Tax Treaties and the Taxation of Payments

Index:
  1. General Information
  2. Important Tax Treaty Information
  3. Forms To Be Used To Claim Tax Treaty Exemption
  4. Countries with Tax Treaty Provisions Relating To Fellowship/Scholarship Grants
  5. Countries with Tax Treaty Provisions Relating To Compensation For Independent Personal Services
  6. Countries with Tax Treaty Provisions Relating To Wages Paid To Students
  7. Countries with Tax Treaty Provisions Relating To Wages Paid To Teachers/Researchers
    8.

GENERAL INFORMATION

The University makes various types of payments to non-resident aliens which may be non-taxable for United States and State of Michigan income tax purposes if:
    1. There is a tax treaty in effect with their country of residence and
    2. Specific articles under the tax treaty grant the exemption.

These various types of payments to non-resident aliens include:

  • Salaries paid to teachers/researchers
  • Form G/G-2 payments for independent services
  • Fellowship/Scholarship payments
  • Wages paid to students

Income tax withholding rules for salary/wages paid to non-resident aliens require withholding at the graduated tax rates (range of 10% - 35%). Fellowship/scholarship payments to non-resident aliens are taxed at a 14% rate and Form G/G-2 payments at a 30% rate.

Upon entry to the U.S., all non-resident aliens should complete an "Alien Certificate" to ensure proper taxation for Federal, Social Security and state taxes. The form can be found at


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IMPORTANT TAX TREATY INFORMATION

The IRS requires a U.S. Identification number for claiming tax treaty benefits.
This number may be one of the following:
  1. U.S. Social Security Number.
  2. Individual Taxpayer Identification number (ITIN).

The IRS will only accept the most recent release of Form 8233. This version of Form 8233 can be identified by "(Rev. December 2001)" in the upper left hand corner.


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FORMS TO BE USED TO CLAIM TAX TREATY EXEMPTION

If a payment can be considered non-taxable under a tax treaty, the recipient of the payment may request that no taxes be withheld by completing the proper document and submitting it to the University Payroll Office, G395 Wolverine Tower, 1279. The document to use for each type of payment is indicated below.

Payment Type
Document
Teaching/Research Wages Form 8233 plus Attachment
Form G/G-2 Form 8233
Student Wages Form 8233 plus Attachment
Fellowship/scholarships Form W-8 BEN

A copy of each document is available under the forms/tables tab. The attachment numbers for students and teacher/researchers are in the table further down on the page.

If you have any questions, please contact the payroll office at 936-3512.


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