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. taxmap/pubs/p519-040.htm#en_us_publink1000222660
Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. For U.S. income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. See Green Card Test
in chapter 1. If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. You must also attach the following to your Form 1040 or 1040A.
- A copy of Form SSA-1042S, Social Security Benefit Statement.
- A copy of the "green card."
- A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U.S. lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. I am filing a U.S. income tax return for the tax year as a resident alien reporting all of my worldwide income. I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States.
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.
- Income (other than compensation) that is effectively connected with your U.S. trade or business.
- Income from real property that you choose to treat as effectively connected with a U.S. trade or business. See Income From Real Property in chapter 4 for details about this choice.
Special rules for withholding on partnership income, scholarships, and fellowships are explained next.taxmap/pubs/p519-040.htm#en_us_publink1000222664
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. You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. Generally, you must use Form 8804-C for this purpose. See the instructions for Form 8804-C for more information.
The withholding rate on your share of effectively connected income is generally the highest rate of tax that applies to you (35% for 2010). 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 (generally, Form W-8BEN). Long-term capital gain is an example of a particular type of income to which a highest tax rate applies. Claim the tax withheld as a credit on your 2010 Form 1040NR.
The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, 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, Foreign Person's U.S. Source Income Subject to Withholding. taxmap/pubs/p519-040.htm#en_us_publink1000222665
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.taxmap/pubs/p519-040.htm#en_us_publink1000222667
Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). Use the following instructions instead of the Form W-4 instructions to complete the worksheet.taxmap/pubs/p519-040.htm#en_us_publink1000222668
Enter the total of the following amounts on line A.taxmap/pubs/p519-040.htm#en_us_publink1000222669
Include the prorated part of your allowable personal exemption. Figure the amount by multiplying the number of days you expect to be in the United States in 2010 by the daily exemption amount ($10.00).taxmap/pubs/p519-040.htm#en_us_publink1000222670
Include expenses that will be deductible on your return. These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5.taxmap/pubs/p519-040.htm#en_us_publink1000222671
Include the part of your grant or scholarship that is not taxable under U.S. law or under a tax treaty.taxmap/pubs/p519-040.htm#en_us_publink1000222672
Enter -0- unless the following paragraph applies to you.
If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. The standard deduction amount for 2010 is $5,700. taxmap/pubs/p519-040.htm#en_us_publink1000222673
Enter -0- on both lines unless the following paragraphs apply to you.
If you are a resident of Canada, Mexico, South Korea, or a U.S. national, an additional daily exemption amount may be allowed for your spouse and each of your dependents.
If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2010 and cannot be claimed as a dependent on another U.S. taxpayer's 2010 return. You can also claim an additional amount for each of your dependents not admitted to the United States on "F-2," "J-2," or "M-2" visas if they meet the same rules that apply to U.S. citizens.
Enter any additional amount for your spouse on line C. Enter any additional amount for your dependents on line D.taxmap/pubs/p519-040.htm#en_us_publink1000222674
No entries should be made on lines E, F, and G.taxmap/pubs/p519-040.htm#en_us_publink1000222675
Add the amounts on lines A through D and enter the total on line H.taxmap/pubs/p519-040.htm#en_us_publink1000222676
Complete lines 1 through 4 of Form W-4. Sign and date the form and give it with the Personal Allowances Worksheet 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 the exemptions and 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 amount on line H of the worksheet 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 the withholding allowance amount, the tax rate, and the amount of tax withheld. Use this form to prepare your annual U.S. income tax return.