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Publication 519

Chapter 9
Tax Treaty Benefits(p45)


A nonresident alien (and certain resident aliens) from a country with which the United States has an income tax treaty may qualify for certain benefits. Most treaties require that the nonresident alien be a resident of the treaty country to qualify. However, some treaties require that the nonresident alien be a national or a citizen of the treaty country.
See Table 9-1 for a list of tax treaty countries.
You can generally arrange to have withholding tax reduced or eliminated on wages and other income that are eligible for tax treaty benefits. See Income Entitled to Tax Treaty Benefits in chapter 8.


Useful items

You may want to see:

 901  U.S. Tax Treaties
Form (and Instructions)
 1040NR: U.S. Nonresident Alien Income Tax Return
 1040NR-EZ: U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents
 8833: Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
See chapter 12 for information about getting these publications and forms.

Treaty Income(p45)

A nonresident alien's treaty income is the gross income on which the tax is limited by a tax treaty. Treaty income includes, for example, dividends from sources in the United States that are subject to tax at a tax treaty rate not to exceed 15%. Nontreaty income is the gross income of a nonresident alien on which the tax is not limited by a tax treaty.
Figure the tax on treaty income on each separate item of income at the reduced rate that applies to that item under the treaty.
To determine tax on nontreaty income, figure the tax at either the flat 30% rate or the graduated rate, depending upon whether or not the income is effectively connected with your trade or business in the United States.
Your tax liability is the sum of the tax on treaty income plus the tax on nontreaty income, but cannot be more than the tax liability figured as if the tax treaty had not come into effect.


Arthur Banks is a nonresident alien who is single and a resident of a foreign country that has a tax treaty with the United States. He received gross income of $25,750 during the tax year from sources within the United States, consisting of the following items:
Dividends on which the tax is limited to a 15% rate by the tax treaty  $1,400
Compensation for personal services on which the tax is not limited by the tax treaty  24,350
Total gross income$25,750
Arthur was engaged in business in the United States during the tax year. His dividends are not effectively connected with that business. He has no deductions other than his own personal exemption.
His tax liability, figured as though the tax treaty had not come into effect, is $3,071 determined as follows:
Total compensation $24,350
Less: Personal exemption  3,800
Taxable income $20,550
Tax determined by graduated rate (Tax Table column for single taxpayers) $2,651
Plus: Tax on gross dividends ($1,400 × 30%) 420
Tax determined as though treaty had not come into effect $3,071
Arthur's tax liability, figured by taking into account the reduced rate on dividend income as provided by the tax treaty, is $2,861 determined as follows:
Tax determined by graduated rate (same as figured above) $2,651
Plus: Tax on gross dividends ($1,400 × 15%) 210
Tax on compensation and dividends $2,861
His tax liability, therefore, is limited to $2,861, the tax liability figured using the tax treaty rate on the dividends.