Unusual tax Treaties
These comments are not a full discussion
of tax treaties for the countries mentioned. They are comments calling
attention to key features of various treaties and an invitation to
further investigation should a taxpayer have been a resident of one of
the countries mentioned prior to arrival in the United States.
Some treaties are straight
forward, meaning they state clearly the benefit provided. They have no
conditions that the taxpayer needs to know.
The following comments point out special conditions
that the tax payer does need to know about to comply with the tax laws.
For teachers, scholars, and post-doctoral researchers:
- Luxembourg joins India,
Netherlands, and the United Kingdom as countries that revoke
income exemption for taxpayers working for educational institutions if
the taxpayer stays beyond the treaty specified time period. Taxpayers
that stay even one day beyond their permitted time in the United States
will have to pay tax on their previously exempt income for the entire
time they were exempt.
- The possibility of treaty benefit revocation
generates the need for careful reflection on how long a person will
actually stay in the US.
- If you would like to discuss this issue with an
experienced tax advisor, send your email request for an appointment to Tom Bullock or to Ken Milani.
- Residents of Canada working in
the United States enjoy a benefit that states all earned (dependent
personal service) income not exceeding $10,000 is excluded entirely from
income for the tax year. However, if a person earns $10,000.50 or
more, then nothing is excluded and the entire amount is taxable. This
benefit starts over each tax year.
For students:
- Barbados, Hungary, and Jamaica
provide the student taxpayer the
option of choosing to be taxed as a US citizen immediately upon
entry. If activated, this bypasses all substantial presence test
(SPT) considerations. If they elect to be taxed as US citizens, and
later they wish to revoke that election, then the IRS needs to agree
with them before revocation would be effective. If they elect to be
taxed as US citizens, then they would have to pay FICA taxes to the same
degree as a US student would.
- Students from Germany can
receive tax free scholarships for living
expenses for unlimited time and amount. If they earn income, the
can exempt $9,000 for 4 years. If they stay beyond the 4 years, then
the tax exemption is revoked and they have to pay tax on the previously
exempt earnings.
- Students from Luxembourg can
receive tax free scholarships for living
expenses unlimited in amount for as long as they remain students.
- Students from the Netherlands
can receive unlimited in amount living expense scholarhips for 3 years.
They also can exempt $2,000 of earned income for as long as they are in
the US as a student.
- The treaty between the US and India
affords no income exemption for students. However, it does grant use
of the US standard deduction for each student taxpayer. The amount
received is the same as that authorized for US citizen taxpayers.
Additionally, under certain conditions, it may be possible to claim
exemption allowances for married students who have a spouse and
dependents living with them in the United States.
- Residents of Canada studying in
the United States enjoy a benefit that states all earned (dependent
personal service) income not exceeding $10,000 is excluded entirely from
income for the tax year. However, if a person earns $10,000.50 or
more, then nothing is excluded and the entire amount is taxable. This
benefit starts over each tax year.