresident alien should use Form
enter “Additional Medicare Tax” in the search
ered by the U.S. social security system. Re- 1040-ES (NR) to figure and pay estimated tax.
box.
quest the statement from the following address. If you pay by check, make it payable to the "Uni-
Deduction for employer-equivalent portion ted States Treasury."
of self-employment tax. If you must pay U.S. Social Security Administration
Office of International Programs How to estimate your tax for 2018. If you
self-employment tax, you can deduct a portion
P.O. Box 17741 filed a 2017 return on Form 1040NR or Form
of the self-employment tax paid in figuring your
Baltimore, MD 21235-7741 1040NR-EZ, you can use the Form 1040-ES
adjusted gross income. This deduction is fig-
(NR) to figure your estimated tax liability for
ured on Schedule SE (Form 1040).
2018.
Note. No portion of the Additional Medicare
Self-employed individuals. Under most Note. If you expect to be a resident of Pu-
Tax is deductible for self-employment tax.
agreements, self-employed individuals are cov- erto Rico during the entire year, use Form
More information. See Pub. 334 for more in- ered by the social security system of the coun- 1040-ES or Formulario 1040-ES (PR).
formation about self-employment tax. try where they reside. However, under some
agreements, you may be exempt from U.S. When to pay estimated tax. Make your first
self-employment tax if you temporarily transfer estimated tax payment by the due date for filing
International Social your business activity to or from the United the previous year's Form 1040NR or Form
Security Agreements States. 1040NR-EZ. If you have wages subject to the
If you believe that your self-employment in- same withholding rules that apply to U.S. citi-
The United States has entered into social se- come is subject only to U.S. self-employment zens, you must file Form 1040NR or Form
curity agreements with foreign countries to co- tax and is exempt from foreign social security 1040NR-EZ and make your first estimated tax
ordinate social security coverage and taxation taxes, request a certificate of coverage from the payment by April 17, 2018. If you do not have
of workers employed for part or all of their work- U.S. Social Security Administration online at wages subject to withholding, file your income
ing careers in one of the countries. These SSA.gov/CoC or by writing to the address given tax return and make your first estimated tax
agreements are commonly referred to as totali- earlier. This certificate will establish your ex- payment by June 15, 2018.
zation agreements. Under these agreements, emption from foreign social security taxes. For If your first estimated tax payment is due
dual coverage and dual contributions (taxes) for more information about requesting a certificate April 17, 2018, you can pay your estimated tax
the same work are eliminated. The agreements of coverage, go to SSA.gov/International/ in full at that time or in four equal installments by
generally make sure that social security taxes CoC_link.html. the dates shown next.
(including self-employment tax) are paid only to To establish that your self-employment in-
one country. come is subject only to foreign social security 1st installment . . . . . . . . . . . . . April 17, 2018
taxes and is exempt from U.S. self-employment 2nd installment . . . . . . . . . . . . June 15, 2018
For a list of current international social se-
tax, request a certificate of coverage from the 3rd installment . . . . . . . . . . . . . Sept. 17, 2018
curity agreements, go to SSA.gov/International/ 4th installment . . . . . . . . . . . . Jan. 15, 2019
appropriate agency of the foreign country. If the
Status.html. As agreements with additional
foreign country will not issue the certificate, you
countries enter into force, they will be posted on If your first payment is not due until June 15,
should request a statement that your income is
this website. For more information on interna- 2018, you can pay your estimated tax in full at
not covered by the U.S. social security system.
tional social security agreements, go to that time or:
Request it from the U.S. Social Security Admin-
SSA.gov/International/
istration at the address given earlier. Attach a 1. 12
of your estimated tax by June 15, 2018,
Totalization_Agreements.html.
photocopy of either statement to Form 1040
each year you are exempt. Also print “Exempt, 2. 14
of the tax by September 17, 2018, and
Employees. Generally, under these agree-
see attached statement” on the line for self-em- 3.
ments, you are subject to social security taxes 14
by January 15, 2019.
ployment tax.
only in the country where you are working.
You do not have to make the payment
However, if you are temporarily sent to work for
TIP due January 15, 2019, if you file your
the same employer in the United States and
your pay would normally be subject to social se- Estimated Tax 2018 Form 1040NR or 1040NR-EZ by
January 31, 2019, and pay the entire balance
curity taxes in both countries, most agreements
provide that you remain covered only by the so-
Form 1040-ES (NR) due with your return.
cial security system of the country from which
You may have income from which no U.S. in- Fiscal year. If your return is not on a calen-
you were sent.
come tax is withheld. Or the amount of tax with- dar year basis, your due dates are the 15th day
held may be less than the income tax you of the 4th, 6th, and 9th months of your fiscal

Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 45


year, and the 1st month of the following fiscal Topics His tax liability, figured as though the tax
year. If any date falls on a Saturday, Sunday, or This chapter discusses: treaty had not come into effect, is $3,025 deter-
legal holiday, use the next day that is not a Sat- mined as follows.
urday, Sunday, or legal holiday. Typical tax treaty benefits,
How to obtain copies of tax treaties, and Total compensation . . . . . . . . . . . . . . . . . . $24,500
Changes in income, deductions, or exemp- How to claim tax treaty benefits on your tax
tions. Even if you are not required to make an return. Less: Personal exemption . . . . . . . . . . . . . 4,050
estimated tax payment in April or June, your cir-
cumstances may change so that you will have
to make estimated tax payments later. This can Useful Items Taxable income . . . . . . . . . . . . . . $20,450

happen if you receive additional income or if You may want to see:


Tax determined by graduated rate (Tax Table
any of your deductions are reduced or elimina- column for single taxpayers) . . . . . . . . . . . . $2,605
ted. If so, see the Instructions for Form 1040-ES Publication
(NR) and Pub. 505 for information on figuring 901 U.S. Tax Treaties Plus: Tax on gross dividends ($1,400 ×
your estimated tax. 30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

Form (and Instructions)


Amended estimated tax. If, after you have Tax determined as though treaty had not
1040NR U.S. Nonresident Alien Income come into effect . . . . . . . . . . . . . . $3,025
made estimated tax payments, you find your
estimated tax is substantially increased or de- Tax Return
creased because of a change in your income or Arthur's tax liability, figured by taking into ac-
1040NR-EZ U.S. Income Tax Return for
exemptions, you should adjust your remaining count the reduced rate on dividend income as
Certain Nonresident Aliens With No
estimated tax payments. To do this, see the In- provided by the tax treaty, is $2,815 determined
Dependents
structions for Form 1040-ES (NR) and Pub. as follows.
8833 Treaty-Based Return Position
505.
Disclosure Under Section 6114 or Tax determined by graduated rate (same as
Penalty for failure to pay estimated income 7701(b) figured above) . . . . . . . . . . . . . . . . . . . . . $2,605

tax. You will be subject to a penalty for under- See chapter 12 for information about getting
Plus: Tax on gross dividends ($1,400 ×
payment of installments of estimated tax except these publications and forms. 210
15%) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in certain situations. These situations are ex-
plained on Form 2210. Tax on compensation and dividends $2,815
Treaty Income
. . .

His tax liability, therefore, is limited to


A nonresident alien's treaty income is the gross $2,815, the tax liability figured using the tax
income on which the tax is limited by a tax treaty rate on the dividends.
treaty. Treaty income includes, for example,

9. dividends from sources in the United States that


are subject to tax at a tax treaty rate not to ex- Some Typical Tax
ceed 15%. Nontreaty income is the gross in-
come of a nonresident alien on which the tax is Treaty Benefits
Tax Treaty not limited by a tax treaty.
Figure the tax on treaty income on each
The following paragraphs briefly explain the ex-
emptions that are available under tax treaties
Benefits separate item of income at the reduced rate that
applies to that item under the treaty.
for personal services income, remittances,
scholarships, fellowships, and capital gain in-
To determine tax on nontreaty income, fig- come. The conditions for claiming the exemp-
ure the tax at either the flat 30% rate or the tions vary under each tax treaty. For more infor-
Introduction graduated rate, depending upon whether or not mation about the conditions under a particular
the income is effectively connected with your tax treaty, see Pub. 901. Or, you can download
A nonresident alien (and certain resident aliens) the complete text of most U.S. tax treaties at
trade or business in the United States.
from a country with which the United States has IRS.gov/Businesses/International-Businesses/
an income tax treaty may qualify for certain ben- Your tax liability is the sum of the tax on United-States-Income-Tax-Treaties-A-to-Z.
efits. Most treaties require that the nonresident treaty income plus the tax on nontreaty income, Technical explanations for many of those trea-
alien be a resident of the treaty country to qual- but cannot be more than the tax liability figured ties are also available at that site.
ify. However, some treaties require that the as if the tax treaty had not come into effect.
nonresident alien be a national or a citizen of Tax treaty benefits also cover income such
the treaty country. Example. Arthur Banks is a nonresident as dividends, interest, rentals, royalties, pen-
alien who is single and a resident of a foreign sions, and annuities. These types of income
Tax treaties. The tax treaty table previously lo- country that has a tax treaty with the United may be exempt from U.S. tax or may be subject
cated at the end of chapter 9 has been updated States. He received gross income of $25,900 to a reduced rate of tax. For more information,
and moved. It is now Table 3 at IRS.gov/ during the tax year from sources within the Uni- see Pub. 901 or the applicable tax treaty.
Individuals/International-Taxpayers/Tax-Treaty- ted States, consisting of the following items.
Tables. For more information about tax treaties, go
The full text of individual tax treaties is avail- Dividends on which the tax is limited to a 15% to IRS.gov/Individuals/International-Taxpayers/
able at IRS.gov/Businesses/International- rate by the tax treaty . . . . . . . . . . . . . . . . . $1,400 Tax-Treaties.
Businesses/United-States-Income-Tax-
Treaties-A-to-Z. For more information about tax Compensation for personal services on which
the tax is not limited by the tax treaty . . . . . . 24,500 Personal Services
treaties, go to IRS.gov/Individuals/International-
Taxpayers/Tax-Treaties.
Total gross income . . . . . . . . . . . . . $25,900 Nonresident aliens from treaty countries who
You can generally arrange to have withhold-
are in the United States for a short stay and also
ing tax reduced or eliminated on wages and
Arthur was engaged in business in the Uni- meet certain other requirements may be ex-
other income that are eligible for tax treaty ben-
ted States during the tax year. His dividends are empt from tax on their compensation received
efits. See Income Entitled to Tax Treaty Bene-
not effectively connected with that business. He for personal services performed in the United
fits in chapter 8.
has no deductions other than his own personal States. Many tax treaties require that the non-
exemption. resident alien claiming this exemption be

Page 46 Chapter 9 Tax Treaty Benefits


present in the United States for a total of not Students, Apprentices, to line 63, write “Tax from attached statement”
more than 183 days during the tax year. Other and the amount of the tax.
tax treaties specify different periods of maxi-
and Trainees
mum presence in the United States, such as Example. Jacques Dubois, who is a resi-
Under some income tax treaties, students, ap-
180 days or 90 days. Spending part of a day in dent of the United States under Article 4 of the
prentices, and trainees are exempt from tax on
the United States counts as a day of presence. U.S.–France income tax treaty, receives French
remittances received from abroad for study and
social security benefits. Under Article 18(1) of
Tax treaties may also require that: maintenance. Also, under some treaties, schol-
the treaty, French social security benefits are
The compensation cannot be more than a arship and fellowship grants, and a limited
not taxable by the United States. Mr. Dubois is
specific amount (frequently $3,000), and amount of compensation received by students,
not required to file a Form 8833 for his French
The individual has a foreign employer; that apprentices, and trainees may be exempt from
social security benefits or report the benefits on
is, an individual, corporation, or entity of a tax.
Form 1040.
foreign country.
If you entered the United States as a non-
Note. Under most treaties, income received resident alien, but are now a resident alien, the Special Rule for Canadian and
as an employee (generally designated as de- treaty exemption may still apply. See Students, German Social Security Benefits
Apprentices, Trainees, Teachers, Professors,
pendent personal services) and income re-
and Researchers Who Became Resident Ali- Under income tax treaties with Canada and
ceived as a self-employed person (generally
ens, later under Resident Aliens. Germany, if a U.S. resident receives social se-
designated as independent personal services
or business income) are treated differently. curity benefits from Canada or Germany, those
Capital Gains benefits are treated for U.S. income tax purpo-
ses as if they were received under the social
Teachers, Professors, Most treaties provide for the exemption of gains security legislation of the United States. If you
and Researchers from the sale or exchange of personal property. receive social security benefits from Canada or
Generally, gains from the sale or exchange of Germany, include them on line 1 of your Social
Under many income tax treaties, nonresident real property located in the United States are Security Benefits Worksheet for purposes of
alien teachers or professors who temporarily taxable. determining the taxable amount to be reported
visit the United States for the primary purpose on Form 1040, line 20b, or Form 1040A,
of teaching at a university or other accredited line 14b. You are not required to file a Form
educational institution are not subject to U.S. in- Resident Aliens 8833 for those benefits.
come tax on compensation received for teach-
ing for the first 2 or 3 years after their arrival in Resident aliens may qualify for tax treaty bene-
Students, Apprentices, Trainees,
the United States. Many treaties also provide fits in the situations discussed below.
Teachers, Professors, and
an exemption for engaging in research. Researchers Who Became
Generally, the teacher or professor must be
U.S. Residency Under Tax Resident Aliens
in the United States primarily to teach, lecture, Treaty “Tie-Breaker” Rule
instruct, or engage in research. A substantial Generally, you must be a nonresident alien stu-
In certain circumstances, individuals who are dent, apprentice, trainee, teacher, professor, or
part of that person's time must be devoted to
treated as residents of the United States under researcher in order to claim a tax treaty exemp-
those duties. The normal duties of a teacher or
an income tax treaty (after application of the tion for remittances from abroad for study and
professor include not only formal classroom
so-called “tie-breaker” rule) will be entitled to maintenance in the United States, for scholar-
work involving regularly scheduled lectures,
treaty benefits. (The “tie-breaker” rule is ex- ship, fellowship, and research grants, and for
demonstrations, or other student-participation
plained in chapter 1 under Effect of Tax Trea- wages or other personal service compensation.
activities, but also the less formal method of
ties.) If this applies to you, you generally will not Once you become a resident alien, you gener-
presenting ideas in seminars or other informal
need to file a Form 8833 for the income for ally can no longer claim a tax treaty exemption
groups and in joint efforts in the laboratory.
which treaty benefits are claimed. This is be- for this income.
If you entered the United States as a non- cause the income will typically be of a category
resident alien, but are now a resident alien, the for which disclosure on a Form 8833 is waived.
However, if you entered the United States
treaty exemption may still apply. See Students, See Reporting Treaty Benefits Claimed.
as a nonresident alien, but you are now a resi-
Apprentices, Trainees, Teachers, Professors, dent alien for U.S. tax purposes, the treaty ex-
and Researchers Who Became Resident Ali- In most cases, you also will not need to re-
emption will continue to apply if the tax treaty's
ens, later, under Resident Aliens. port the income on your Form 1040 because
saving clause (explained later) provides an ex-
the income will be exempt from U.S. tax under
ception for it and you otherwise meet the re-
the treaty. However, if the income has been re-
Employees of ported as taxable income on a Form W-2, Form
quirements for the treaty exemption (including
Foreign Governments 1042-S, Form 1099, or other information return,
any time limit, explained later). This is true even
if you are a nonresident alien electing to file a
you should report it on the appropriate line of
All treaties have provisions for the exemption of joint return as explained in chapter 1.
Form 1040 (for example, line 7 in the case of
income earned by certain employees of foreign wages or salaries). Enter the amount for which
governments. However, a difference exists treaty benefits are claimed in parentheses on Some exceptions to the saving clause apply
among treaties as to who qualifies for this bene- Form 1040, line 21. Next to the amount write to all resident aliens (for example, under the
fit. Under many treaties, aliens admitted to the “Exempt income,” the name of the treaty coun- U.S.–People's Republic of China treaty); others
United States for permanent residence do not try, and the treaty article that provides the ex- apply only to resident aliens who are not lawful
qualify. Under most treaties, aliens who are not emption. On Form 1040, subtract this amount permanent residents of the United States
nationals or subjects of the foreign country do from your income to arrive at total income on (green card holders).
not qualify. Employees of foreign governments Form 1040, line 22.
should read the pertinent treaty carefully to de- If you qualify under an exception to the trea-
termine whether they qualify for benefits. Chap- Also follow the above procedure for income ty's saving clause, you can avoid income tax
ter 10 of this publication also has information for that is subject to a reduced rate of tax, instead withholding by giving the payor a Form W-9 with
employees of foreign governments. of an exemption, under the treaty. Attach a the statement required by the Form W-9 instruc-
statement to Form 1040 showing a computation tions.
of the tax at the reduced rate, the name of the
treaty country, and the treaty article that pro- Saving clause. Most tax treaties have a sav-
vides for the reduced tax rate. Include this tax ing clause. A saving clause preserves or
on Form 1040, line 63. On the dotted line next “saves” the right of each country to tax its own

Chapter 9 Tax Treaty Benefits Page 47


residents as if no tax treaty were in effect. Thus, You claim a credit for a specific foreign tax Additional information. For additional infor-
once you become a resident alien of the United for which foreign tax credit would not be al- mation, see section 301.6114-1(c) of the In-
States, you generally lose any tax treaty bene- lowed by the Internal Revenue Code. come Tax Regulations.
fits that relate to your income. However, many You receive payments or income items to-
tax treaties have exceptions to the saving taling more than $100,000 and you deter-
clause, which may allow you to continue to mine your country of residence under a
claim certain treaty benefits when you become treaty and not under the rules for residency
a resident alien. Read the treaty to find out if it discussed in chapter 1.
has a saving clause and an exception to it.

Time limit for claiming treaty exemptions.


These are the more common situations for
which Form 8833 is required.
10.
Many treaties limit the number of years you can
claim a treaty exemption. For students, appren- Exceptions. You do not have to file Form 8833
tices, and trainees, the limit is usually 4–5 for any of the following situations. Employees
years; for teachers, professors, and research- 1. You claim a reduced rate of withholding
ers, the limit is usually 2–3 years. Once you
reach this limit, you can no longer claim the
tax under a treaty on interest, dividends,
rent, royalties, or other fixed or determina-
of Foreign
treaty exemption. See the treaty or Pub. 901 for ble annual or periodic income ordinarily
the time limits that apply. subject to the 30% rate. Governments
How to report income on your tax return. In 2. You claim a treaty reduces or modifies the
most cases, you also will not need to report the taxation of income from dependent per-
sonal services, pensions, annuities, social
and
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
security and other public pensions, or in-
come of artists, athletes, students, train- International
taxable income on a Form W-2, Form 1042-S, ees, or teachers. This includes taxable
Form 1099, or other information return, you
should report it on the appropriate line of Form
scholarship and fellowship grants.
Organizations
3. You claim a reduction or modification of
1040 (for example, line 7 in the case of wages, taxation of income under an International
salaries, scholarships, or fellowships). Enter the Social Security Agreement or a Diplomatic
amount for which treaty benefits are claimed in or Consular Agreement. Introduction
parentheses on Form 1040, line 21. Next to the
amount write “Exempt income,” the name of the 4. You are a partner in a partnership or a
beneficiary of an estate or trust and the Employees of foreign governments (including
treaty country, and the treaty article that pro-
partnership, estate, or trust reports the re- foreign political subdivisions) may be able to ex-
vides the exemption. On Form 1040, subtract
quired information on its return. empt their foreign government wages from U.S.
this amount from your income to arrive at total
income tax if they satisfy the requirements of
income on Form 1040, line 22. 5. The payments or items of income that are any one of the following.
otherwise required to be disclosed total no
Example. Mr. Yu, a citizen of the People's more than $10,000. 1. The applicable article in the multilateral
Republic of China, entered the United States as Vienna Convention on Diplomatic Rela-
a nonresident alien student on January 1, 2013. 6. You are claiming treaty benefits for tions, the multilateral Vienna Convention
He remained a nonresident alien through 2017 amounts that are: on Consular Relations, or a bilateral con-
and was able to exclude his scholarship from a. Reported to you on Form 1042-S, and sular convention, if one exists, between
U.S. tax in those years under Article 20 of the the United States and the foreign country,
U.S.–People's Republic of China income tax b. Received by you:
treaty. On January 1, 2018, he became a resi- 2. The applicable article in a bilateral tax
i. As a related party from a report- treaty, if one exists, between the United
dent alien under the substantial presence test ing corporation within the mean-
because his stay in the United States exceeded States and the foreign country, or
ing of Internal Revenue Code
5 years. Even though Mr. Yu is now a resident section 6038A (relating to infor- 3. The requirements for obtaining an exemp-
alien, the provisions of Article 20 still apply be- mation returns on Form 5472 filed tion from U.S. income tax for foreign gov-
cause of the exception to the saving clause in by U.S. corporations that are 25% ernment wages provided under U.S. tax
paragraph 2 of the Protocol to the U.S.–Peo- owned by a foreign person), or law.
ple's Republic of China treaty dated April 30,
1984. Mr. Yu should submit Form W-9 and the ii. As a beneficial owner that is a di- Employees of international organizations may
required statement to the payor. rect account holder of a U.S. fi- be able to exempt their wages under a provi-
nancial institution or qualified in- sion, if one exists, in the international agree-
termediary, or a direct partner, ment creating the international organization, or
Reporting Treaty beneficiary, or owner of a with-
holding foreign partnership or
by satisfying the requirements for obtaining an
exemption for such wages under U.S. tax law.
Benefits Claimed trust, from that U.S. financial insti-
tution, qualified intermediary, or An international organization is an organization
If you claim treaty benefits that override or mod- withholding foreign partnership or designated by the President of the United
ify any provision of the Internal Revenue Code, trust. States through Executive Order to qualify for
and by claiming these benefits your tax is, or the privileges, exemptions, and immunities pro-
The exception described in (6) vided in the International Organizations Immuni-
might be, reduced, you must attach a fully com-
above does not apply to any amounts ties Act.
pleted Form 8833 to your tax return. See below
for which a treaty-based return disclo-
for the situations where you are not required to
sure is specifically required by the The exemption discussed in this chapter ap-
file Form 8833.
Form 8833 instructions. plies only to pay received for official services
You must file a U.S. tax return and Form performed for a foreign government or interna-
8833 if you claim the following treaty benefits. Penalty for failure to provide required infor- tional organization. Other U.S. source income
You claim a reduction or modification in the mation on Form 8833. If you are required to received by persons who qualify for this exemp-
taxation of gain or loss from the disposition report the treaty benefits but do not, you may be tion may be fully taxable or given favorable
of a U.S. real property interest based on a subject to a penalty of $1,000 for each failure. treatment under an applicable tax treaty provi-
treaty. sion. The proper treatment of this kind of

Page 48 Chapter 10 Employees of Foreign Governments and International Organizations


income (interest, dividends, etc.) is discussed Requirements. If you are not a U.S. citizen (or The exemption under U.S. tax law ap-
earlier in this publication. if you are a U.S. citizen but also a citizen of the ! plies only to current international or-
Republic of the Philippines) and you work for a CAUTION ganization employees and not to for-

foreign government in the United States, your mer employees. Pensions received by former
Employees of Foreign foreign government wages are exempt from employees of international organizations living
U.S. income tax if (1) you perform services of a in the United States do not qualify for the ex-
Governments similar character to those performed by U.S. emption discussed here.
government employees in foreign countries and
Exemption under Vienna Conventions or a (2) the country of your foreign government em- This exemption does not apply to inde-
bilateral consular convention. You should ployer grants an equivalent tax exemption to ! pendent contractors. Common law
first look at the tax exemption provisions under U.S. government employees performing similar CAUTION rules apply to determine whether you

the Vienna Conventions or a bilateral consular services in its country. However, see Aliens are an employee or an independent contractor.
convention, if one exists, to see if your wages who keep immigrant (lawful permanent resi- See Pub. 1779 and Pub. 15-A.
qualify for exemption from U.S. income tax un- dent) status. Aliens who keep immigrant status,
To claim the exemption, you must be able
der those provisions. Generally, you are not en- later, for a special rule that may affect your
demonstrate that you meet the requirements of
titled to the income tax exemption available un- qualifying for this exemption.
either the international organization agreement
der either of the Vienna Conventions or a To claim the tax exemption you must be provision or U.S. tax law. You should know the
bilateral consular convention if you are a U.S. able to demonstrate that you satisfy both U.S. article number of the international organization
citizen or resident alien. For further information tax law requirements. agreement tax exemption provision, if one ex-
regarding the Vienna Conventions and bilateral
ists, and the number of the Executive Order
consular conventions, email the Department of Certification. A Department of State certifica- designating the organization as an international
State Office of Foreign Missions at tion, if one has been issued, is the simplest organization.
OFMAssistants@state.gov. method to establish that you meet the similar
services and equivalent tax exemption require- Aliens who keep immigrant (lawful perma-
Exemption under tax treaty. If you do not ments but is not required to qualify for the U.S. nent resident) status. If you sign the waiver
qualify for the tax exemption provided under the tax law exemption. For information about provided by section 247(b) of the Immigration
Vienna Conventions or a bilateral consular con- whether a certification has been issued and and Nationality Act (USCIS Form I-508) to keep
vention but are from a country that has a tax whether such certification is currently valid and your lawful permanent resident status (green
treaty with the United States, you should look at applicable to you, email the Department of card), you no longer qualify for the tax exemp-
the tax treaty to see if there is a provision that State Office of Foreign Missions at tion under U.S. tax law from the date of filing the
exempts your wages from U.S. income tax. If OFMAssistants@state.gov. waiver.
you are a U.S. citizen or resident alien working Where no valid certification exists, you must
in the United States for a foreign government, establish with other written evidence that you If you are a green cardholder employee
your wages usually are not exempt. For more perform services of a similar character to those ! of a foreign government or international
information, see the Wages and Pensions Paid performed by U.S. government employees in CAUTION organization, to claim the exemption

by a Foreign Government section of Pub. 901. foreign countries and that the country of your under U.S. tax law you must also be able to
foreign government employer grants an equiva- demonstrate with written evidence from USCIS
Exemption under U.S. tax law. Employees of lent exemption to U.S. government employees that you have not signed and filed USCIS Form
foreign governments who do not qualify under performing similar services in its country. I-508.
the tax exemption provisions of either of the
Vienna Conventions, a bilateral consular con-
Note. The filing of Form I-508 has no effect
vention, or a tax treaty may be able to exempt
their foreign government wages from U.S. in-
Employees of on a tax exemption that is not dependent upon
come tax if they satisfy the following require- International the provisions of U.S. tax law. You do not lose
the tax exemption if you file the waiver and
ments for obtaining an exemption for such wa-
ges under U.S. tax law. Organizations meet either of the following conditions.
You work for a foreign government and are
The exemption under U.S. tax law ap- exempt from U.S. tax under an income tax
Exemption under international organization
! plies only to current foreign govern- treaty, consular convention, Vienna Con-
agreement. Many agreements that establish
CAUTION ment employees and not to former em- ventions, or any other international agree-
international organizations contain a provision
ployees. Pensions received by former ment between the United States and your
that may exempt your wages from U.S. income
employees of foreign governments living in the foreign government employer.
tax. If you are employed by an international or-
United States do not qualify for the exemption You work for an international organization
ganization in the United States, first look to see
discussed here. and the international organization agree-
if the international agreement establishing the
ment creating the international organiza-
international organization you work for has such
This exemption does not apply to inde- tion provides that alien employees are ex-
a provision and whether you qualify under it.
! pendent contractors. Common law empt from U.S. income tax. Two
Generally, these provisions will not exempt wa-
CAUTION rules apply to determine whether you international organizations that have such
ges of U.S. citizen and resident alien employ-
are an employee or an independent contractor. a provision are the International Monetary
ees.
See Pub. 1779, Independent Contractor or Em- Fund (IMF) and the International Bank for
ployee, and Pub. 15-A, Employer’s Supplemen- Reconstruction and Development (World
Exemption under U.S. tax law. If the interna-
tal Tax Guide. Bank).
tional agreement creating the international or-
ganization you work for does not contain a tax
Your wages are not eligible for exemp-
exemption provision and you are not a U.S. citi-
! tion under U.S. tax law if you are em-
zen (or if you are a U.S. citizen but also a citizen
CAUTION ployed by a “controlled commercial en-
of the Republic of the Philippines), you may be
tity” or your services are primarily in connection
able to exempt your wages under U.S. law.
with a commercial activity of the foreign govern-
However, see Aliens who keep immigrant (law-
ment (within or outside the United States). A
ful permanent resident) status, later, for a spe-
controlled commercial entity is an entity that is
cial rule that may affect your qualifying for this
50% or more owned by a foreign government
exemption.
that is engaged in commercial activity within or
outside the United States.

Chapter 10 Employees of Foreign Governments and International Organizations Page 49


Category 1. Representatives of foreign gov- business. (See Interest Income in chap-
ernments with diplomatic passports, whether ter 3.)
11. accredited to the United States or other coun-
tries, members of their households, and serv- Category 5. Certain other aliens temporarily in
ants accompanying them. Servants who are the United States who have received no taxable
leaving, but not with a person with a diplomatic income during the tax year up to and including
Departing Aliens passport, must get a sailing or departure permit.
However, they can get a sailing or departure
the date of departure or during the preceding
tax year. If the IRS has reason to believe that an
permit on Form 2063 without examination of alien has received income subject to tax and
and the Sailing their income tax liability by presenting a letter that the collection of income tax is jeopardized
by departure, it may then require the alien to ob-
from the chief of their diplomatic mission certify-
or Departure ing that:
Their name appears on the “White List” (a
tain a sailing or departure permit. Aliens in this
category are:
list of employees of diplomatic missions),
Permit and
They do not owe to the United States any
1. Alien military trainees who enter the Uni-
ted States for training under the sponsor-
ship of the Department of Defense and
income tax, and will not owe any tax up to
who leave the United States on official
and including the intended date of depar-
Introduction ture.
military travel orders,
2. Alien visitors for business on a “B-1” visa,
Before leaving the United States, all aliens (ex- The statement must be presented to an IRS
or on both a “B-1” visa and a “B-2” visa,
cept those listed under Aliens Not Required To office.
who do not remain in the United States or
Obtain Sailing or Departure Permits must obtain a U.S. possession for more than 90 days
a certificate of compliance. This document, also Category 2. Employees of international organ-
izations and foreign governments (other than during the tax year,
popularly known as the sailing permit or depar-
ture permit, is part of the income tax form you diplomatic representatives exempt under cate- 3. Alien visitors for pleasure on a “B-2” visa,
must file before leaving. You will receive a sail- gory 1) and members of their households:
Whose compensation for official services 4. Aliens in transit through the United States
ing or departure permit after filing a Form or any of its possessions on a “C-1” visa,
1040-C or Form 2063. These forms are dis- is exempt from U.S. tax under U.S. tax
laws (described in chapter 10), and or under a contract, such as a bond agree-
cussed in this chapter. ment, between a transportation line and
To find out if you need a sailing or departure Who receive no other income from U.S.
sources. the Attorney General, and
permit, first read Aliens Not Required To Obtain
Sailing or Departure Permits. If you do not fall If you are an alien in category (1) or (2) 5. Aliens who enter the United States on a
into one of the categories in that discussion, above who filed the waiver under sec- border-crossing identification card or for
you must obtain a sailing or departure permit.
!
CAUTION tion 247(b) of the Immigration and Na-
whom passports, visas, and border-cross-
Read Aliens Required To Obtain Sailing or De- tionality Act, you must get a sailing or departure ing identification cards are not required, if
parture Permits. permit. This is true even if your income is ex- they are:
empt from U.S. tax because of an income tax a. Visitors for pleasure,
Topics treaty, consular agreement, or international
b. Visitors for business who do not re-
This chapter discusses: agreement.
main in the United States or a U.S.
possession for more than 90 days
Who needs a sailing permit, Category 3. Alien students, industrial trainees, during the tax year, or
How to get a sailing permit, and and exchange visitors, including their spouses
Forms you file to get a sailing permit. and children, who enter on an “F-1,” “F-2,” c. In transit through the United States or
“H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and any of its possessions.
Useful Items who receive no income from U.S. sources while
in the United States under those visas other Category 6. Alien residents of Canada or Mex-
You may want to see: ico who frequently commute between that
than:
Allowances to cover expenses incident to country and the United States for employment,
Form (and Instructions) and whose wages are subject to the withholding
study or training in the United States, such
as expenses for travel, maintenance, and of U.S. tax.
1040-C U.S. Departing Alien Income Tax
Return tuition,
The value of any services or food and
2063 U.S. Departing Alien Income Tax lodging connected with this study or train- Aliens Required To
Statement ing,
Income from employment authorized by
Obtain Sailing or
See chapter 12 or information about getting
these forms.
the U.S. Citizenship and Immigration Serv- Departure Permits
ices (USCIS), or
Interest income on deposits that is not ef- If you do not fall into one of the categories listed
fectively connected with a U.S. trade or
Aliens Not Required business. (See Interest Income in chap-
under Aliens Not Required To Obtain Sailing or
Departure Permits, you must obtain a sailing or
To Obtain Sailing ter 3.) departure permit. To obtain a permit, file Form
1040-C or Form 2063 (whichever applies) with
or Departure Permits Category 4. Alien students, including their
spouses and children, who enter on an “M-1” or
your local IRS office before you leave the Uni-
ted States. See Forms To File, later. You must
If you are included in one of the following cate- “M-2” visa only and who receive no income also pay all the tax shown as due on Form
gories, you do not have to get a sailing or de- from U.S. sources while in the United States un- 1040-C and any taxes due for past years. See
parture permit before leaving the United States. der those visas, other than: Paying Taxes and Obtaining Refunds, later.
Income from employment authorized by
If you are in one of these categories and do the U.S. Citizenship and Immigration Serv-
not have to get a sailing or departure permit, ices (USCIS), or
you must be able to support your claim for ex- Interest income on deposits that is not ef-
emption with proper identification or give the fectively connected with a U.S. trade or
authority for the exemption.

Page 50 Chapter 11 Departing Aliens and the Sailing or Departure Permit


Getting a Sailing 10. Document verifying your date of departure be reported on Form 1040-C and the tax on it
from the United States, such as an airline must be paid. When you pay any tax shown as
or Departure Permit ticket. due on the Form 1040-C, and you file all returns
and pay all tax due for previous years, you will
The following discussion covers when and 11. Document verifying your U.S. taxpayer
receive a sailing or departure permit. However,
where to get your sailing permit. identification number, such as a social se-
the IRS may permit you to furnish a bond guar-
curity card or an IRS-issued Notice CP
anteeing payment instead of paying the taxes
Where to get a sailing or departure permit. 565 showing your individual taxpayer
for certain years. See Bond To Ensure Pay-
If you have been working in the United States, identification number (ITIN).
ment, discussed later. The sailing or departure
you should get the permit from an IRS office in
permit issued under the conditions in this para-
the area of your employment, or you may obtain Note. If you are married and reside in a
graph is only for the specific departure for which
one from an IRS office in the area of your de- community property state, also bring the
it is issued.
parture. above-listed documents for your spouse. This
applies whether or not your spouse requires a
Returning to the United States. If you furnish
When to get a sailing or departure permit. permit.
the IRS with information showing, to the satis-
You should get your sailing or departure permit
faction of the IRS, that you intend to return to
at least 2 weeks before you plan to leave. You
cannot apply earlier than 30 days before your Forms To File the United States and that your departure does
not jeopardize the collection of income tax, you
planned departure date. Do not wait until the
If you must get a sailing or departure permit, can get a sailing or departure permit by filing
last minute in case there are unexpected prob-
you must file Form 2063 or Form 1040-C. Em- Form 1040-C without having to pay the tax
lems.
ployees in the IRS office can assist in filing shown on it. You must, however, file all income
Papers to submit. Getting your sailing or de- these forms. Both forms have a “certificate of tax returns that have not yet been filed as re-
parture permit will go faster if you bring to the compliance” section. When the certificate of quired, and pay all income tax that is due on
IRS office papers and documents related to compliance is signed by an agent of the Field these returns.
your income and your stay in the United States. Assistance Area Director, it certifies that your Your Form 1040-C must include all income
Bring the following records with you if they ap- U.S. tax obligations have been satisfied accord- received and reasonably expected to be re-
ply. ing to available information. Your Form 1040-C ceived during the entire year of departure. The
copy of the signed certificate, or the one de- sailing or departure permit issued with this Form
1. Your passport and alien registration card tached from Form 2063, is your sailing or de- 1040-C can be used for all departures during
or visa. parture permit. the current year. However, the Service may
2. Copies of your U.S. income tax returns cancel the sailing or departure permit for any
filed for the past 2 years. If you were in the Form 2063 later departure if the payment of income tax ap-
United States for less than 2 years, bring pears to be in jeopardy.
the income tax returns you filed for that pe- This is a short form that asks for certain infor-
riod. mation but does not include a tax computation. Joint return on Form 1040-C. Departing hus-
The following departing aliens can get their sail- bands and wives who are nonresident aliens
3. Receipts for income taxes paid on these ing or departure permits by filing Form 2063. cannot file joint returns. However, if both spou-
returns. Aliens, whether resident or nonresident, ses are resident aliens, they can file a joint re-
4. Receipts, bank records, canceled checks, who have had no taxable income for the turn on Form 1040-C if:
and other documents that prove your de- tax year up to and including the date of de- Both spouses can reasonably be expected
ductions, business expenses, and de- parture and for the preceding year, if the to qualify to file a joint return at the normal
pendents claimed on your returns. period for filing the income tax return for close of their tax year, and
that year has not expired. The tax years of the spouses end at the
5. A statement from each employer showing Resident aliens who have received taxable same time.
wages paid and tax withheld from January income during the tax year or preceding
1 of the current year to the date of depar-
ture if you were an employee. If you were
year and whose departure will not hinder Paying Taxes and
the collection of any tax. However, if the
self-employed, you must bring a statement IRS has information indicating that the ali-
Obtaining Refunds
of income and expenses up to the date ens are leaving to avoid paying their in-
you plan to leave. You must pay all tax shown as due on the Form
come tax, they must file a Form 1040-C.
1040-C at the time of filing it, except when a
6. Proof of estimated tax payments for the bond is furnished, or the IRS is satisfied that
past year and this year. Aliens in either of these categories who
your departure does not jeopardize the collec-
have not filed an income tax return or paid in-
7. Documents showing any gain or loss from tion of income tax. You must also pay any taxes
come tax for any tax year must file the return
the sale of personal property and/or real due for past years. If the tax computation on
and pay the income tax before they can be is-
property, including capital assets and mer- Form 1040-C results in an overpayment, there
sued a sailing or departure permit on Form
chandise. is no tax to pay at the time you file that return.
2063.
However, the IRS cannot provide a refund at
8. Documents relating to scholarship or fel- the time of departure. If you are due a refund,
lowship grants including: The sailing or departure permit detached
you must file either Form 1040NR or Form
from Form 2063 can be used for all departures
a. Verification of the grantor, source, and 1040NR-EZ at the end of the tax year.
during the current year. However, the IRS may
purpose of the grant. cancel the sailing or departure permit for any
b. Copies of the application for, and ap- later departure if it believes the collection of in- Bond To Ensure Payment
proval of, the grant. come tax is jeopardized by that later departure.
Usually, you must pay the tax shown as due on
c. A statement of the amount paid, and Form 1040-C when you file it. However, if you
your duties and obligations under the Form 1040-C
pay all taxes due that you owe for prior years,
grant. you can furnish a bond guaranteeing payment
If you must get a sailing or departure permit and
d. A list of any previous grants. you do not qualify to file Form 2063, you must instead of paying the income taxes shown as
file Form 1040-C. due on the Form 1040-C or the tax return for the
9. Documents indicating you qualify for any preceding year if the period for filing that return
special tax treaty benefits claimed. has not expired.
Ordinarily, all income received or reasona-
bly expected to be received during the tax year
up to and including the date of departure must

Chapter 11 Departing Aliens and the Sailing or Departure Permit Page 51


The bond must equal the tax due plus inter- TCE. Go to IRS.gov/TCE, download the Mail" to order a copy of your transcript. If you
est to the date of payment as figured by the free IRS2Go app, or call 888-227-7669 to prefer, you can:
IRS. Information about the form of bond and se- find the nearest TCE location for free tax Order your transcript by calling
curity on it can be obtained from your IRS office. preparation. 800-908-9946.
Mail Form 4506-T or Form 4506T-EZ (both
Getting answers to your tax ques- available on IRS.gov).
Filing Annual U.S. tions. On IRS.gov get answers to your
Income Tax Returns tax questions anytime, anywhere. Using online tools to help prepare your re-
turn. Go to IRS.gov/Tools for the following.
Form 1040-C is not an annual U.S. income tax Go to IRS.gov/Help or IRS.gov/LetUsHelp
The Earned Income Tax Credit Assistant
return. If an income tax return is required by pages for a variety of tools that will help
(IRS.gov/EIC) determines if you’re eligible
law, that return must be filed even though a you get answers to some of the most com-
for the EIC.
Form 1040-C has already been filed. Chapters mon tax questions.
The Online EIN Application (IRS.gov/EIN)
5 and 7 discuss filing an annual U.S. income tax Go to IRS.gov/ITA for the Interactive Tax
helps you get an employer identification
return. The tax paid with Form 1040-C should Assistant, a tool that will ask you questions
number.
be taken as a credit against the tax liability for on a number of tax law topics and provide
The IRS Withholding Calculator (IRS.gov/
the entire tax year on your annual U.S. income answers. You can print the entire interview
W4App) estimates the amount you should
tax return. and the final response for your records.
have withheld from your paycheck for fed-
Go to IRS.gov/Pub17 to get Pub. 17, Your
eral income tax purposes.
Federal Income Tax for Individuals, which
The First Time Homebuyer Credit Account
features details on tax-saving opportuni-
Look-up (IRS.gov/HomeBuyer) tool pro-
ties, 2017 tax changes, and thousands of
vides information on your repayments and
interactive links to help you find answers to
account balance.
your questions. View it online in HTML, as
The Sales Tax Deduction Calculator
12. a PDF, or download it to your mobile de-
vice as an eBook.
(IRS.gov/SalesTax) figures the amount you
can claim if you itemize deductions on
You may also be able to access tax law in-
Schedule A (Form 1040), choose not to
formation in your electronic filing software.
How To Get Tax claim state and local income taxes, and
you didn’t save your receipts showing the
Getting tax forms and publications. Go to sales tax you paid.
Help IRS.gov/Forms to view, download, or print all of
the forms and publications you may need. You Resolving tax-related identity theft issues.
can also download and view popular tax publi- The IRS doesn’t initiate contact with tax-
Assistance for overseas taxpayers is available payers by email or telephone to request
in the U.S and certain foreign locations. cations and instructions (including the 1040 in-
structions) on mobile devices as an eBook at no personal or financial information. This in-
charge. Or, you can go to IRS.gov/OrderForms cludes any type of electronic communica-
tion, such as text messages and social me-
Taxpayer Assistance to place an order and have forms mailed to you
within 10 business days. dia channels.
Inside the United States Go to IRS.gov/IDProtection for information
and videos.
Access your online account (Individual tax-
payers only). Go to IRS.gov/Account to se- If your SSN has been lost or stolen or you
If you have questions about a tax issue, need suspect you’re a victim of tax-related iden-
help preparing your tax return, or want to down- curely access information about your federal tax
account. tity theft, visit IRS.gov/ID to learn what
load free publications, forms, or instructions, go steps you should take.
to IRS.gov and find resources that can help you View the amount you owe, pay online or
right away. set up an online payment agreement.
Access your tax records online. Checking on the status of your refund.
Review the past 18 months of your pay- Go to IRS.gov/Refunds.
Preparing and filing your tax return. Find Due to changes in the law, the IRS can’t is-
free options to prepare and file your return on ment history.
Go to IRS.gov/SecureAccess to review the sue refunds before mid-February 2018, for
IRS.gov or in your local community if you qual- returns that properly claimed the EIC or the
ify. required identity authentication process.
ACTC. This applies to the entire refund,
The Volunteer Income Tax Assistance not just the portion associated with these
Using direct deposit. The fastest way to re-
(VITA) program offers free tax help to people credits.
ceive a tax refund is to combine direct deposit
who generally make $54,000 or less, persons Download the official IRS2Go app to your
and IRS e-file. Direct deposit securely and elec-
with disabilities, and limited-English-speaking mobile device to check your refund status.
tronically transfers your refund directly into your
taxpayers who need help preparing their own Call the automated refund hotline at
financial account. Eight in 10 taxpayers use di-
tax returns. The Tax Counseling for the Elderly 800-829-1954.
rect deposit to receive their refund. IRS issues
(TCE) program offers free tax help for all tax-
more than 90% of refunds in less than 21 days.
payers, particularly those who are 60 years of Making a tax payment. The IRS uses the lat-
age and older. TCE volunteers specialize in an- est encryption technology to ensure your elec-
Delayed refund for returns claiming certain
swering questions about pensions and retire- tronic payments are safe and secure. You can
credits. Due to changes in the law, the IRS
ment-related issues unique to seniors. make electronic payments online, by phone,
can’t issue refunds before mid-February 2018,
You can go to IRS.gov to see your options for returns that properly claimed the earned in- and from a mobile device using the IRS2Go
for preparing and filing your return which in- come credit (EIC) or the additional child tax app. Paying electronically is quick, easy, and
clude the following. credit (ACTC). This applies to the entire refund, faster than mailing in a check or money order.
Free File. Go to IRS.gov/FreeFile. See if not just the portion associated with these cred- Go to IRS.gov/Payments to make a payment
you qualify to use brand-name software to its. using any of the following options.
prepare and e-file your federal tax return IRS Direct Pay: Pay your individual tax bill
for free. Getting a transcript or copy of a return. The or estimated tax payment directly from
VITA. Go to IRS.gov/VITA, download the quickest way to get a copy of your tax transcript your checking or savings account at no
free IRS2Go app, or call 800-906-9887 to is to go to IRS.gov/Transcripts. Click on either cost to you.
find the nearest VITA location for free tax "Get Transcript Online" or "Get Transcript by Debit or credit card: Choose an ap-
preparation. proved payment processor to pay online,
by phone, and by mobile device.

Page 52 Chapter 12 How To Get Tax Help


Electronic Funds Withdrawal: Offered Chinese (IRS.gov/Chinese). Low Income Taxpayer
only when filing your federal taxes using Vietnamese (IRS.gov/Vietnamese).
tax preparation software or through a tax Korean (IRS.gov/Korean).
Clinics
professional. Russian (IRS.gov/Russian).
Low Income Taxpayer Clinics (LITCs) are inde-
Electronic Federal Tax Payment Sys- The IRS TACs provide over-the-phone inter- pendent from the IRS. LITCs represent individu-
tem: Best option for businesses. Enroll- preter service in over 170 languages, and the als whose income is below a certain level and
ment is required. service is available free to taxpayers. need to resolve tax problems with the IRS, such
Check or money order: Mail your pay-
as audits, appeals, and tax collection disputes.
ment to the address listed on the notice or
instructions. The Taxpayer Advocate In addition, clinics can provide information
about taxpayer rights and responsibilities in dif-
Cash: You may be able to pay your taxes Service Is Here To Help You ferent languages for individuals who speak
with cash at a participating retail store.
What is the Taxpayer Advocate English as a second language. Services are of-
Service? fered for free or a small fee. To find a clinic near
What if I can’t pay now? Go to IRS.gov/
you, visit TaxpayerAdvocate.IRS.gov/LITCmap
Payments for more information about your op-
The Taxpayer Advocate Service (TAS) is an in- or see IRS Publication 4134, Low Income
tions.
dependent organization within the IRS that Taxpayer Clinic List.
Apply for an online payment agreement
(IRS.gov/OPA) to meet your tax obligation helps taxpayers and protects taxpayer rights.
Our job is to ensure that every taxpayer is trea-
in monthly installments if you can’t pay
your taxes in full today. Once you complete ted fairly and that you know and understand Taxpayer Assistance
the online process, you will receive imme-
diate notification of whether your agree-
your rights under the Taxpayer Bill of Rights.
Outside the United
ment has been approved. What Can the Taxpayer Advocate States
Use the Offer in Compromise Pre-Qualifier Service Do For You?
(IRS.gov/OIC) to see if you can settle your If you are outside the United States,
tax debt for less than the full amount you We can help you resolve problems that you you can call 267-941-1000 (Eng-
owe. can’t resolve with the IRS. And our service is lish-speaking only). This number is not
free. If you qualify for our assistance, you will be toll free.
Checking the status of an amended return. assigned to one advocate who will work with
Go to IRS.gov/WMAR to track the status of you throughout the process and will do every- If you wish to write instead of calling,
Form 1040X amended returns. Please note that thing possible to resolve your issue. TAS can please address your letter to:
it can take up to 3 weeks from the date you help you if:
mailed your amended return for it to show up in Your problem is causing financial difficulty
our system and processing it can take up to 16 Internal Revenue Service
for you, your family, or your business,
weeks. International Accounts
You face (or your business is facing) an
Philadelphia, PA 19255-0725
immediate threat of adverse action, or
Understanding an IRS notice or letter. Go to U.S.A.
You’ve tried repeatedly to contact the IRS
IRS.gov/Notices to find additional information but no one has responded, or the IRS
about responding to an IRS notice or letter. hasn’t responded by the date promised.
Additional contacts for taxpayers who live out-
Contacting your local IRS office. Keep in side the United States are available at IRS.gov/
mind, many questions can be answered on
How Can You Reach Us?
uac/Contact-My-Local-Office-Internationally.
IRS.gov without visiting an IRS Tax Assistance
We have offices in every state, the District of
Center (TAC). Go to IRS.gov/LetUsHelp for the Taxpayer Advocate Service. If you live out-
Columbia, and Puerto Rico. Your local advo-
topics people ask about most. If you still need side of the United States, you can call the Tax-
cate’s number is in your local directory and at
help, IRS TACs provide tax help when a tax is- payer Advocate at (787) 522-8601 in English or
TaxpayerAdvocate.IRS.gov/Contact-Us. You
sue can’t be handled online or by phone. All (787) 522-8600 in Spanish. You can contact the
can also call us at 1-877-777-4778.
TACs now provide service by appointment so Taxpayer Advocate at:
you’ll know in advance that you can get the
service you need without long wait times. Be- How Can You Learn About Your Internal Revenue Service
fore you visit, go to IRS.gov/TACLocator to find Taxpayer Rights? Taxpayer Advocate Service
the nearest TAC, check hours, available serv- City View Plaza, 48 Carr 165,
ices, and appointment options. Or, on the The Taxpayer Bill of Rights describes 10 basic Guaynabo, P.R. 00968-8000
IRS2Go app, under the Stay Connected tab, rights that all taxpayers have when dealing with
choose the Contact Us option and click on “Lo- the IRS. Our Tax Toolkit at
You can call the Taxpayer Advocate toll-free
cal Offices.” TaxpayerAdvocate.IRS.gov can help you un-
at 1-877-777-4778. For more information on the
derstand what these rights mean to you and
Taxpayer Advocate Service and contacts if you
Watching IRS videos. The IRS Video portal how they apply. These are your rights. Know
are outside of the United States go to IRS.gov/
(IRSvideos.gov) contains video and audio pre- them. Use them.
Advocate/Local-Taxpayer-Advocate/Contact-
sentations for individuals, small businesses, Your-Local-Taxpayer-Advocate.
and tax professionals. How Else Does the Taxpayer
Advocate Service Help Taxpayers?
Getting tax information in other languages.
For taxpayers whose native language isn’t Eng- TAS works to resolve large-scale problems that
lish, we have the following resources available. affect many taxpayers. If you know of one of
Taxpayers can find information on IRS.gov in these broad issues, please report it to us at
the following languages. IRS.gov/SAMS.
Spanish (IRS.gov/Spanish).

Chapter 12 How To Get Tax Help Page 53


Frequently Asked Questions
This section answers tax-related I am a nonresident alien with no A social security number (SSN) States and another country under
questions commonly asked by ali- dependents. I am working tem- must be furnished on returns, state- each country's tax laws. See Effect
ens. porarily for a U.S. company. ments, and other tax-related docu- of Tax Treaties in chapter 1. You are
What return do I file? ments. If your spouse does not have a dual-status taxpayer when you are
What is the difference between a and is not eligible to get an SSN, he both a resident alien and a nonresi-
resident alien and a nonresident You must file Form 1040NR if you must apply for an individual tax- dent alien in the same year. See
alien for tax purposes? are engaged in a trade or business payer identification number (ITIN). chapter 6.
in the United States, or have any If you are a U.S. citizen or resi-
For tax purposes, an alien is an indi- other U.S. source income on which dent and you choose to treat your I am a nonresident alien and in-
vidual who is not a U.S. citizen. Ali- tax was not fully paid by the amount nonresident spouse as a resident vested money in the U.S. stock
ens are classified as resident aliens withheld. market through a U.S. brokerage
and file a joint tax return, your non-
and nonresident aliens. Resident company. Are the dividends and
resident spouse needs an SSN or
aliens are taxed on their worldwide You can use Form 1040NR-EZ the capital gains taxable? If yes,
an ITIN. Alien spouses who are
income, the same as U.S. citizens. instead of Form 1040NR if you meet how are they taxed?
claimed as exemptions or depend-
Nonresident aliens are taxed only all 11 conditions listed under Form
ents are also required to furnish an
on their U.S. source income and 1040NR-EZ in chapter 7. The following rules apply if the divi-
SSN or an ITIN.
certain foreign source income that is dends and capital gains are not ef-
effectively connected with a U.S. I came to the United States on See Identification Number in fectively connected with a U.S.
trade or business. June 30th of last year. I have an chapter 5 for more information. trade or business.
H-1B visa. What is my tax status, Capital gains are generally not
What is the difference between resident alien or nonresident ali- I am a nonresident alien. Can I taxable if you were in the Uni-
the taxation of income that is ef- en? What tax return do I file? file a joint return with my ted States for less than 183
fectively connected with a trade spouse? days during the year. See
or business in the United States You were a dual-status alien last Sales or Exchanges of Capital
and income that is not effectively year. As a general rule, because Generally, you cannot file as mar- Assets in chapter 4 for more in-
connected with a trade or busi- you were in the United States for ried filing jointly if either spouse was formation and exceptions.
ness in the United States? 183 days or more, you have met the a nonresident alien at any time dur- Dividends are generally taxed
substantial presence test and you ing the tax year. at a 30% (or lower treaty) rate.
The difference between these two are taxed as a resident. However, However, nonresident aliens The brokerage company or
categories is that effectively con- for the part of the year that you were married to U.S. citizens or residents payor of the dividends should
nected income, after allowable de- not present in the United States, you can choose to be treated as U.S. withhold this tax at source. If
ductions, is taxed at graduated are a nonresident. File Form 1040. residents and file joint returns. For tax is not withheld at the cor-
rates. These are the same rates that Print “Dual-Status Return” across more information on this choice, see rect rate, you must file Form
apply to U.S. citizens and residents. the top. Attach a statement showing Nonresident Spouse Treated as a 1040NR to receive a refund or
Income that is not effectively con- your U.S. source income for the part Resident in chapter 1. pay any additional tax due.
nected is taxed at a flat 30% (or of the year you were a nonresident.
You may use Form 1040NR as the I have an H-1B visa and my hus- If the capital gains and dividends
lower treaty) rate.
statement. Print “Dual-Status State- band has an F-1 visa. We both are effectively connected with a
U.S. trade or business, they are
I am a student with an F-1 visa. I ment” across the top. See First Year lived in the United States all of
taxed according to the same rules
was told that I was an exempt in- of Residency in chapter 1 for rules last year and had income. What
and at the same rates that apply to
dividual. Does this mean I am ex- on determining your residency start- kind of form should we file? Do
ing date. U.S. citizens and residents.
empt from paying U.S. tax? we file separate returns or a joint
return? I am a nonresident alien. I re-
When is my Form 1040NR due?
The term “exempt individual” does ceive U.S. social security bene-
not refer to someone exempt from Assuming both of you had these vi- fits. Are my benefits taxable?
U.S. tax. You were referred to as an If you are an employee and you re- sas for all of last year, you are a res-
exempt individual because as a stu- ceive wages subject to U.S. income ident alien. Your husband is a non- If you are a nonresident alien, 85%
dent temporarily in the United tax withholding, you must generally resident alien if he has not been in
of any U.S. social security benefits
States on an F visa, you do not have file by the 15th day of the 4th month the United States as a student for
(and the equivalent portion of tier 1
to count the days you were present after your tax year ends. If you file more than 5 years. You and your
railroad retirement benefits) you re-
in the United States as a student for the 2017 calendar year, your re- husband can file a joint tax return on
ceive is subject to the flat 30% tax,
during the first 5 years in determin- turn is due April 17, 2018. Form 1040, 1040A, or 1040EZ if he unless exempt, or subject to a lower
ing if you are a resident alien under If you are not an employee who makes the choice to be treated as a treaty rate. See The 30% Tax in
the substantial presence test. See receives wages subject to U.S. in- resident for the entire year. See
chapter 4.
chapter 1. come tax withholding, you must file Nonresident Spouse Treated as a
by the 15th day of the 6th month af- Resident in chapter 1. If your hus- Do I have to pay taxes on my
I am a resident alien. Can I claim ter your tax year ends. For the 2017 band does not make this choice,
scholarship?
any treaty benefits? calendar year, file your return by you must file a separate return on
June 15, 2018. For more informa- Form 1040 or Form 1040A. Your If you are a nonresident alien and
Generally, you cannot claim tax tion on when and where to file, see husband must file Form 1040NR or
the scholarship is not from U.S.
treaty benefits as a resident alien. chapter 7. 1040NR-EZ.
sources, it is not subject to U.S. tax.
However, there are exceptions. See
See Scholarships, Grants, Prizes,
Effect of Tax Treaties in chapter 1. My spouse is a nonresident ali- Is a “dual-resident taxpayer” the
and Awards in chapter 2 to deter-
See also Resident Aliens under en. Does he need a social securi- same as a “dual-status taxpay-
er”? mine whether your scholarship is
Some Typical Tax Treaty Benefits in ty number?
from U.S. sources.
chapter 9.
No. A dual-resident taxpayer is one If your scholarship is from U.S.
who is a resident of both the United sources or you are a resident alien,

Page 54 Publication 519 (2017)


your scholarship is subject to U.S. See Itemized Deductions in chap- for a personal exemption for your- I am a nonresident alien student.
tax according to the following rules. ter 5. self, your spouse, or your depend- Social security taxes were with-
If you are a candidate for a de- ents. held from my pay in error. How
gree, you may be able to ex- I am not a U.S. citizen. What ex- do I get a refund of these taxes?
clude from your income the emptions can I claim? I am single with a dependent
part of the scholarship you use child. I was a dual-status alien in If social security or Medicare taxes
to pay for tuition, fees, books, Resident aliens can claim personal 2017. Can I claim the earned in- were withheld in error from pay that
supplies, and equipment re- exemptions and exemptions for de- come credit on my 2017 tax re- is not subject to these taxes, contact
quired by the educational insti- pendents in the same way as U.S. turn? the employer who withheld the
tution. However, the part of the citizens. However, nonresident ali- taxes for a refund. If you are unable
scholarship you use to pay for ens generally can claim only a per- If you are a nonresident alien for any to get a full refund of the amount
other expenses, such as room sonal exemption for themselves on part of the year, you cannot claim from your employer, file a claim for
and board, is taxable. See their U.S. tax return. There are spe- the earned income credit. See refund with the IRS on Form 843.
Scholarships and Fellowship cial rules for residents of Mexico, chapter 6 for more information on Do not use Form 843 to request a
Grants in chapter 3 for more in- Canada, and South Korea; for U.S. dual-status aliens. refund of Additional Medicare Tax.
formation. nationals; and for students and busi- See Refund of Taxes Withheld in
If you are not a candidate for a ness apprentices from India. See I am a nonresident alien student. Error in chapter 8.
degree, your scholarship is tax- Exemptions in chapter 5. Can I claim an education credit
able. on my Form 1040NR? I am an alien who will be leaving
Note. For tax years beginning in the United States. What forms do
I am a nonresident alien. Can I 2018, you cannot take a deduction I have to file before I leave?
claim the standard deduction? for a personal exemption for your- If you are a nonresident alien for any
self, your spouse, or your depend- part of the year, you generally can-
not claim the education credits. Before leaving the United States,
Nonresident aliens cannot claim the ents.
However, if you are married and aliens generally must obtain a certif-
standard deduction. However, see
What exemptions can I claim as choose to file a joint return with a icate of compliance. This document,
Students and business apprentices U.S. citizen or resident spouse, you also popularly known as the sailing
a dual-status taxpayer?
from India, under Itemized Deduc- may be eligible for these credits. permit or departure permit, is part of
tions in chapter 5 for an exception. See Nonresident Spouse Treated the income tax form you must file
As a dual-status taxpayer, you usu- as a Resident in chapter 1. before leaving. You will receive a
I am a dual-status taxpayer. Can ally will be able to claim your own sailing or departure permit after fil-
I claim the standard deduction? personal exemption. Subject to the I am a nonresident alien, tempo- ing a Form 1040-C or Form 2063.
general rules for qualification, you rarily working in the U.S. under a These forms are discussed in chap-
You cannot claim the standard de- can claim exemptions for your J visa. Am I subject to social se- ter 11.
duction allowed on Form 1040. spouse and dependents when you curity and Medicare taxes?
However, you can itemize any al- figure taxable income for the part of I filed a Form 1040-C when I left
lowable deductions. the year you are a resident alien. the United States. Do I still have
The amount you can claim for these Generally, services you perform as to file an annual U.S. tax return?
I am filing Form 1040NR. Can I exemptions is limited to your taxable a nonresident alien temporarily in
claim itemized deductions? income (figured before subtracting the United States as a nonimmigrant
exemptions) for the part of the year under subparagraph (F), (J), (M), or Form 1040-C is not an annual U.S.
you are a resident alien. You cannot (Q) of section 101(a)(15) of the Im- income tax return. If an income tax
Nonresident aliens can claim some use exemptions (other than your migration and Nationality Act are not return is required by law, you must
of the same itemized deductions own) to reduce taxable income to covered under the social security file that return even though you al-
that resident aliens can claim. How- program if you perform the services ready filed a Form 1040-C. Chap-
less than zero for that period.
ever, nonresident aliens can claim to carry out the purpose for which ters 5 and 7 discuss filing an annual
itemized deductions only if they Note. For tax years beginning in you were admitted to the United U.S. income tax return.
have income effectively connected 2018, you cannot take a deduction States. See Social Security and
with their U.S. trade or business. Medicare Taxes in chapter 8.

Publication 519 (2017) Page 55


Appendix A—Tax Treaty Exemption Procedure for Students
This appendix contains the state- securing training to practice a 2. I am temporarily present in or, I am temporarily present in
ments nonresident alien students profession or professional the United States for the pri- the United States as a recipi-
and trainees must file with Form specialty. . mary purpose of studying at ent of a grant, allowance, or
8233 to claim a tax treaty exemp- [insert the name of award from [insert
3. I will receive compensation
tion from withholding of tax on the university or other recog- the name of the nonprofit or-
for personal services per-
compensation for dependent per- nized educational institution ganization or government in-
formed in the United States.
sonal services. For treaty countries at which you study]. stitution providing the grant,
This compensation qualifies
not listed, attach a statement in a allowance, or award].
for exemption from withhold- 3. I will receive compensation
format similar to those for other
ing of federal income tax un- for personal services per- 3. I will receive compensation
treaties. See chapter 8 for more in-
der the tax treaty between the formed in the United States. for services performed in the
formation on withholding.
United States and Bulgaria in This compensation qualifies United States. This compen-
an amount not in excess of for exemption from withhold- sation qualifies for exemption
Belgium $9,000 for any tax year. ing of federal income tax un- from withholding of federal in-
der the tax treaty between the come tax under the tax treaty
4. I arrived in the United States
1. I was a resident of Belgium on United States and Cyprus in between the United States
on [insert the date
the date of my arrival in the an amount not in excess of and [Insert the
of your last arrival in the Uni-
United States. I am not a U.S. $2,000 ($10,000 if you are a name of the country] in the
ted States before beginning
citizen. I have not been law- participant in a government amount not in excess of
study or training] . The treaty
fully accorded the privilege of sponsored program of study $5,000 ($10,000 if you are a
exemption for training is avail-
residing permanently in the not exceeding one year) for participant in a government
able only for compensation
United States as an immi- any tax year. I have not previ- sponsored program of study
paid during a period of two
grant. ously claimed an income tax not exceeding one year) for
years.
exemption under that treaty any tax year.
2. I am present in the United for income received as a stu-
4. I arrived in the United States
States for the purpose of my China, People's dent before the date of my ar-
on [insert the date
education or training.
Republic of rival in the United States.
of your last arrival in the Uni-
3. I will receive compensation 4. I arrived in the United States ted States before beginning
for personal services per- 1. I was a resident of the Peo- on [insert the date study at the U.S. educational
formed in the United States. ple's Republic of China on the of your last arrival in the Uni- institution]. The $5,000 treaty
This compensation qualifies date of my arrival in the Uni- ted States before beginning exemption is available only
for exemption from withhold- ted States. I am not a U.S. study at the U.S. educational for compensation paid during
ing of federal income tax un- citizen. institution]. The $2,000 treaty a period of five tax years be-
der the tax treaty between the exemption is available only ginning with the tax year that
United States and Belgium in 2. I am present in the United for compensation paid during includes my arrival date.
an amount not in excess of States solely for the purpose a period of five tax years be-
$9,000 for any tax year. of my education or training. ginning with the tax year that
3. I will receive compensation includes my arrival date, and Egypt
4. I arrived in the United States
on [insert the date for personal services per- for such additional period of
time as is necessary to com- 1. I was a resident of Egypt on
of your last arrival in the Uni- formed in the United States.
plete, as a full-time student, the date of my arrival in the
ted States before beginning This compensation qualifies
educational requirements as United States. I am not a U.S.
study or training]. For a for exemption from withhold-
a candidate for a postgradu- citizen. I have not been law-
trainee who is temporarily ing of federal income tax un-
ate or professional degree fully accorded the privilege of
present in the United States der the tax treaty between the
from a recognized educa- residing permanently in the
for the purpose of securing United States and the Peo-
tional institution. United States as an immi-
training required to practice a ple's Republic of China in an
grant.
profession or professional amount not in excess of
specialty, the treaty exemp- $5,000 for any tax year. Czech Republic, 2. I am temporarily present in
the United States for the pri-
tion is available only for com- 4. I arrived in the United States Estonia, Latvia, mary purpose of studying at
pensation paid during a pe-
riod of two years.
on [insert the date Lithuania, and [insert the name of
of your last arrival in the Uni-
ted States before beginning Slovak Republic the university or other recog-
nized educational institution
Bulgaria study or training]. I am claim-
1. I was a resident of at which you study].
ing this exemption only for
such period of time as is rea- [insert the name of the coun-
3. I will receive compensation
1. I was a resident of Bulgaria try under whose treaty you
sonably necessary to com- for personal services per-
on the date of my arrival in the claim exemption] on the date
plete the education or train- formed in the United States.
United States. I am not a U.S. of my arrival in the United
ing. This compensation qualifies
citizen. I have not been law- States. I am not a U.S. citi-
for exemption from withhold-
fully accorded the privilege of zen. I have not been lawfully
residing permanently in the Cyprus accorded the privilege of re-
ing of federal income tax un-
der the tax treaty between the
United States as an immi- siding permanently in the Uni-
United States and Egypt in an
grant. 1. I was a resident of Cyprus on ted States as an immigrant.
amount not in excess of
2. I am temporarily present in the date of my arrival in the 2. I am temporarily present in $3,000 ($10,000 if you are a
the United States for the pri- United States. I am not a U.S. the United States for the pri- participant in a government
mary purpose of studying at citizen. I have not been law- mary purpose of studying or sponsored program of study
[insert the name of fully accorded the privilege of training at [insert the not exceeding one year) for
the university or other recog- residing permanently in the name of the university or any tax year. I have not previ-
nized educational institution United States as an immi- other recognized educational ously claimed an income tax
at which you study] or grant. institution at which you study]; exemption under that treaty

Page 56 Publication 519 (2017)


for income received as a Germany at which you study]; or, I am tax year, provided such serv-
teacher, researcher, or stu- temporarily present in the ices are performed in connec-
dent before the date of my ar- United States to obtain pro- tion with my studies or are
1. I was a resident of Germany
rival in the United States. fessional training or to study necessary for my mainte-
on the date of my arrival in the
or do research as a recipient nance.
4. I arrived in the United States United States. I am not a U.S.
of a grant, allowance, or
on [insert the date citizen. I have not been law- 4. I arrived in the United States
award from [insert
of your last arrival in the Uni- fully accorded the privilege of on [insert the date
the name of the nonprofit or-
ted States before beginning residing permanently in the of your last arrival in the Uni-
ganization or government in-
study at the U.S. educational United States as an immi- ted States before beginning
stitution providing the grant,
institution]. The $3,000 treaty grant. study at the U.S. educational
allowance, or award].
exemption is available only institution]. The treaty exemp-
2. I am temporarily present in
for compensation paid during 3. I will receive compensation tion is available only for com-
the United States as a stu-
a period of five tax years be- for services performed in the pensation paid during a pe-
dent or business apprentice
ginning with the tax year that United States. This compen- riod of five tax years
for the purpose of full-time
includes my arrival date, and sation qualifies for exemption beginning with the tax year
study or training at
for such period of time as is from withholding of federal in- that includes my arrival date.
[insert the name of the ac-
necessary to complete, as a come tax under the tax treaty
credited university, college,
full-time student, educational between the United States
requirements as a candidate
school or other educational
and Iceland in the amount not
Israel, Philippines
for a postgraduate or profes-
institution]; or, I am tempora-
in excess of $9,000 for any and Thailand
rily present in the United
sional degree from a recog- tax year.
States as a recipient of a 1. I was a resident of the
nized educational institution.
grant, allowance, or award 4. I arrived in the United States [insert the name of
from [insert the on [insert the date the country under whose
France name of the nonprofit organi- of your last arrival in the Uni- treaty you claim exemption]
zation or government institu- ted States before beginning on the date of my arrival in the
1. I was a resident of France on tion providing the grant, al- study at the U.S. educational United States. I am not a U.S.
the date of my arrival in the lowance, or award]. institution]. The treaty exemp- citizen. I have not been law-
United States. I am not a U.S. tion is available only for com- fully accorded the privilege of
3. I will receive compensation
citizen. I have not been law- pensation paid during a pe- residing permanently in the
for dependent personal serv-
fully accorded the privilege of riod of five tax years United States as an immi-
ices performed in the United
residing permanently in the beginning with the tax year grant.
States. This compensation
United States as an immi- that includes my arrival date.
qualifies for exemption from 2. I am temporarily present in
grant. withholding of federal income the United States for the pri-
2. I am temporarily present in tax under the tax treaty be- Indonesia mary purpose of studying at
the United States for the pri- tween the United States and [insert the name of
mary purpose of studying at Germany in an amount not in 1. I was a resident of Indonesia the university or other recog-
[insert the name of excess of $9,000 for any tax on the date of my arrival in the nized educational institution
the accredited university, col- year, provided that such serv- United States. I am not a U.S. at which you study].
lege, school or other educa- ices are performed for the citizen. I have not been law-
purpose of supplementing fully accorded the privilege of 3. I will receive compensation
tional institution].
funds otherwise available for residing permanently in the for personal services per-
3. I will receive compensation my maintenance, education, United States as an immi- formed in the United States.
for personal services per- or training. grant. This compensation qualifies
formed in the United States. for exemption from withhold-
This compensation qualifies 4. I arrived in the United States 2. I am temporarily present in ing of federal income tax un-
for exemption from withhold- on [insert the date the United States solely for der the tax treaty between the
ing of federal income tax un- of your last arrival in the Uni- the purpose of study at United States and
der the tax treaty between the ted States before beginning [insert the name of [insert the name of the coun-
United States and France in study at the U.S. educational the university or other ac- try under whose treaty you
an amount not in excess of institution]. The treaty exemp- credited educational institu- claim exemption] in an
$5,000 for any taxable year. I tion is available only for com- tion at which you study]; or, I amount not in excess of
have not previously claimed pensation paid during a pe- am temporarily present in the $3,000 for any tax year. I
an income tax exemption un- riod of four tax years United States as a recipient of have not previously claimed
der this treaty for income re- beginning with the tax year a grant, allowance or award an income tax exemption un-
ceived as a teacher, re- that includes my arrival date. from [insert the der that treaty for income re-
searcher, or student before name of the nonprofit organi- ceived as a teacher, re-
the date of my arrival in the Iceland zation or government institu-
tion providing the grant, al-
searcher, or student before
United States. the date of my arrival in the
lowance, or award] for the United States.
4. I will be present in the United 1. I was a resident of Iceland on primary purpose of study, re-
States only for such period of the date of my arrival in the search, or training. 4. I arrived in the United States
time as may be reasonably or United States. I am not a U.S. on [insert the date
customarily required to effec- citizen. I have not been law- 3. I will receive compensation of your last arrival in the Uni-
tuate the purpose of this visit. fully accorded the privilege of for services performed in the ted States before beginning
residing permanently in the United States. This compen- study at the U.S. educational
5. I arrived in the United States sation qualifies for exemption
United States as an immi- institution]. The treaty exemp-
on [insert the date from withholding of federal in-
grant. tion is available only for com-
of your last arrival in the Uni- come tax under the tax treaty pensation paid during a pe-
ted States before beginning 2. I am temporarily present in between the United States riod of five tax years
study at the U.S. educational the United States for the pri- and Indonesia in an amount beginning with the tax year
institution]. The treaty exemp- mary purpose of studying at not in excess of $2,000 for my that includes my arrival date.
tion is available only for com- [insert the name of
pensation paid during a pe- the university or other recog-
riod of five tax years. nized educational institution

Publication 519 (2017) Page 57


Korea, Norway, 3. I will receive compensation Pakistan study at the U.S. educational
for personal services per- institution]. The treaty exemp-
Poland, and Romania formed in the United States. tion is available only for com-
1. I am a resident of Pakistan. I
This compensation qualifies am not a U.S. citizen. I have pensation paid during a pe-
1. I was a resident of
for exemption from withhold- not been lawfully accorded riod of five tax years
[insert the name of the coun-
ing of federal income tax un- the privilege of residing per- beginning with the tax year
try under whose treaty you
der the tax treaty between the manently in the United States that includes my arrival date.
claim exemption] on the date
United States and Morocco in as an immigrant and would
of my arrival in the United
an amount not in excess of
States. I am not a U.S. citi-
$2,000 for any tax year. I
not otherwise be considered Slovenia and
a resident alien for the rele-
zen. I have not been lawfully
have not previously claimed vant tax year.
Venezuela
accorded the privilege of re-
an income tax exemption un-
siding permanently in the Uni- 2. I am temporarily present in 1. I was a resident of
der that treaty for income re-
ted States as an immigrant. the United States solely as a [insert the name of the coun-
ceived as a student before
2. I am temporarily present in the date of my arrival in the student at [insert try under whose treaty you
the United States for the pri- United States. the name of the recognized claim exemption] on the date
mary purpose of studying at university, college, or school of my arrival in the United
4. I arrived in the United States in the United States at which States. I am not a U.S. citi-
[insert the name of
on [insert the date you study]. zen. I have not been lawfully
the university or other recog-
of your last arrival in the Uni- accorded the privilege of re-
nized educational institution 3. I will receive compensation
ted States before beginning siding permanently in the Uni-
at which you study]. for personal services per-
study at the U.S. educational ted States as an immigrant.
3. I will receive compensation institution]. The treaty exemp- formed in the United States.
for personal services per- tion is available only for com- This compensation qualifies 2. I am temporarily present in
formed in the United States. pensation paid during a pe- for exemption from withhold- the United States for the pri-
This compensation qualifies riod of five tax years, ing of federal income tax un- mary purpose of studying or
for exemption from withhold- beginning with the tax year der the tax treaty between the training at [insert the
ing of federal income tax un- that includes my arrival date. United States and Pakistan in name of the university or
der the tax treaty between the an amount not in excess of other accredited educational
United States and $5,000 for any tax year. institution at which you study
[insert the name of the coun-
Netherlands or train].
try under whose treaty you
1. I was a resident of the Nether- Portugal and Spain 3. I will receive compensation
claim exemption] in an for services performed in the
lands on the date of my arrival
amount not in excess of 1. I was a resident of United States. This compen-
in the United States. I am not
$2,000 for any tax year. I [insert the name of the coun- sation qualifies for exemption
a U.S. citizen. I have not been
have not previously claimed try under whose treaty you from withholding of federal in-
lawfully accorded the privi-
an income tax exemption un- claim exemption] on the date come tax under the tax treaty
lege of residing permanently
der this treaty for income re- of my arrival in the United between the United States
in the United States as an im-
ceived as a teacher, re- States. I am not a U.S. citi- and [insert the
migrant.
searcher, or student before zen. I have not been lawfully name of the country under
the date of my arrival in the 2. I am temporarily present in accorded the privilege of re- whose treaty you claim ex-
United States. the United States for the pri- siding permanently in the Uni- emption] in an amount not in
mary purpose of full time ted States as an immigrant. excess of $5,000 for any tax
4. I arrived in the United States
study at [insert the year.
on [insert the date 2. I am temporarily present in
name of the recognized uni-
of your last arrival in the Uni- the United States for the pri- 4. I arrived in the United States
versity, college, or school in
ted States before beginning mary purpose of studying or on [insert the date
the United States at which
study at the U.S. educational training at [insert the of your last arrival in the Uni-
you study].
institution]. The treaty exemp- name of the university or ted States before beginning
tion is available only for com- 3. I will receive compensation other recognized educational study at the U.S. educational
pensation paid during a pe- for personal services per- institution at which you study]; institution]. The treaty exemp-
riod of five tax years formed in the United States. or, I am temporarily present in tion is available only for com-
beginning with the tax year This compensation qualifies the United States as a recipi- pensation paid during a pe-
that includes my arrival date. for exemption from withhold- ent of a grant, allowance, or riod of five tax years
ing of federal income tax un- award from [insert beginning with the taxable
der the tax treaty between the
Morocco United States and the Nether-
the name of the nonprofit or- year that includes my arrival
ganization or government in- date, and for such period of
lands in an amount not in ex- stitution providing the grant, time as is necessary to com-
1. I was a resident of Morocco
cess of $2,000 for any tax allowance, or award]. plete, as a full-time student,
on the date of my arrival in the
year. educational requirements as
United States. I am not a U.S. 3. I will receive compensation
citizen. I have not been law- 4. I arrived in the United States a candidate for a postgradu-
for services performed in the
fully accorded the privilege of on [insert the date ate or professional degree
United States. This compen-
residing permanently in the of your last arrival in the Uni- from a recognized educa-
sation qualifies for exemption
United States as an immi- ted States before beginning tional institution.
from withholding of federal in-
grant. study at the U.S. educational come tax under the tax treaty
2. I am temporarily present in
institution]. I am claiming this between the United States Trinidad and Tobago
exemption only for such pe- and [Insert the
the United States for the pri-
riod of time as is reasonably name of the country] in the 1. I was a resident of Trinidad
mary purpose of studying at
necessary to complete my amount not in excess of and Tobago on the date of my
[insert the name of
education. $5,000 for any tax year. arrival in the United States. I
the university or other recog-
nized educational institution am not a U.S. citizen. I have
4. I arrived in the United States
at which you study]. not been lawfully accorded
on [insert the date
of your last arrival in the Uni-
ted States before beginning

Page 58 Publication 519 (2017)


the privilege of residing per- specialty, not in excess of Tunisia United States. This compen-
manently in the United States $5,000) for any taxable year. I sation qualifies for exemption
as an immigrant. have not previously claimed 1. I was a resident of Tunisia on from withholding of federal in-
an income tax exemption un- the date of my arrival in the come tax under the tax treaty
2. I am temporarily present in
der this treaty for income re- United States. I am not a U.S. between the United States
the United States for the pri-
ceived as a teacher, re- citizen. I have not been law- and Tunisia in an amount not
mary purpose of studying at
searcher, or student before fully accorded the privilege of in excess of $4,000 for any
[insert the name of
the date of my arrival in the residing permanently in the tax year.
the university or other ac-
United States. United States as an immi-
credited educational institu- 4. I arrived in the United States
tion at which you study]. 4. I will be present in the United grant. on [insert the date
States only for such period of 2. I am temporarily present in of your last arrival in the Uni-
3. I will receive compensation
time as may be reasonably or the United States for the pur- ted States before beginning
for personal services per-
customarily required to effec- pose of full-time study, train- study at the U.S. educational
formed in the United States.
tuate the purpose of this visit. ing, or research at institution]. The treaty exemp-
This compensation qualifies
for exemption from withhold- [insert the name of the univer- tion is available only for com-
5. I arrived in the United States
ing of federal income tax un- sity or other accredited edu- pensation paid during a pe-
on [insert the date
der the tax treaty between the cational institution at which riod of five tax years
of your last arrival in the Uni-
United States and Trinidad you study, train, or perform beginning with the tax year
ted States before beginning
and Tobago in an amount not research]. that includes my arrival date.
study at the U.S. educational
in excess of $2,000 (or, if you institution]. The treaty exemp- 3. I will receive compensation
are securing training required tion is available only for com- for services performed in the
to qualify you to practice a pensation paid during a pe-
profession or a professional riod of five tax years.

Publication 519 (2017) Page 59


Appendix B—Tax Treaty Exemption Procedure for Teachers and Researchers
This appendix contains the state- United States as an immi- withholding of federal tax un- 3. The teaching, research or
ments nonresident alien teachers grant. der the tax treaty between the conference compensation re-
and researchers must file with United States and the Peo- ceived the entire tax year (or
2. I am visiting the United States
Form 8233 to claim a tax treaty ex- ple's Republic of China. I for the period from to
for the purpose of teaching or
emption from withholding of tax on have not previously claimed ) qualifies for exemp-
conducting research at
compensation for dependent per- an income tax exemption un- tion from withholding of fed-
[insert the name of
sonal services. For treaty countries der that treaty for income re- eral tax under the tax treaty
the university, college, or
not listed, attach a statement in a ceived as a teacher, lecturer, between the United States
other recognized educational
format similar to those for other researcher, or student before and the former Union of So-
or research institution]. I will
treaties. See chapter 8 for more in- the date of my arrival in the viet Socialist Republics. I
receive compensation for my
formation on withholding. United States. have not previously claimed
teaching or research activi-
an income tax exemption un-
ties. 4. Any research I perform will be
der that treaty for income re-
Belgium 3. The teaching or research
undertaken in the public inter-
ceived as a teacher, re-
est and not primarily for the
compensation received dur- searcher, conference
1. I am a resident of Belgium. I private benefit of a specific
ing the entire tax year (or dur- participant, or student before
am not a U.S. citizen. I have person or persons.
ing the period from the date of my arrival in the
not been lawfully accorded
to ) for these activi- 5. I arrived in the United States United States.
the privilege of residing per-
ties qualifies for exemption on [insert the date
manently in the United States 4. Any research I perform will
from withholding of federal of your last arrival in the Uni-
as an immigrant. not be undertaken primarily
tax under the tax treaty be- ted States before beginning
for the benefit of a private
2. I am visiting the United States tween the United States and your teaching, lecturing, or re-
person or commercial enter-
for the purpose of teaching or Bulgaria. search activities]. The treaty
prise of the United States or a
engaging in research at exemption is available only
4. Any research I perform will be foreign trade organization of
[insert the name of for compensation received
undertaken in the public inter- [insert the name of
the educational or research during a maximum aggregate
est and not primarily for the country], unless the research
institution at which you teach period of three years.
private benefit of a specific is conducted on the basis of
or perform research] for a pe-
person or persons. intergovernmental agree-
riod not exceeding two years.
I will receive compensation 5. I arrived in the United States
Commonwealth of ments on cooperations.
for my teaching or research on [insert the date Independent States 5. I arrived in the United States
activities. of your last arrival into the on [insert the date
United States before begin- The treaty with former Union of So- of your last arrival in the Uni-
3. The teaching or research viet Socialist Republics remains in
ning the services for which ted States before beginning
compensation received dur- effect for the following countries:
the exemption is claimed]. the teaching or research serv-
ing the entire tax year (or dur- Armenia, Azerbaijan, Belarus,
The treaty exemption is avail- ices for which exemption is
ing the period from Georgia, Kyrgyzstan, Moldova, Ta-
able only for compensation claimed], The treaty exemp-
to ) for these activi- jikistan, Turkmenistan, and Uzbeki-
paid during a period of two tion is available only for com-
ties qualifies for exemption stan.
years beginning on that date. pensation received during a
from withholding of federal
1. I am a resident of period of two years beginning
tax under the tax treaty be-
tween the United States and China, People's [insert the name of country]. I on that date.
Belgium. Republic of am not a U.S. citizen.
4. Any research I perform will be 2. I have accepted an invitation Czech Republic and
undertaken in the public inter- 1. I was a resident of the Peo- by a governmental agency or Slovak Republic
est and not primarily for the ple's Republic of China on the institution in the United
private benefit of a specific date of my arrival in the Uni- States, or by an educational 1. I was a resident of the
person or persons. ted States. I am not a U.S. or scientific research institu- [insert the name of
citizen. tion in the United States, to the country under whose
5. I arrived in the United States come to the United States for treaty you claim exemption]
on [insert the date 2. I am visiting the United States
for the primary purpose of the primary purpose of teach- on the date of my arrival in the
of your last arrival in the Uni- ing, engaging in research, or United States. I am not a U.S.
ted States before beginning teaching, giving lectures, or
conducting research at participating in scientific, citizen. I have not been law-
the teaching or research for technical, or professional fully accorded the privilege of
which exemption is claimed]. [insert the name of
the educational institution or conferences at [in- residing permanently in the
The treaty exemption is avail- sert the name of governmen- United States as an immi-
able only for compensation scientific research institution
at which you teach, lecture, or tal agency or institution, edu- grant.
received during a period of cational or scientific
two years beginning on that conduct research], which is 2. I am visiting the United States
an accredited educational in- institution, or organization for the primary purpose of
date. sponsoring professional con-
stitution or scientific research teaching or conducting re-
institution. I will receive com- ference], which is a govern- search at [insert the
Bulgaria pensation for my teaching, mental agency or institution, name of the educational or
lecturing, or research activi- an educational or scientific in- scientific institution], which is
1. I was a resident of Bulgaria ties. stitution, or an organization an accredited educational or
on the date of my arrival in the sponsoring a professional research institution. I will re-
United States. I am not a U.S. 3. The teaching, lecturing, or re- conference. I will receive
search compensation re- ceive compensation for my
citizen. I have not been law- compensation for my teach- teaching or research activi-
fully accorded the privilege of ceived during the entire tax ing, research, or conference
year (or during the period ties.
residing permanently in the activities.
from to )
qualifies for exemption from

Page 60 Publication 519 (2017)


3. The teaching or research of federal tax under the tax private benefit of a specific beginning the services for
compensation received dur- treaty between the United person or persons. which the exemption is
ing the entire tax year (or dur- States and [insert claimed]. The treaty exemp-
5. I arrived in the United States
ing the period from to the name of the country under tion is available only for com-
on [insert the date
) qualifies for exemp- whose treaty you claim ex- pensation paid during a pe-
of your last arrival in the Uni-
tion from withholding of fed- emption]. I have not previ- riod of two years beginning
ted States before beginning
eral tax under the tax treaty ously claimed an income tax on that date.
the teaching or research serv-
between the United States exemption under this treaty
ices for which exemption is
and the [insert the for income received as a
name of the country under teacher, researcher, or stu-
claimed]. The treaty exemp- Greece
tion is available only for com-
whose treaty you claim ex- dent before the date of my ar-
pensation received during a 1. I am a resident of Greece. I
emption]. I have not previ- rival in the United States.
period of two years beginning am not a U.S. citizen. I have
ously claimed an income tax
4. Any research I perform will be on that date. not been lawfully accorded
exemption under that treaty
undertaken in the public inter- the privilege of residing per-
for income received as a
est and not primarily for the
teacher, researcher, or stu-
private benefit of a specific
Germany manently in the United States
as an immigrant (and would
dent before the date of my ar-
person or persons. not otherwise be considered
rival in the United States. 1. I am a resident of Germany. I
5. I arrived in the United States a resident alien for the rele-
4. Any research I perform will be am not a U.S. citizen. I have vant tax year).
on [insert the date not been lawfully accorded
undertaken in the public inter-
of your last arrival in the Uni- the privilege of residing per- 2. I am a professor or teacher
est and not primarily for the
ted States before beginning manently in the United States visiting the United States for
private benefit of a specific
the teaching or research serv- as an immigrant. the purpose of teaching at
person or persons.
ices for which exemption is [insert the name of
5. I arrived in the United States claimed]. The treaty exemp- 2. I am a professor or teacher the other educational institu-
on [insert the date tion is available only for com- visiting the United States for tion at which you teach],
of your last arrival in the Uni- pensation received during a the purpose of advanced which is an educational insti-
ted States before beginning period of two years beginning study, teaching, or research tution. I will receive compen-
the teaching, research, or on that date. at [insert the name sation for my teaching activi-
conference services for which of the accredited university, ties.
exemption is claimed]. The college, school, or other edu-
treaty exemption is available
France cational institution, or a public 3. The teaching compensation
only for compensation re- research institution or other received during the entire tax
1. I was a resident of France on institution engaged in re- year (or during the period
ceived during a period of two
the date of my arrival in the search for the public benefit]. from to ) quali-
years beginning on that date.
United States. I am not a U.S. I will receive compensation fies for exemption from with-
citizen. I have not been law- for my teaching, research, or holding of federal tax under
Egypt, Hungary, fully accorded the privilege of study activities. the tax treaty between the
Korea, Philippines, residing permanently in the
3. The compensation received
United States and Greece. I
United States as an immi-
Poland, and Romania grant. during the entire tax year (or
have not previously claimed
an income tax exemption un-
during the period from der that treaty for income re-
1. I was a resident of 2. I have accepted an invitation to ) for
by the U.S. government, or by ceived as a teacher or stu-
[insert the name of the coun- these activities qualifies for dent before the date of my
try under whose treaty you a university or other recog- exemption from withholding
nized educational or research arrival in the United States.
claim exemption] on the date of federal tax under the tax
of my arrival in the United institution in the United States treaty between the United 4. I arrived in the United States
States. I am not a U.S. citi- for the primary purpose of States and Germany. I have on [insert the date
zen. I have not been lawfully teaching or engaging in re- not previously claimed an in- of your last arrival in the Uni-
accorded the privilege of re- search at [insert the come tax exemption under ted States before beginning
siding permanently in the Uni- name of the educational or re- that treaty for income re- the teaching services for
ted States as an immigrant. search institution]. I will re- ceived as a student, appren- which exemption is claimed].
ceive compensation for my tice, or trainee during the im- The treaty exemption is avail-
2. I have accepted an invitation teaching or research activi- able only for compensation
mediately preceding period.
by the U.S. government (or by ties. received during a period of
(If, however, following the pe-
a political subdivision or local three years beginning on that
3. The teaching or research riod in which the alien
authority thereof), or by a uni- date.
compensation received dur- claimed benefits as a student,
versity or other recognized
ing the entire tax year (or for apprentice, or trainee, that
educational institution in the
United States for a period not the portion of the year from person returned to Germany
and resumed residence and
India
expected to exceed two years to ) qualifies for
exemption from withholding physical presence before re-
for the purpose of teaching or 1. I was a resident of India on
of federal tax under the tax turning to the United States
engaging in research at the date of my arrival in the
treaty between the United as a teacher or researcher,
[insert the name of United States. I am not a U.S.
States and France. I have not that person may claim the
the educational institution], citizen. I have not been law-
previously claimed an income benefits of this treaty.)
which is a recognized educa- fully accorded the privilege of
tional institution. I will receive tax exemption under this 4. Any research I perform will be residing permanently in the
compensation for my teach- treaty for income received as undertaken in the public inter- United States as an immi-
ing or research activities. a teacher, researcher, or stu- est and not primarily for the grant.
dent before the date of my ar- private benefit of a specific
3. The teaching or research rival in the United States. 2. I am visiting the United States
person or persons.
compensation received dur- for the purpose of teaching or
ing the entire tax year (or for 4. Any research I perform will be 5. I arrived in the United States conducting research at
the portion of the year from undertaken in the public inter- on [insert the date [insert the name of
to ) qualifies for est and not primarily for the of your last arrival into the the university, college, or
exemption from withholding United States before other recognized educational

Publication 519 (2017) Page 61


institution]. I will receive com- teaching or research services Italy institution at which you teach
pensation for my teaching or for which the exemption is or conduct research], which is
research activities. claimed]. The treaty exemp- 1. I was a resident of Italy on the a recognized educational in-
tion is available only for com- date of my arrival in the Uni- stitution. I will receive com-
3. The teaching or research
pensation paid during a pe- ted States. I am not a U.S. pensation for my teaching or
compensation received dur-
riod of two years beginning citizen. I have not been accor- research activities.
ing the entire tax year (or dur-
on that date. ded the privilege of residing
ing the period from 3. The teaching or research
to ) for these activi- 5. Any research I perform will be permanently in the United compensation received dur-
ties qualifies for exemption undertaken in the public inter- States as an immigrant. ing the entire tax year (or dur-
from withholding of federal est and not primarily for the 2. I am a professor or teacher ing the period from to
tax under the tax treaty be- private benefit of a specific visiting the United States for ) qualifies for exemp-
tween the United States and person or persons. the purpose of teaching or tion from withholding of fed-
India. performing research at eral tax under the tax treaty
between the United States
4. Any research I perform will be Israel [insert the name of
and Jamaica. I have not pre-
undertaken in the public inter- the educational institution or
est and not primarily for the medical facility at which you viously claimed an income tax
1. I was a resident of Israel on exemption under that treaty
private benefit of a specific teach or perform research],
the date of my arrival in the for income received as a
person or persons. which is a recognized educa-
United States. I am not a U.S. teacher, researcher, or stu-
tional institution or a medical
5. I arrived in the United States citizen. I have not been law- dent before the date of my ar-
facility primarily funded from
on [insert the date fully accorded the privilege of rival in the United States.
governmental sources. I will
of your last arrival into the residing permanently in the
receive compensation for my 4. I arrived in the United States
United States before begin- United States as an immi-
teaching or research activi- on [insert the date
ning the services for which grant.
ties. of your last arrival in the Uni-
the exemption is claimed]. 2. I have accepted an invitation
The treaty exemption is avail- 3. The compensation received ted States before beginning
by the U.S. government (or by the teaching or research serv-
able only for compensation during the entire tax year (or
a political subdivision or local ices for which exemption is
paid during a period of two during the period from
authority thereof), or by a uni- claimed]. The treaty exemp-
years beginning on that date. to ) qualifies for ex-
versity or other recognized tion is available only for com-
emption from withholding of
educational institution in the pensation paid during a pe-
federal tax under the tax
Indonesia United States, to come to the
treaty between the United riod of two years beginning
United States for a period not on that date.
States and Italy. I have not
1. I was a resident of Indonesia expected to exceed two years
previously claimed an income
on the date of my arrival in the for the purpose of teaching or
United States. I am not a U.S. engaging in research at
tax exemption under that Luxembourg
treaty for income received as
citizen. I have not been law- [insert the name of
a teacher, researcher, or stu-
fully accorded the privilege of the educational institution], 1. I am a resident of Luxem-
dent before the date of my ar-
residing permanently in the which is a recognized educa- bourg. I am not a U.S. citizen.
rival in the United States.
United States as an immi- tional institution. I will receive I have not been lawfully ac-
grant. compensation for my teach- 4. Any research I perform will be corded the privilege of resid-
ing or research activities. undertaken in the general in- ing permanently in the United
2. I have accepted an invitation States as an immigrant.
terest and not primarily for the
by [insert the name 3. The teaching or research
private benefit of a specific
of the university, college, compensation received dur- 2. I have accepted an invitation
person or persons.
school, or other similar edu- ing the entire tax year (or for by [insert the name
cational institution] to come to the portion of the year from 5. I arrived in the United States of the educational institution
the United States solely for to ) qualifies for on [insert the date at which you teach or perform
the purpose of teaching or en- exemption from withholding of your last arrival in the Uni- research], which is a recog-
gaging in research at that ed- of federal tax under the tax ted States before beginning nized educational institution,
ucational institution. I will re- treaty between the United the teaching or research serv- to come to the United States
ceive compensation for my States and Israel. I have not ices for which exemption is for the purpose of teaching or
teaching or research activi- previously claimed an income claimed]. The treaty exemp- engaging in research at that
ties. tax exemption under this tion is available only for com- institution. I will receive com-
treaty for income received as pensation received during a pensation for my teaching or
3. The teaching or research
a teacher, researcher, or stu- period of two years beginning research activities.
compensation received dur-
dent before the date of my ar- on that date.
ing the entire tax year (or dur- 3. The teaching or research
rival in the United States.
ing the period from compensation received dur-
to ) qualifies for ex- 4. Any research I perform will be Jamaica ing the entire tax year (or dur-
emption from withholding of undertaken in the public inter- ing the period from to
federal tax under the tax est and not primarily for the 1. I was a resident of Jamaica ) qualifies for exemp-
treaty between the United private benefit of a specific on the date of my arrival in the tion from withholding of fed-
States and Indonesia. I have person or persons. United States. I am not a U.S. eral tax under the tax treaty
not previously claimed an in- citizen. I have not been law- between the United States
5. I arrived in the United States
come tax exemption under fully accorded the privilege of and Luxembourg. I have not
on [insert the date
that treaty for income re- residing permanently in the previously claimed an income
of your last arrival in the Uni-
ceived as a teacher or re- United States as an immi- tax exemption under that
ted States before beginning
searcher before the date grant. treaty for income received as
the teaching or research serv-
specified in the next para- a teacher, researcher, or stu-
ices for which exemption is 2. I am visiting the United States
graph. dent before the date of my ar-
claimed]. The treaty exemp- for the purpose of teaching or
rival in the United States.
4. I arrived in the United States tion is available only for com- conducting research for a pe-
on [insert the date pensation received during a riod not expected to exceed 4. Any research I perform will
of your arrival into the United period of two years beginning two years at [insert not be carried on for the ben-
States before beginning the on that date. the name of the educational efit of any person using or

Page 62 Publication 519 (2017)


disseminating the results for United States. I am not a U.S. 3. The teaching compensation teaching or research services
purposes of profit. citizen. I have not been law- received during the entire tax for which the exemption is
fully accorded the privilege of year (or during the period claimed]. The treaty exemp-
5. I arrived in the United States
residing permanently in the from to ) quali- tion is available only for com-
on [insert the date
United States as an immi- fies for exemption from with- pensation paid during a pe-
of your last arrival into the
grant. holding of federal tax under riod of two years beginning
United States before begin-
the tax treaty between the on that date.
ning the teaching services for 2. I have accepted an invitation
United States and Pakistan. I
which exemption is claimed]. by the U.S. government, or by
have not previously claimed
The treaty exemption is avail- a university or other recog-
an income tax exemption un-
Slovenia and
able only for compensation nized educational institution
der this treaty for income re- Venezuela
received during a period of in the United States for a pe-
ceived as a teacher or stu-
two years beginning on that riod not expected to exceed
dent before the date of my 1. I was a resident of
date. two years for the purpose of
arrival in the United States. [insert the name of the coun-
teaching or engaging in re-
try under whose treaty you
search at [insert the 4. I arrived in the United States
Netherlands name of the educational insti- on [insert the date
claim exemption] on the date
of my arrival in the United
tution], which is a recognized of your last arrival into the
1. I am a resident of the Nether- States. I am not a U.S. citi-
educational institution. I will United States before begin-
lands. I am not a U.S. citizen. zen. I have not been lawfully
receive compensation for my ning the teaching services for
I have not been lawfully ac- accorded the privilege of re-
teaching or research activi- which exemption is claimed].
corded the privilege of resid- siding permanently in the Uni-
ties. The treaty exemption is avail-
ing permanently in the United ted States as an immigrant.
able only for compensation
States as an immigrant. 3. The teaching or research
paid during a period of two 2. I am temporarily present in
compensation qualifies for
2. I am visiting the United States years beginning on that date. the United States for the pur-
exemption from withholding
for the purpose of teaching or pose of teaching or carrying
of federal tax under the tax
engaging in research at treaty between the United Portugal on research at
sert the name of the educa-
[in-
[insert the name of States and Norway. I have
the educational institution at tional or research institution],
not previously claimed an in- 1. I was a resident of Portugal
which you teach or perform which is a recognized educa-
come tax exemption under on the date of my arrival in the
research] for a period not ex- tional or research institution. I
this treaty for income re- United States. I am not a U.S.
ceeding two years. I will re- will receive compensation for
ceived as a teacher, re- citizen. I have not been law-
ceive compensation for my my teaching or research ac-
searcher, or student before fully accorded the privilege of
teaching or research activi- tivities.
the date of my arrival in the residing permanently in the
ties. United States. United States as an immi- 3. The teaching or research
3. The compensation received grant. compensation received dur-
4. Any research I perform will
during the entire tax year (or ing the entire tax year (or dur-
not be undertaken primarily 2. I have accepted an invitation
during the period from ing the period from to
for the private benefit of a by [insert the name
to ) for these activities ) qualifies for exemp-
specific person or persons. of the university, college,
qualifies for exemption from tion from withholding of fed-
5. I arrived in the United States school, or other similar edu- eral tax under the tax treaty
withholding of federal tax un- cational institution] to come to
der the tax treaty between the on [insert the date between the United States
of your last arrival in the Uni- the United States solely for and [insert the
United States and Nether- the purpose of teaching or en-
lands. I have not previously ted States before beginning name of the country under
the teaching or research serv- gaging in research at that ed- whose treaty you claim ex-
claimed an income tax ex- ucational institution. I will re-
emption under that treaty for ices for which exemption is emption]. I have not previ-
claimed]. The treaty exemp- ceive compensation for my ously claimed an income tax
income received as a teaching or research activi-
teacher, researcher, or stu- tion is available only for com- exemption under this treaty
pensation received during a ties. for income received as a
dent before the date of my ar-
rival in the United States. period of two years beginning 3. The teaching or research teacher, researcher, or stu-
on that date. compensation received dur- dent before the date of my ar-
4. Any research I perform will be ing the entire tax year (or dur- rival in the United States.
undertaken in the public inter-
est and not primarily for the Pakistan ing the period from 4. Any research I perform will be
to ) qualifies for ex- undertaken in the general in-
benefit of a specific person or emption from withholding of
persons. 1. I am a resident of Pakistan. I terest and not primarily for the
federal tax under the tax private benefit of a specific
am not a U.S. citizen. I have
5. I arrived in the United States treaty between the United person or persons.
not been lawfully accorded
on [insert the date States and Portugal. I have
the privilege of residing per- 5. I arrived in the United States
of your last arrival into the not previously claimed an in-
manently in the United States on [insert the date
United States before begin- come tax exemption under
as an immigrant and would of your last arrival in the Uni-
ning the teaching or research that treaty for income re-
not otherwise be considered ted States before beginning
services for which exemption ceived as a teacher or re-
a resident alien for the rele- the teaching or research serv-
is claimed]. The treaty ex- searcher before the date
vant tax year. ices for which exemption is
emption is available for com- specified in paragraph 5.
pensation received during a 2. I am a professor or teacher claimed]. The treaty exemp-
4. Any research I perform will be tion is available only for com-
period of two years beginning visiting the United States for
undertaken in the public inter- pensation received during a
on that date only if my visit the purpose of teaching at
est and not primarily for the period of two years beginning
does not exceed 2 years. [insert the name of
private benefit of a specific on that date. In no event have
the educational institution at
person or persons. I claimed an exemption under
which you teach], which is a
Norway recognized educational insti- 5. I arrived in the United States this treaty for income re-
tution. I will receive compen- on [insert the date ceived as a teacher or re-
1. I was a resident of Norway on sation for my teaching activi- of your arrival into the United searcher for more than five
the date of my arrival in the ties. States before beginning the years.

Publication 519 (2017) Page 63


Thailand United States before begin- ) qualifies for exemp- name of the educational insti-
ning the teaching or research tion from withholding of fed- tution], which is a recognized
1. I was a resident of Thailand services for which exemption eral tax under the tax treaty educational institution. I will
on the date of my arrival in the is claimed]. The treaty ex- between the United States receive compensation for my
United States. I am not a U.S. emption is available only for and Trinidad and Tobago. I teaching or research activi-
citizen. I have not been law- compensation received dur- have not previously claimed ties.
fully accorded the privilege of ing a period of two years be- an income tax exemption un-
3. The teaching or research
residing permanently in the ginning on that date. der that treaty for income re-
compensation received dur-
United States as an immi- ceived as a teacher, re-
ing the entire tax year (or dur-
searcher, or student before
grant. Trinidad and Tobago the date of my arrival in the
ing the period from to
2. I am visiting the United States ) qualifies for exemp-
United States.
for the purpose of teaching or 1. I was a resident of Trinidad tion from withholding of fed-
engaging in research at and Tobago on the date of my 4. Any research I perform will be eral tax under the tax treaty
[insert the name of arrival in the United States. I undertaken in the public inter- between the United States
the educational or research am not a U.S. citizen. I have est and not primarily for the and the United Kingdom. I
institution at which you teach not been lawfully accorded private benefit of a specific have not previously claimed
or perform research] for a pe- the privilege of residing per- person or persons. an income tax exemption un-
riod not exceeding two years. manently in the United States der that treaty for income re-
5. I arrived in the United States
I will receive compensation as an immigrant. ceived as a teacher, re-
on [insert the date
for my teaching or research searcher, or student before
2. I have accepted an invitation of your last arrival in the Uni-
activities. the date of my arrival in the
by the U.S. government, or by ted States before beginning
United States.
3. The compensation received a university or other educa- the teaching or research serv-
during the entire tax year (or tional institution in the United ices for which exemption is 4. Any research I perform will be
during the period from States, to come to the United claimed]. The treaty exemp- undertaken in the public inter-
to ) for these activities States for the purpose of tion is available only for com- est and not primarily for the
qualifies for exemption from teaching or engaging in re- pensation received during a benefit of any private person
withholding of federal tax un- search at [insert the period of two years beginning or persons.
der the tax treaty between the name of the educational insti- on that date.
5. I arrived in the United States
United States and Thailand. I tution], which is an educa-
on [insert the date
have not previously claimed tional institution approved by
an appropriate governmental
United Kingdom of your last arrival in the Uni-
an income tax exemption un- ted States before beginning
der that treaty for income re- education authority. No
1. I was a resident of the United the teaching or research serv-
ceived as a teacher, re- agreement exists between
Kingdom on the date of my ices for which exemption is
searcher, or student before the government of the United
arrival in the United States. I claimed]. The treaty exemp-
the date of my arrival in the States and the government of
am not a U.S. citizen. I have tion is available only for com-
United States. Trinidad and Tobago for the
not been accorded the privi- pensation received during a
provision of my services. I will
4. Any research I perform will be lege of residing permanently period of two years beginning
receive compensation for my
undertaken in the public inter- in the United States as an im- on that date. The entire treaty
teaching or research serv-
est and not primarily for the migrant. exemption is lost retroactively
ices.
benefit of a specific person or 2. I am a professor or teacher if my stay in the United States
persons. 3. The teaching or research visiting the United States for a exceeds two years.
compensation received dur- period of not more than two
5. I arrived in the United States
ing the entire tax year (or for years for the purpose of
on [insert the date
the period from to teaching or engaging in re-
of your last arrival into the
search at [insert the

Page 64 Publication 519 (2017)


To help us develop a more useful index, please let us know if you have ideas for index entries.
Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Commuters from Canada or Tax rates 33 Filing requirements 35


30% Tax 20 Mexico 4 When and where to file 34 Filing returns 24
Compensation for labor or Amended returns 37
personal services: Claims for refund 37
A Geographical basis 11 E Commonwealth of the Northern
Accuracy-related penalties 38 Contingent interest 15 Earned income credit: Mariana Islands 37
Additional Medicare Tax 43, 44 Credit for the elderly or the Dual-status alien 33 Dual-status taxpayer 34
Adoption credit: disabled: Nonresident alien 31 Estimated tax 45
Dual-status alien 34 Dual-status alien 33 Resident alien 31 Form 1040-C 51
Nonresident alien 31 Resident alien 30 Education credits: Form 1040NR 24, 35
Resident alien 31 Credits against tax: Dual-status alien 33 Form 1040NR-EZ 24, 36
Agricultural workers 40, 44 Child and dependent care Nonresident alien 31 Form 2063 51
Alien: credit 31, 34 Resident alien 30 Guam 37
Nonresident 3, 10, 17 Child tax credit 30, 31, 34 Effectively connected Nonresident alien 24
Resident 3, 10, 17 Credit for the elderly or the income 17 U.S. Virgin Islands 36
Alien status, employer disabled 33 Foreign income 19 Who must file 35
notification of 39 Dual-status alien 34 Investment income 18 Filing status 25
Alternative minimum tax 19 Earned income credit 31, 33 Pensions 18 First-year choice 7
Amended returns 37 Education credits 30, 31, 33 Real property gain or loss 18 Fixed or determinable
American Samoa, residents Excess social security tax Real property income income 20
of 10, 26, 32 withheld 32 choice 21 Foreign country 6
Annuities: Foreign tax credit 31, 34 Tax on 20 Foreign earned income
Income 16 Hope credit 30, 31 Transportation income 18 exclusion 14
Source rule 12 Lifetime learning credit 30, 31 Employees, household 40 Foreign employer 15, 16
Asset-use test 18 Retirement savings Employees, withholding Foreign government
Assistance (See Tax help) contributions 30, 31, 34 exemption under tax employees 49
Athletes, professional 5 Tax paid on undistributed treaty 42 Alien status 5
Awards 12 long-term capital gains 32 Employer identification Exempt from U.S. tax 48
Tax withheld at source 32 number 25 Tax treaty exemption 47
Tax withheld on partnership Estate, beneficiary 17 Foreign income subject to U.S.
B income 32 Estimated tax 39, 45 tax 19
Basis of property 13 Withholding from wages 32 Excess social security tax 32 Foreign organizations,
Beneficiary of estate or trust 17 Crew members: Exchange visitors 44 charitable contributions
Business, U.S. 17 Alien status 4 Income from foreign to 28
Business-activities test 18 Compensation 15 employer 16 Foreign tax credit:
Business expenses, ordinary Currency, transporting 37 Social security and Medicare Dual-status alien 34
and necessary 26 taxes 43 Nonresident alien 31
Business operations 17 Exclusions from gross Resident alien 30
Business profits and losses and D income 14 Forms 6
sales transactions 18 Days of presence 4 Annuities 16 1040-C 51
Deductions 26, 27 Compensation from a foreign 1040-ES(NR) 45
De minimis presence 8 employer 16 1040NR 35
Departure permit 51 Gambling winnings, dog or 1040NR-EZ 36
C
Depreciable property 13 horse racing 16 1040X 37
Canada:
Diplomats (See Foreign Students and exchange 1042-S 42
Commuters 4
government employees) visitors 16 1116 30, 31, 34
Exemptions 33
Direct economic Treaty income 16, 46 2063 51
Personal exemption 27
relationship 18 Exempt individual 5 2106 30
Qualifying widow filing
Disaster tax relief 28 Exemption from withholding: 2210 46
status 26
Disclosure statement 38 Employees 42 3903 26
Residents of 27
Dividends, U.S. source Independent contractors 42 4563 32
Social security benefits 47
income 10 Students, teachers, and 4790 (See FinCEN 105)
Transportation-related
Dual-status aliens 7 researchers 42 6251 19
employment 40
Dual-status tax year 7, 32 Exemptions: 8233 42
Capital assets, sales or
Child care credit 34 Dual-status taxpayer 33 8275 38
exchanges 20
Computation of tax 33 Indian students and business 8288 43
Casualty and theft losses 29
Credit for the elderly or the apprentices 27 8288-A 43
Central withholding
disabled 33 Nonresident alien 27 8288-B 43
agreements 40
Earned income credit 33 Resident alien 27 8801 31
Charitable contributions 28
Education credit 33 Residents of Mexico or 8805 41, 42
Child and dependent care
Exemptions 33 Canada 27 8833 6, 47
credit:
Foreign tax credit 34 Residents of South Korea 27 8840 6
Dual-status alien 34
Forms to file 34 U.S. nationals 27 8843 6
Nonresident alien 31
Head of household. 33 FinCEN 105 37
Resident alien 30
Income subject to tax 33 W-4 39, 42
Child tax credit:
Resident alien 30, 31, 34 Joint return 33 F W-7 25
Residency ending date 7 Fellowship grant: W-8BEN 42
Claims for refund 37
Residency starting date 7 Excludable 16 W-8ECI 40
Closer connection 6
Restrictions 33 Source rule 12 W-9 39
Commodities, trading in 17
Community income 14 Standard deduction 33 Withholding tax 41

Publication 519 (2017) Page 65


Forms to file: Source rule 10 Child care credit 31 Pensions 18
Dual-status alien 34 International organization Credit for excess social security Source rule 12
Nonresident aliens 35 employees 49 tax withheld 32 Withholding on 40
Resident alien 35 Alien status 5 Credit for income tax Personal property 13
Sailing permits 51 Exempt from U.S. tax 48 withheld 32 Personal services income:
Frequently Asked Questions 54 International social security Credit for prior-year minimum Connected with U.S.
agreements 45 tax 31 business 18
Interrupted period of Defined 3 Paid by foreign employer 15
G residence 21 Disaster tax relief 28 Source rule 11
Gambling winnings, dog or Inventory 13 Earned income credit 31 Tax treaty exemption 46
horse racing 16 Investment income 18 Education credits 31 Withholding on wages 39
German social security Itemized deductions 27 Effectively connected income, Portfolio interest 14, 15
benefits 47 tax on 20 Prizes 12
Green card test 3 Filing Form 1040NR 24 Professional athletes 5
J Filing Form 1040NR-EZ 24 Property:
Job expenses 29 Foreign tax credit 31 Depreciable 13
H Gambling winnings, dog or Intangible 13
Head of household: horse racing 16 Inventory 13
Nonresident alien 26 K Head of household 26 Personal 13
Resident alien 25 Korea, South: How income is taxed 17 Real 13, 18
Home, sale of 16 Exemptions 27, 33 Individual retirement Protective return 36
Household employees 40 Married filing separately 25 arrangement (IRA) 26 Publications (See Tax help)
Qualifying widow filing Interest income 10 Puerto Rico, residents of 10,
status 26 Job expenses 29 26, 32, 40
I Losses 26
Identification number, taxpayer: Married filing jointly 25
Defined 25 L Miscellaneous deductions 29 Q
Penalty for failure to supply 38 Last year of residency 8 Moving expenses 26 Qualified investment entity:
Identity theft 52 Long-term U.S. resident: Personal exemptions 27 Distributions paid by 19
Income: Defined 22 Qualifying widow(er) 26
Community 14 Expatriation tax 22 Standard deduction 28
Effectively connected 17 Losses: State and local income R
Exclusions 14 Business 18 taxes 28 Railroad retirement
Fixed or determinable 20 Capital Assets 20 Students 44 benefits 20, 34
Foreign 19 Casualty and theft 29 Tax paid on undistributed Real estate (See Real property)
From real property 21 Of nonresident aliens 26 long-term capital gains 32 Real property:
Income affected by treaties 16 Real property 18 Tax withheld at source 32 Definition 13
Interest 14 Travel expenses 30 Income from 21
Investment 18 Withholding from partnership Natural resources 13
Personal services 18 M income 32 Sale or exchange of 18
Reporting 26 Married filing jointly: Withholding tax 39 Source rule 13
Sale of home 16 Nonresident alien 25 Nonresident spouse treated as Tax withheld on sale of 42
Tip 40 Resident alien 25 a resident 9 U.S. real property interest 18
Income code: Medical condition 4 Real property income 20
28 20 Medicare tax 43 Refunds, claims for 37
Income from U.S. sources 10 Mexico: O Registered obligations 14
Dividends 10 Commuters 4 Obligations: Rents 12
Interest 10 Exemptions 33 Not in registered form 15 Researchers, wage withholding
Pensions and annuities 12 Personal exemption 27 Registered 14 exemption under tax
Personal property 13 Qualifying widow filing Original issue discount 20 treaty 42, 60
Personal services 11 status 26 Residence, interrupted 21
Real property 13 Residents of 27 Residency:
Rents or royalties 12 Transportation-related P First year 7
Independent contractors: employment 40 Partnership Income, tax Last year 8
Withholding exemption under Miscellaneous deductions 29 withheld on 41 Starting date 7
tax treaty 42 Monetary instruments, Partnerships 17 Termination date 8
Withholding rules 40 transporting 37 Payment against U.S. tax 34 Tests 3
India, students and business Moving expenses 26 Tax withheld at the source 32 Resident alien 3
apprentices from: Multi-level marketing 11, 41 Withholding from wages 32 Child tax credit 30, 31, 34
Exemptions for spouse and Municipal bonds 14 Penalties 37 Defined 3
dependents 27 Accuracy-related 38 Education credits 30
Standard deduction 28 Failure to file 38 Head of household 25
Withholding allowances 40 N Failure to pay 38 Married filing jointly 25
Individual retirement National of the United Failure to supply taxpayer Qualifying widow(er) 25
arrangement (IRA) 26 States 26, 33, 39 identification number 38 Resident alien status,
Individual taxpayer Natural resources (See Real Fraud 38 choosing 8
identification number property) Frivolous tax submission 38 Retirement savings
(ITIN) 25 Non-registered obligations 15 Negligence 38 contributions credit:
Intangible property 13 Nonresident alien 3 Substantial understatement of Dual-status alien 34
Interest: Annuity income 16 income tax 38 Nonresident alien 31
Portfolio 14, 15 Business expenses 26 Penalty for failure to pay Resident alien 30
Interest income: Casualty and theft losses 29 estimated income tax 46 Royalties 12
Contingent 15 Charitable contributions 28 Penalty on early withdrawal of
Excludable 14 savings 27

Page 66 Publication 519 (2017)


State and local income Teachers and professors 47 U.S. real property holding
S taxes 28 Trainees, students, and corporation 18
Sailing permits, departing Stocks, trading in 17 apprentices 47 U.S. real property interest 18
aliens: Student loan interest Tax year 24, 33 U.S. tax-exempt income,
Aliens not requiring 50 expense 27 Teachers: expenses allocable to 30
Bond furnished, insuring tax Students: Alien status 5 U.S. Virgin Islands, residents of:
payment 51 Alien status 5 Tax treaty exemption 47 Where to file 36
Form 1040-C 51 Engaged in U.S. business 17 Wage withholding exemption U.S Virgin Islands, residents of:
Form 2063 51 Fellowship grant 12, 41 under tax treaty 42, 60 Withholding on wages 40
Forms to file 51 Income from foreign Tie-breaker rule 6
When to get 51 employer 16 Tip income 40
Where to get 51 Scholarship 12, 41 Totalization agreements 45 W
Salary (See Personal services Social security and Medicare Trade or business, U.S. 17 Wages (See Personal services
income) taxes 43 Beneficiary of estate or income)
Sale of home, income from 16 Tax treaty exemption 47 trust 17 Wages, withholding on 39
Sales or exchanges, capital Wage withholding exemption Business operations 17 Wages exempt from
assets 20 under tax treaty 42, 56 Income from U.S. sources 17 withholding 40
Scholarship: Students and business Partnerships 17 Waiver of filing deadline 36
Excludable 16 apprentices from India 27, Personal services 17 When to file 36
Source rule 12 28, 40 Students and trainees 17 Where to file 36
Withholding tax 41 Substantial presence test 4 Trading in stocks, securities, Who must file 35
Securities, trading in 17 and commodities 17 Withholding 39, 41
Self-employed retirement Trading in stocks, securities, Withholding tax:
plans 26 T and commodities 17 Central withholding
Self-employment tax 44 Tax, transportation 21 Trainees 5, 17 agreements 40
Social security benefits: Tax credits and payments: Transportation income: Notification of alien status 39
Dual-status alien 34 Nonresident aliens 31 Connected with U.S. On sale of real property 19
Nonresident alien 20 Resident aliens 30 business 18 Pensions 40
Social security number 25 Tax help 52 Source rule 12 Puerto Rico, residents of 40
Social security tax: Tax home 6, 13 Transportation of currency or Real property sales 42
Credit for excess tax Tax paid on undistributed monetary instruments 37 Scholarships and grants 41
withheld 43 long-term capital gains 32 Transportation-related Social security taxes 43
Excess withheld 32 Taxpayer identification number: employment, residents of Tax treaty benefits 42
Foreign students and exchange Defined 25 Canada or Mexico 40 Tip income 40
visitors 43 Penalty for failure to supply 38 Transportation tax 21 U.S. Virgin Islands, residents
International agreements 45 Tax treaties: Travel expenses 30 of 40
Self-employment tax 44 Tax Treaties: Treaties, income affected by 16 Wages 39
Totalization agreements 45 Benefits 46 Treaty benefits, reporting Wages exempt from 40
Withheld in error 44 Capital gains 47 benefits claimed 48 Where to report on the
Source of compensation for Effect of 6 Treaty benefits for resident return 32
labor or personal services: Employees of foreign aliens 47 Withholding from
Alternative basis 12 governments 47 Trust, beneficiary 17 compensation 39
Multi-year compensation 11 Exclusions from income 16
Time basis 11 Income affected by 16
Source of income 10 Income entitled to benefits 42 U
Standard deduction 28 Reporting benefits claimed 48 U.S. national 26, 33, 39

Publication 519 (2017) Page 67