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Publication 519

Withholding From Other Income(p41)

Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. It also includes 85% of social security benefits paid to nonresident aliens.

Other income not subject to withholding of 30% (or lower treaty) rate.(p41)

The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income.
Special rules for withholding on partnership income, scholarships, and fellowships are explained next.

Tax Withheld on Partnership Income(p41)

If you are a foreign partner in a U.S. or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. Your partnership may be able to reduce withholding on your share of ECTI by considering certain partner-level deductions. Generally, you must submit Form 8804-C for this purpose. See the Instructions for Form 8804-C to the partnership for more information.
The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39.6% for 2017). However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. Claim the tax withheld as a credit on your 2018 Form 1040NR.
For tax years beginning in 2018, the highest rate of tax specified under section 1 of the Code has decreased to 37%.
The partnership will give you a statement on Form 8805 showing the tax withheld. A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. In this case the partnership will give you a statement on Form 1042-S.

Withholding on Scholarships and Fellowship Grants(p41)

There is no withholding on a qualified scholarship received by a candidate for a degree. See chapter 3.
If you are a nonresident alien student or grantee with an "F," "J," "M," or "Q" visa and you receive a U.S. source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate.
Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages.

Alternate Withholding Procedure(p42)

Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4. See below for items that may reduce your withholding.


Include expenses that will be deductible on your return. These include the IRA deduction discussed under Deductions in chapter 5.

Nontaxable grant or scholarship.(p42)

You can exclude the part of your grant or scholarship that is not taxable under U.S. law or under a tax treaty.

Standard deduction.(p42)

If you are a student who qualifies under Article 21(2) of the United States–India Income Tax Treaty, you can take the standard deduction. The standard deduction amount for 2018 is $12,000.

Form W-4.(p42)

Complete the appropriate lines of Form W-4. Sign and date the form and give it to your withholding agent.
If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U.S. income tax return to be allowed any deductions you claimed on that form. If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U.S. income tax return for the previous year. If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U.S. income tax return when required.
After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. The gross amount of the income is reduced by the applicable amount(s) on Form W-4, and the withholding tax is figured on the remainder.
You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less any withholding allowance amount, the tax rate, and the amount of tax withheld. Use this form to prepare your annual U.S. income tax return.
For more information, see the Form W-4 (2018).