Form 8233 is a form from the Internal Revenue Service (IRS) used by nonresident alien individuals. It is also known as “Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.”
Generally, compensations for personal services made to nonresident aliens are commonly subject to withholding of 30% in income taxes. However, there may be exceptions to this withholding requirement because of a tax treaty. Form 8233 is used by nonresident aliens to claim a tax treaty withholding exemption.
What is the significance of a tax treaty in taxation?
A tax treaty is an agreement established between two countries that define issues concerning taxation. The United States has tax treaties with multiple countries. According to these treaties, residents of foreign countries are taxed at a lesser rate or are exempt from U.S. taxes on specific types of income that they gain from U.S. sources.
Similarly, U.S. citizens and residents can claim reduced taxes or exemption from taxes if they work on foreign soil. The rules on reduced taxes and exemptions differ among countries. They also vary depending on the type of income. That is why foreign persons need to check the provisions on tax treaties before accepting payments for services in the U.S. and vice versa. If there is no tax treaty between a country and the United States or if a particular source of income is not covered, then the individual must pay taxes according to the applicable rates set by the IRS.
What are some important reminders to nonresident alien individuals who would like to claim a tax treaty exemption?
For nonresident alien individuals who wish to claim tax exemption under a tax treaty, they must complete Form 8233 and provide it to the withholding agent. Part of completing the form is to furnish a U.S. taxpayer identification number. Generally, this is a Social Security Number (SSN) in most cases. However, if the nonresident alien individual does not have an SSN and is not eligible to obtain one, they must get an Individual Taxpayer Identification Number (ITIN).
An ITIN is a tax processing number. It is issued by the IRS to persons who are required to have a U.S. taxpayer identification number but do not have one and who are also not eligible to get an SSN. Applying for an ITIN requires completing Form W-7 along with proof that they are not eligible to get an SSN. A rejected Form SS-5 could be provided as proof. Also, include Form 8233. Processing time for ITIN application is usually 7 weeks but may take 9-11 weeks during peak periods (January 15- April 30).
While waiting for the ITIN, nonresident alien individuals can give a copy of completed Form 8233 and attach a copy of a submitted Form W-7 and a rejected SS-5 and give these to the withholding agent or employer.
What are the responsibilities of the withholding agent in completing Form 8233?
A withholding agent refers to any person who hired a nonresident alien individual for services and made payments to them that are subject to withholding. If you hired a nonresident alien individual and they are want to claim tax exemption under a tax treaty, they must fill out Form 8233 and give it to you.
Upon receipt of Form 8233, you must review the information written and, if satisfied, provide the information needed and sign the certification on Part IV of the form. Please note that you will need three copies of the completed Form 8233 along with the attachments provided by the nonresident alien individual on each copy. What do you need to do with these three copies?
Give one copy to the nonresident alien individual.
Keep one copy for your records.
Within 5 days of your acceptance of Form 8233, submit a copy to the IRS by mailing it to:
Department of the Treasury
Internal Revenue Service
Philadelphia, PA 19255-0725
You may also submit it via fax to 877-824-9781. Remember that there is a limit of 100 pages at one time.
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