Withhold federal tax on income other than wages paid to nonresidents using the following rules: Nonemployee compensation U.S. source nonemployee compensation for any amount is reportable on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Withhold at 30% or lesser tax treaty rate if applicable (see Table 2. Compensation for personal services performed in United States exempt from U.S. income tax under income tax treaties PDF listed on the Tax treaty tables page, IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, or IRS Publication 901, U.S. Tax Treaties). The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Independent Personal Services", or with "Business Profits". The beneficial owner may claim the lesser tax treaty rate by filing Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the withholding agent. The withholding agent will report the payment on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, even if the entire amount of compensation is exempt under a tax treaty. Exceptions to mandatory withholding of federal income tax on nonresidents: IRC section 861(a)(3) / IRC section 864(b)(1) - Wages or Nonemployee Compensation is exempt from withholding of federal income tax if all three of the following conditions met: The nonresident alien performing services is present in the U.S. for a total of ninety (90) days or less in a taxable year; The compensation for such services does not exceed $3,000; and The nonresident alien performs the services as an employee of, or under contract with, a nonresident alien individual, a foreign corporation, or a foreign partnership not engaged in a trade or business in the U.S. or the foreign office of a U.S. citizen or resident individual, a U.S. corporation, or a U.S. partnership (including from within a U.S. possession). IRC section 872(b)(3) - Wages or Nonemployee Compensation exempt from withholding of federal income tax if both of the following conditions are met: The nonresident alien is present in the U.S. on an F, J, or Q visa; and The compensation for services is paid by a nonresident alien individual, a foreign corporation, or a foreign partnership or the foreign office of a U.S. citizen or resident alien individual, a U.S. corporation, or a U.S. partnership (including from within a U.S. possession). Scholarships/fellowships U.S. source scholarships/fellowships are reportable only for amounts which are taxable. The taxable portion of a scholarship/fellowship is that portion which is not excludible from gross income as a "qualified scholarship" under IRC Section 117(a). The statutory withholding tax rate is 30%. However, the withholding tax rate may be reduced to 14% if the recipient is nonresident alien student, researcher, or scholar who is temporarily present in the United States with an "F," "J," "M," or "Q" visa. Additionally, scholarship/ fellowship grant income is exempted from U.S. income tax and withholding under the student articles of certain income tax treaties. (See Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515 as well as IRS Publication 901.) The beneficial owner may claim the lesser tax treaty rate by filing Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) with the withholding agent. The withholding agent will report the payment on Form 1042 and Form 1042-S, even if the entire amount is exempt under a tax treaty. Athletes & entertainers U.S. source personal service income paid to an individual athlete or entertainer is reportable on Form 1042-S for any amount in excess of zero. Withhold at 30% or lesser tax treaty rate if applicable (see IRS Publication 515 and Publication 901). The beneficial owner of the income may claim the benefit of the tax treaty article that deals with "artistes, athletes or entertainers" or with "Independent Personal Services", if the treaty language allows it. The beneficial owner may claim the lesser tax treaty rate by filing Form 8233 with the withholding agent. The withholding agent will report the payment on Form 1042 and Form 1042-S, even if the entire amount of compensation is exempt under a tax treaty. If the payee is a sole proprietor using a dba (doing business as) name, follow the same rules as for an individual. If the payee is a foreign corporation, a foreign partnership, or a group of foreign individuals using a dba, see Withholding of tax on payments to foreign athletes and entertainers. Interest income If the interest income is paid by a U.S. bank, a U.S. savings & loan company, a U.S. credit union, or a U.S. insurance company to a nonresident alien, it is nontaxable and nonreportable (no 1099 or 1042-S reporting) unless the interest income is effectively connected with a U.S. trade or business. However, U.S. bank interest paid to a resident of Canada is reportable on Form 1042-S but is not subject to withholding (Treasury Regulation 1.6049-8(a)). If the interest income is portfolio interest and earned by a nonresident alien, then the interest income is reportable on Form 1042-S but nontaxable (Refer to Chapter 3 "Exclusions From Gross Income" - "Interest Income" – "Portfolio Interest" in Chapter 3 of Publication 519, U.S. Tax Guide for Aliens). If the interest income is from any other U.S. source and paid to a nonresident alien, please refer to Publication 515 for the correct treatment for the type of interest income involved. Withhold at 30% or lesser tax treaty rate, if applicable (see Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515) The beneficial owner of the interest income may claim the benefit of the tax treaty article which deals with "Interest Income." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of income is exempt under a tax treaty. A nonresident alien individual should not submit Form W-9 to a U.S. bank, U.S. savings and loan association, U.S. credit union, or U.S. insurance company. Instead, he should submit Form W-8 BEN, to such institutions in order to put them on notice that he is a nonresident alien and that the interest income accruing to his account at such institutions is not reportable to the IRS, except in the case of U.S. bank accounts held by residents of Canada. Dividend income If the dividend income is from a U.S. source and paid to a nonresident alien, it is reportable for any amount. Withhold at 30% or lesser tax treaty rate (see Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515) The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Dividend Income." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8 BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of income is exempt under a tax treaty. Capital gains With certain exceptions, capital gains income is not usually taxable to a nonresident alien whose days of presence in the United States do not equal or exceed 183 days in a calendar year. However, refer to The taxation of capital gains of nonresident alien students, scholars and employees of foreign governments for an exception to the general rule. If the capital gains income is taxable it is not usually subject to withholding. However, the beneficial owner of the capital gains income is required to report the gains on Form 1040-NR, U.S. Nonresident Alien Income Tax Return. The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Income from Gains" on his Form 1040-NR. (See IRS Publication 515). Royalties If the royalty income is from a U.S. source and paid to a nonresident alien, then it is reportable for any amount. Withhold at 30% or lesser tax treaty rate, if applicable (see Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515). The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Royalties Income." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8 BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of income is exempt under a tax treaty. Pensions and annuities U.S. source income from pensions and annuities is reportable for any amount in excess of zero. Withhold at 30% or lesser tax treaty (see Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515) on the taxable portion of a pension. The beneficial owner is allowed a deduction for his own investment in the contract, and the taxable portion of a pension is computed in the same manner as it would for a U.S. citizen. Refer to Publication 575, Pension and Annuity Income and Publication 939, General Rule for Pensions and Annuities for more information. The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Income from Pensions." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of compensation is exempt under a tax treaty. Social Security pensions Eighty-five percent of the U.S. Social Security pension paid to a nonresident alien is taxable at the rate of 30% (for an effective rate of tax of 25.5%). The Social Security Administration withholds 25.5% federal income tax on U.S. Social Security pensions paid to nonresident aliens and reports the income and the withholding on SSA’s own version of Forms 1042 and 1042-S. If the Social Security Administration fails to withhold U.S. federal income tax on the U.S. Social Security pension paid to a nonresident alien, the nonresident alien is required to report the U.S. Social Security pension received on Schedule NEC (Form 1040NR) PDF and to compute and pay the proper U.S. federal income tax on the pension. Social security pensions are exempt from U.S. federal income tax under some tax treaties. Alimony U.S. source alimony paid to a nonresident alien former spouse is reportable for any amount. Withhold at 30% or lesser tax treaty rate, if applicable (see IRS Publication 515). The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Alimony" (sometimes contained within another treaty article, or sometimes available by using the "Other Income" article of a tax treaty). The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount is exempt under a tax treaty. Au pair wages Wages paid to Au Pair Exchange Visitors generally are treated as wages paid to household employees. Refer to Au Pairs for more information. H-2A agricultural workers Wages paid to foreign agricultural workers temporarily present in the United States in H-2A nonimmigrant status are taxed and reported in a special way described in Withholding/Reporting on H-2A Agricultural Workers. Refer to Foreign agricultural workers for more information. Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax code, regulations, and official guidance page. To access any Tax Court case opinions for cases filed on or after May 1, 1986, visit the Opinions search page of the United States Tax Court. Related topics Foreign Students and Scholars Withholding on Specific Income
