Tax Considerations

Is Payment Subject to Withholding?

Almost all payments to foreign persons are potentially subject to withholding.

The only categorical exceptions are:

• Qualified scholarships, i.e. directly tied to instruction and achieving a degree (tuition, books and course materials, lab fees)

• Expense reimbursements

• Payments for goods manufactured outside the U.S.

 

Payment types that are subject to withholding:

• Payments for services

• Royalties, licenses

• Prizes, awards

• Non-qualified scholarship, fellowship, stipends

• Rent

 

Most payments subject to withholding have a withholding rate of 30%. Withholding rate for non-qualified scholarship, non-qualified fellowship, stipend payments is 13% - 15%. AP must withhold at the time of payment and submit withheld amount to IRS.

Withholding Exemptions

For a foreign person/entity to successfully claim an exemption from all or part of the withholding, payee must:

• Claim an existing tax treaty with the U.S. and

• Provide an acceptable Tax ID

Tax treaty is claimed via Form W8-BEN or 8233

 

Certain other statuses may allow for exemption.

Only certain countries have a tax treaty with the U.S. under tax treaties.  Residents (not necessarily citizens) of foreign countries are exempt from US income tax or are taxed at a reduced rate on certain types of income received from a US source.

 

Length of Stay

For certain payments (mostly managed by Payroll), if a foreign person has spent over a certain number of days in the U.S. (see Substantial Presence Test), they are not able to claim tax treaty.

 


 

Acceptable Tax ID Numbers Issued By IRS & SSA

• Social Security Number (SSN)

• Employer Identification Number (EIN)

• Individual Taxpayer Identification Number (ITIN)

 

Unacceptable Numbers for Claiming a Tax Treaty

• Passport Number

• Visa Number

• Foreign Tax ID Number