Understanding the tax treaty table for F1 & J1 student wages...

By Alex Oware on 06/24/2015 10:00 PM

The table below indicates which countries have tax treaties with the United States in which some, or all, student wages are tax exempt, provided certain conditions are met.

If a student’s country of residence is  included in the table below and the criteria in Column B and Column C are met, wages qualify for a tax exemption, and the following tax form needs to be completed upon hiring:

Form 8233: Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.

If a student’s country of residence does not appear in the table below, Form 8233 does not need to be completed.

Description of Table Columns

Column A: Students’ country of permanent citizenship. This is used in completing Form 8233 line 12c.

Column B: Maximum length of exemption. After the maximum number of years in the United States has been reached, the individual is subject to federal tax withholding.

EXAMPLE: A student from Romania has $2,000 of student wages but has been in the United States for six years. The $2,000 is subject to taxation because the student has been in the United States over the five-year limit.

Column C: Maximum earnings for exemption. The information in Column C is used for completing Form 8233 line 12b. Earnings above the annual maximum per year are subject to taxation. The one exception to this condition is for Canada. Wages below the $10,000 threshold are exempt. However, if wages exceed $10,000, the entire amount is taxable and not just the amount that exceeds $10,000.

CANADA EXAMPLE: A student from Canada earns $12,000. Because it exceeds the $10,000 threshold amount, the entire $12,000 is taxable.

Note that Table 2 of Publication 901 says that up to $10,000 of dependent personal services compensation paid by a U.S. resident (or foreign resident) to a Canadian resident is excludable under Article XV of the U.S./Canada treaty.

That might imply that a canadian student  can exclude $10,000 of his $12,000 of wages from income. However, under the explanation on page 4 of Publication 901, if the taxpayer earns more than $10,000 the total amount is taxable. Therefore, the student cannot exclude any income under the treaty.

OTHER EXAMPLE: A student from China has student wages of $6,000. Because the tax treaty exempts up to $5,000, only $1000 will be subject to federal taxation.

Column D: The tax treaty article citation. This is used in completing Form 8233 line 12a.

Column A

Column B

Column C

Column D

Country ofResidence

Maximum Presencein USA

MaximumCompensation

Treaty ArticleCitation

Bangladesh

No Limit

$8,000

21(2)

Belgium

No Limit

$9,000

19(1)(b)

Bulgaria

No Limit

$9,000

19(1)(b)

Canada

No Limit

$10,000

XV

China, People’s Republic

No Limit

$5,000

20(c)

Cyprus

5 years

$2,000

21(1)

Czech Republic

5 years

$5,000

21(1)

Egypt

5 years

$3,000

23(1)

Estonia

5 years

$5,000

20(1)

France

5 years

$5,000

21(1)

Germany

4 years

$9,000

20(4)

Iceland

5 years

$9,000

19(1)

Indonesia

5 years

$2,000

19(1)

Israel

5 years

$3,000

24(1)

Korea, South

5 years

$2,000

21(1)

Latvia

5 years

$5,000

20(1)

Lithuania

5 years

$5,000

20(1)

Malta

No Limit

$9,000

20(2)

Morocco

5 years

$2,000

18

Netherlands

No Limit

$2,000

22(1)

Norway

5 years

$2,000

16(1)

Pakistan

No Limit

$5,000

XIII(1)

Philippines

5 years

$3,000

22(1)

Poland

5 years

$2,000

18(1)

Portugal

5 years

$5,000

23(1)

Romania

5 years

$2,000

20(1)

Slovak Republic

5 years

$5,000

21(1)

Slovenia

5 years

$5,000

20(1)

Spain

5 years

$5,000

22(1)

Thailand

5 years

$3,000

22(1)

Trinidad and Tobago

5 years

$2,000

19(1)

Tunisia

5 years

$4,000

20

Venezuela

5 years

$5,000

21(1)

***Disclaimer: I am a tax accountant and a CPA , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**