Completing IRS Form 8233 for Nonresident Aliens Requesting Tax Treaty Exemption

Purpose

This document describes when IRS Form 8233, “Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual” is required and provides step by step instructions for completing the form.

Background

Generally, income taxes for payments to nonresident aliens are withheld at a standard rate of 30%. There are several exceptions to the 30% tax withholding requirement, including exemptions claimed under an income tax treaty.

IRS Form 8233 must be completed when a non U.S. citizen is claiming tax treaty exemption from income taxes for "service" income. Service income includes income payments made to an employee or an independent contractor for services rendered.

The RF cannot approve an income tax treaty exemption if the income is not covered by the tax treaty or IRS Form 8233 or the support statement is incomplete.

When IRS Form 8233 is Required

Employees

IRS Form 8233 must be completed when a non U.S. citizen is claiming tax treaty exemption under one of the following articles:

Independent Contractors

IRS Form 8233 must be completed when a non U.S. citizen is claiming tax treaty exemption from income taxes for income received for services provided as an independent contractor. For example, income from lectures or an honorarium.

Tax Treaty Procedure

Refer to "Using Income Tax Treaties and Quick Reference Tables" for detailed information on reviewing and validating income tax treaty exemption claims.

Obtaining the Form

IRS Form 8233, “Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual” is available on the IRS Web site as a “fill-in” PDF form. Form instructions are also available. The form can be completed online and printed for original signature.

The form is also available in the document, "Tax Forms and Publications - Federal and State (Internal Revenue Service, Social Security, and New York State)."

Ensure that you obtain the form from one of these locations whenever you need it, so you can be sure you are using the most current version.

Completing the Form

The table below provides guidance on the information to enter for each line of the form.

Sample completed forms are available:

Providing a Supporting Statement

Employees must also have a “supporting statement” filed with the IRS Form 8233. The claim for treaty exemption is not valid without the supporting statement. The supporting statements for each country are provided in IRS publication 519, appendix A and B.

The supporting statements in IRS publication 519 meets the original requirements set out in IRS Revenue Procedures 87-8 for students and 87-9 for teacher/researchers. In July 2005 the IRS replaced Rev Proc 87-8 and 87-9 with Revenue Procedure 2005-44. Revenue procedure 2005-44 states the current statements are found and updated in IRS publication 519.

Sample completed supporting statements are also provided:

Reviewing Form 8233

The non U.S. citizen must review the form and sign and date the form. The non U.S. citizen signs the Part III “Certification” section under penalty of perjury.

Employees must also review and sign the supporting statement (see "Providing a Supporting Statement" section earlier in this document). Although there is no section for a signature or date on the supporting statements for employees in IRS publication 519, ensure the employee also signs the supporting statement.

Operating Locations

The form and supporting statement must be reviewed by the RF operation locations office that handles payroll/personnel matters or a delegate to ensure that the documentation is complete and accurate. If the reviewer finds that the form is not complete or knows or has any reason to believe the information is not correct, then the reviewer cannot accept the documents as valid and tax withholdings are required.

The reviewer must make a reasonable review and will not be held liable if any error was not clear from the face of the form or other information contained in the files and documents. However, the institution is generally presumed to have knowledge of all records and documents that it may have in its possession as a whole, not simply within a particular office or department.

If the treaty exemption is approved after review of the required documents, the RF operation location office that handles payroll/personnel matters or delegate completes Part IV “Withholding Agent Acceptance and Certification.”

Distributing Form 8233

Once the review of the documents is complete and income tax treaty exemption is approved, operating locations must make three photocopies of the form and any supporting documentation. Distribution of the copies is as follows:

Period of Validity for Form 8233

Start Date

Once the tax treaty exemption is approved and Part IV “Withholding Agent Acceptance and Certification” has been completed, the exemption is valid for the payment period associated with the date the agent section was signed and dated. For employees, if the date the forms are signed and approved falls in the middle of biweekly pay period, the treaty exemption is valid for the entire pay period. The tax exemption is NOT retroactive to prior payment periods for the individual. Any tax withholdings prior to receipt and review of the IRS 8233 and supporting documentation are valid tax withholdings and must be reported on year end tax statements.

Calendar Year

The IRS Form 8233 is valid for the current calendar year starting on the date Part IV “Withholding Agent Acceptance and Certification” is completed. Therefore, at year end December 31, if the person wants to
claim income tax treaty exemption for the next calendar year, a new form must be completed, reviewed, and accepted. If a new form is not received by the first payment period of the next calendar year, the payment is taxable at the default rates designated by the IRS until a new form is filed. Refer to "Taxation Guidance on Employee Payments to Nonresident Aliens" for more information on the default rates.

Rejections from the IRS

The IRS reviews IRS Form 8233 (and supporting statement if applicable) and if the IRS deems the form incomplete or if it appears to be incorrect, the IRS returns the form to the address provided in Part IV “Withholding Agent Acceptance and Certification.” The IRS will provide a notice or letter with IRS Form 8233 explaining why the form was rejected.

If IRS Form 8233 is rejected, operating locations must review the form for the error and notify the individual that they are now subject to taxation unless they revise the form or complete a new form if it is required.

Changes in Eligibility

If after filing the form the person claiming the tax treaty benefits becomes ineligible, he or she must notify the office in charge of RF payroll and personnel matters.

Input to the RF Business System for Employee Exemptions

State and Federal Tax Exemption

If the employee is exempt, the exemption must be recorded on the Federal Tax Rules form and/or the State Tax Rules form in the RF business system.

Special Information Types (SITs)

Special Information Types (SITs) are added to a non U.S. citizen employee assignment in the Payroll module to record residency and tax status data. The Non Citizen Residency Information SIT and Non Citizen Reporting Information SIT must be initially completed and then updated when residency or tax status changes.

Residency Changes

If the non U.S. citizen's residency status for tax purposes changes (for example, from a nonresident alien to a resident alien), this must be coded in the system and additional forms may be required. Refer to "Taxation Guidance on Employee Payments to U.S. Citizens, Permanent Residents, and Resident Aliens" for more information on taxation of U.S. citizens, permanent residents, and resident aliens.

If the person's status changes to "resident alien" and he or she is eligible to continue to claim income tax treaty exemption under a "saving clause" within the tax treaty, IRS Form W-9 and a supporting
statement is required. Refer to "Completing IRS Form W-9 for Resident Aliens Requesting Tax Treaty Exemption" for more information.

Input to the RF Business System for Independent Contractor Exemptions

For independent contractors, key input involves using the appropriate "NRA" supplier type in the Accounts Payable (AP) module. If the tax treaty exemption is valid, the NRA supplier type will be NRA IND CONTTE (TE = treaty exempt). Refer to "Nonresident Aliens: Payments to Independent Contractors, Participant Stipend Recipients, Royalty Recipients, and Rent Recipients" for more information.

Change History

 

 

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