Tax Treaty Information

Post-Doctoral Tax Information

The U.S. taxation of a post-doctoral student who is a nonresident alien can be complex and depends primarily on their tax residency status, the source of their funding (salary vs. fellowship/stipend), and the existence of a tax treaty with their home country.

Process Overview

1. Determine Tax Status

A post-doctoral student must first determine whether they are a Nonresident Alien (NRA) or a Resident Alien (RA) for U.S. tax purposes. This classification is important as this is the primary factor that dictates how the IRS and the institution handle your tax reporting and withholding.

• Nonresident Alien (NRA): An NRA is typically only taxed on U.S.-source income. If you meet Green Card Test or the Substantial Presence Test you are a Resident Alien, not an NRA.
• Resident Alien (RA): An RA is taxed on worldwide income, the same as a U.S. citizen. If you meet the Green Card Test of the Substantial Presence Test, you are an RA. Post-docs who have been in the U.S. for an extended period can transition from an NRA to an RA.

Determine Taxability of Income

For NRAs, as outlined in the table below, the tax treatment of their income depends on whether it is considered a fellowship/stipend or compensation for services (wages/salary).

Tax Treaty Overview

A tax treaty is a bilateral agreement between two countries designed to avoid double taxation and prevent tax evasion on income and capital. These treaties outline the tax obligations of individuals who earn income in one country but reside in another.

Currently, the US has tax treaties or agreements with several foreign countries and territories. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from US taxes, on certain items of income they receive from sources within the United States.

To see if your country is among these and how a treaty may affect your tax status, read the IRS Publication 901. It has the full content of all tax treaties negotiated between the US and the countries.

For more detailed information: visit the IRS Publication 519 and https://www.irs.gov/individuals/international-taxpayers/tax-treaties

To determine if you are a nonresident for tax purposes, take the IRS Substantial Test.

Note, to claim a treaty benefit, you must generally provide a valid U.S. Social Security Number (SSN) and submit a form like Form 8233 or Form W-8BEN.

Frequently Ask Questions.

1. Why is a tax treaty important for me as a postdoc?

A tax treaty can help reduce your overall tax burden by lowering tax rates or exempting certain types of income from tax. This can be particularly beneficial if you are earning income in the

U.S. but are a resident of another country that has a tax treaty with the U.S.

 2. How do I know if my country has a tax treaty with the U.S.?

You can check the IRS website for a list of countries that have tax treaties with the U.S. Additionally, the college’s tax office or the immigration team can provide this information.

IRS Publication 901

3. What types of income are covered under tax treaties?

Tax treaties typically cover various types of income, including wages, salaries, scholarships, fellowships, and research grants. Each treaty has specific provisions, so it’s essential to review the treaty applicable to your home country.

4. How does a tax treaty help me on my income tax return?

Tax treaties generally allow you to exclude a specified amount of U.S.-source income on their

U.S. tax return. This in turn reduces the tax liability because you do not have to pay taxes on that amount.

5. Where can I get help with understanding and claiming tax treaty benefits?

You can get help from the WCM finance office, immigration team, or a qualified tax professional. Additionally, the IRS website provides detailed information and resources on tax treaties. https://www.irs.gov/individuals/international-taxpayers/tax-treaties

You can also refer to the following site for additional information: https://www.irs.gov/individuals/international-taxpayers/foreign-students-scholars-teachers-researchers-and-exchange-visitors

6. Are there any deadlines for claiming tax treaty benefits?

Yes, there are deadlines for submitting the necessary forms to claim tax treaty benefits. It’s important to submit IRS Form 8233 at the beginning of your employment or as soon as you determine your eligibility for the treaty benefits.

7. How do I know if I qualify for treaty exemption?

In general, to be eligible for a tax treaty in the US, a person must meet the following criteria: 1) be a resident of a country that has a tax treaty with the US, 2) be a Non-Resident Alien for Tax Purposes in the United States, 3) currently be earning qualifying income in the United States, and have a US Social Security Number. 

8. What tax return(s) do I need to file?

NRAs who receive a taxable scholarship or fellowship grant, income exempt under a tax treaty, or any other taxable U.S.-source income must generally file a U.S. federal (and potentially state or local) income tax return.

NRAs typically file Form 1040-NR (U.S. Nonresident Alien Income Tax Return) at the U.S. federal level and may have state and local filing obligations as well. If you receive fellowship income, you will be issued Form 1042-S. If you receive salary/wage income, you will be issued Form W-2. The information reported on these forms would generally be reported on your U.S. federal, state, and local tax return(s). You may be required to pay estimated quarterly taxes to the IRS and/or states and local jurisdictions to avoid penalties and interest.

WCM/Cornell University is prohibited from providing you with personal income tax advice and cannot confirm for you the type(s) of returns you must file, the jurisdiction(s) in which you must file, the amount of tax you will ultimately owe, or other similar items relating to your U.S. federal, state, or local tax filings.

9. What are the consequences for not filing my tax form(s)?

 Penalties for not complying with the filing requirement can include but are not limited to:

• Denials of future requests for a Change of Status (especially to Permanent Resident)
• Denials of visa renewals at American Consulates/Embassies
  • Fines and interest will accrue on unreported income and could result in more money being owed to the IRS in the future.
  • If filed more than 3 years late, a refund will not be remitted by the IRS to the taxpayer.

If a treaty exemption applies to an individual and the appropriate documents are provided, they will be exempt from the IRS's NRA withholding requirement. This exemption is determined based on the information and documentation submitted by the Post Doc to the immigration team prior to the start of employment. It is crucial that this information is accurate to ensure the correct assessment of eligibility for a tax treaty.

Disclaimer

 The content on this document is for informational purposes only and should not be considered as tax, legal, or accounting advice. The information is provided "as is" without any guarantees regarding its completeness, accuracy, timeliness, or the outcomes resulting from its use. No warranties, express or implied, including but not limited to performance and fitness for a particular purpose, are made in connection with this information. All post-docs, including both NRAs and RAs are strongly encouraged to consult with a qualified tax professional who specializes in U.S. personal income taxation.