All payments considered U.S. Source Income, other than properly substantiated out-of-pocket or travel expenses, are subject to 30% NRA withholding, unless exempted by law or reduced by a tax treaty. These payments are also subject to reporting by the UW on IRS Form 1042-S.

Primarily U.S. source income that is paid through Payables Administration includes items of income either performed or used in the U.S.

Examples include:

Payments for services (such as honoraria, lecturing fees, consultant fees) where work was performed in the U.S.
Royalties, copyrights
Use of intellectual property or permission fees
Likeness fees
Competitive prizes
Rental of personal or real property used or located in the U.S.

Payments for services performed entirely outside the U.S. are not taxable or reportable to the Internal Revenue Service (IRS). If services are performed both inside and outside the U.S., separate check requests or invoices are required for the portion of the service performed inside the U.S. Each payment document must clearly state service date(s) and where the work is performed.

Tax Treaties

Tax treaties are used to avoid double taxation, which occurs when two governments lay claim to the same income for reporting and income tax purposes. Tax treaties between the United States and some foreign countries allow an individual to make an application to avoid double taxation (referred to here as tax benefit). If the application is not rejected by the IRS, then the rate of withholding will be reduced. For honoraria, the amount is usually reduced to 0%. A U.S. taxpayer identification number is required to claim a tax treaty benefit.

IRS Form 8233

IRS Form 8233 is used by an individual to claim a tax treaty benefit for independent contractors. If the application is not rejected by the IRS, the tax treaty benefit can be applied.

A U.S. taxpayer identification number is required. The individual’s U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) must appear on line 2. If the individual does not have an SSN or ITIN, please consult How to Obtain an ITIN.

Guidelines for completing IRS Form 8233:

Calendar year must be entered in the space above Part I. Tax year is calendar year only.

The form must be completed through line 12, signed and dated, except line 10 which should be blank.

Line 1 should provide legal name (first then last)

Line 2 should provide U.S .Social Security Number or Individual Taxpayer Identification Number. Leave blank if applying for an ITIN while at the UW. If left blank provide a copy of IRS Form W-7 as complete as possible which will be submitted to accompany the 8233. This copy will not be used to apply for an ITIN.

Line 3 is completed if it applies

Line 4 is permanent address

Line 5 should include a U.S. address or N/A if not living in the U.S.

Line 6 the type of visa being used for entry into the U.S. Most independent contractors will arrive in Business or Tourist status. Therefore, enter whichever applies B-1 or WB are the most common but at any rate it needs to be the status the was or will be entered on the individual's I-94 or I-94W. Canadians unless arriving on a visa will use the words "Business/Tourist" everyone else must have a status.

Lines 7a., 7b and 8 are self-explanatory.

Line 9a should be the same as Line 6

Line 9b would be 90 days if business/tourist status or the date listed on the I-94 or I-94W. J-1 would be D/S.

Line 10 is left blank because the individual is claiming an Independent Contractor Treaty Article as a "self-employed person" (independent contractor).

Line 11 should include a description of the activity and the number of days that the activity is being performed.

Line 12b should read U.S. - (name of foreign country) Article (from the tax treaty). Current tax treaty articles are in IRS Publication 515.

Line 12c needs to be completed.

Applicant needs to sign and date the form

Once completed by the visitor, the department should make a copy for their records. The original IRS Form 8233 is sent to:

Financial Services/Accounting
Box 351130

The Financial Services/Accounting will review IRS Form 8233 and complete Part IV of the form. The form is then mailed to the IRS in Philadelphia. If the application is not rejected by the IRS within ten days, the tax treaty benefit can be granted and a check issued without NRA withholding. This process will take a minimum of two weeks. Due to holidays and weekends, it may take longer.

Tax Treaty Tables

(excerpted from IRS Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities - Rev. April 2007) for Withholding in 2007. For the full text go to: http://www.irs.gov/pub/irs-pdf/p515.pdf.

The United States has income tax treaties (or conventions) with a number of foreign countries under which residents (sometimes limited to citizens) of those countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain income received from within the United States.

The IRS Publication 515 includes the following information:

Table 1 - Withholding Rates on Income other than Personal Service Income. (see IRS Publication 515 page 38 - 41)

Table 2 - List of the Different Types of Personal Service Income (Independent Contractor) that are entitled to an exemption from, or reduction in, withholding. (see IRS Publication 515 pages 42 - 53)

Table 3 - List of the Tax Treaties (see IRS Publication 515 page 54)

These tables are not meant to be a complete guide to all provisions of every income tax treaty. For detailed information, you must consult the provisions of the tax treaty that apply to the country of the nonresident alien to whom you are making payment.

Income that is exempt under a treaty is not subject to withholding at source under the statutory rules discussed in this publication.