Handbook of Business Procedures
Date published: December 7, 2010
Last revised: February 17, 2014
Issued by: Tax Services
12.5.3. TAX TREATY BENEFITS
A. Introduction
Some countries allow treaty benefits for business or personal services. Independent contractors in valid immigration status who are residents of these countries may wish to apply for the treaty benefits to reduce the required 30 percent U.S. federal income tax that must be withheld from service payments. A listing of treaty benefits is available in IRS Publication 901.
Due to the IRS restrictions on the documentation requirements and the timing of applications, these applications must be processed through Accounting and Financial Management and cannot be provided by visitors or by departments.
There are several steps a department must take to obtain treaty benefits for a visitor:
- Confirm the actual dates of the visit and the type of U.S. entry visa with the visitor.
- Provide the visitor with an official invitation letter to ensure a proper stamp is issued by the U.S. border authorities in the visitor’s passport.
- Call Tax Services in Accounting and Financial Management at 512-471-7820 to confirm that the visitor’s country of residence has treaty benefits available.
- If the visitor is eligible for treaty benefits, make a treaty benefit appointment with Accounting and Financial Management. Due to the limited availability of appointments, schedule the appointment early to ensure the visitor will have an appointment time available during the time the visitor will be at the university.
- If the visitor already has a U.S. tax number [Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)], the appointment will take no longer than 30 minutes.
- If the visitor does not have a U.S. tax number (SSN or ITIN), the appointment will take no longer than one hour.
Note: A visitor without a U.S. tax number can be issued a payment Nov. 16th thru Dec. 31st of each calendar year, but will not be eligible for tax treaty benefits during this time. Because the Internal Revenue Service (IRS) requires up to two months for issuing U.S. tax numbers, it will not be possible to issue the payment to the visitor under the tax treaty benefit, which expires by the end of the year. Therefore, tax treaty appointments cannot be made for these visitors during this period.
- Collect all items on the B or J checklist except the I-94 electronic authorization. When the visitor arrives, make a copy of the I-94 electronic authorization if the visitor has one or pull a copy from the link provided on the checklist.
- All checklist items must be faxed to Accounting and Financial Management at 512-471-1651 and must be received at least 24 hours prior to the meeting. Note: If the list contains security sensitive information, send via the Secure Message System.
If all checklists items are not received at least 24 hours prior to the appointment, the scheduled appointment will be canceled. If arrival/departure stamp in the passport or the electronic I-94 issued indicates a different immigration status than expected, treaty benefits may not be available. Keep a departmental copy of the checklist items to attach to the payment voucher when submitted for payment to Accounting and Financial Management. Call Tax Services at 512-471-7820 immediately after submitting the checklist items to confirm the appointment. - Escort the visitor to Accounting and Financial Management in MAI 132 and attend the appointment with the visitor to provide assistance if needed. The department must bring all checklist items, and the visitor must bring his/her passport to the scheduled appointment, including a copy of the original electronic I-94 admission number retrieval.
Any visitor who is at the university for three days or less may not have time to complete the application process. If a treaty benefit appointment time is not available, or if the visitor’s schedule prevents attending a treaty benefit appointment with Accounting and Financial Management, tax will be withheld at a rate of 30 percent. If the visitor is eligible for treaty benefits, the visitor can claim the treaty benefits as part of filing the U.S. tax return form 1040NR.
C. Immigration Documents
Immigration documents are required for payment for services, including honorarium and stipends, regardless of whether treaty benefits are available or not. If treaty benefits are not available, the visitor must be informed of the mandatory 30 percent U.S. Federal income tax that must be deducted from the fee payment.
The documents required will be determined by the type of visa/immigration status of the visitor. These documents will confirm the legality of the payment and must be attached to the payment voucher. Some of these items can only be collected while the visitor is inside the U.S. A checklist of these required documents is available: