Form 8233

What Is Form 8233?

Form 8233 is a document issued by the Internal Revenue Service (IRS) for nonresident alien (NRA) employees. This form helps NRA employees claim exemption from federal income tax withholding (FITW) based on international agreements between the United States and their country of residence.

Generally, Internal Revenue Code (IRC) section 1441 requires a 30% NRA tax withholding on any income for independent personal services. The exception to this rule includes individuals who are exempt based on tax treaties. Form 8233 applies the tax treaty benefit by claiming a reduced withholding rate or total exemption on US-source income.

Who Needs to Fill Out IRS Form 8233?

Most nonresident alien individuals living and working in the US (including those on an F-1 student visa or J-1 exchange visitor visa) should fill out the form. This allows nonresidents to benefit from any tax treaties the US has made with their home country.

However, there's a difference between who needs to fill out Form 8233 and who should submit the form. While a nonresident alien individual must fill out and sign the form, their employer must determine eligibility, sign the form, and file it with the IRS.

How Often Does Form 8233 Need to Be Completed?

Form 8233 must be completed each tax year the employee wishes to claim exemption. It's also submitted for each employer and each type of income, so an NRA individual may need to complete more than one during the year. The form should be filed using the same process each time.

What Is a Nonresident Alien?

A nonresident alien is any person who isn’t classified as a US citizen or resident within the calendar year. To be considered a US resident alien an individual must pass either the green card test or the substantial presence test.

For tax purposes, an employee may also be considered a nonresident alien individual if they qualify as a resident of a treaty country or are a legal resident of the following areas:

• American Samoa
• Commonwealth of the Northern Mariana Islands
• Guam
• Puerto Rico
• US Virgin Islands

What Is Exemption from Withholding?

Exemption from withholding is a type of tax break. Exemptions usually only apply to certain types of income and can sometimes be claimed as part of a tax treaty agreement. Exempt income reduces the amount of taxes an individual must pay to the federal government.

How Does a Tax Treaty Work?

The US has tax treaties with multiple countries. Under these treaties, residents of foreign countries receiving compensation for personal services in the US are taxed at a reduced rate or exempt from certain taxes on their income. These reduced rates and tax exemptions vary by country and income items.

Likewise, US residents and citizens working in these foreign countries are eligible for income tax deductions or exemptions.

Form 8233 Submission to the IRS: How to File

NRA employees must provide a taxpayer identification number (TIN) when filling out Form 8233.

In most cases, their TIN is a Social Security number (SSN). But if an employee doesn’t have an SSN yet or isn’t eligible for one, they must apply for an individual taxpayer identification number (ITIN) by filing Form W-7 and providing proof they’re ineligible for an SSN. This proof can be a letter of denial for a rejected Form SS-5.

Submission instructions for Form 8233 indicate that employers should check to ensure an NRA employee is eligible for exemption from withholding. If so, the employer should sign the certification in Part IV of the form and submit a copy to the IRS.

It can take several weeks for the IRS to notify an employee of their ITIN status. In the meantime, they may attach a copy of their W-7 and proof to Form 8233 and submit it to their employer. If they're waiting for an SSN, they can attach a copy of their completed Form SS-5.

Supporting Documents You Might Need to File a Form 8233

An NRA employee will likely be required to include supporting documents with Form 8233 to prove their eligibility for tax exemption, such as:

• I-20, Certificate of Eligibility for Nonimmigrant Student Status
• I-94, Arrival/Departure Record
• Student visa
• Passport
• Proof of nonresident status

The documentation an NRA individual needs depends on what type of work they do, the type of income they receive, and the regulations in their applicable tax treaty.

What Do Employers Need to Know About Form 8233?

Employers must review Form 8233 and provide their information and signature in Part IV: Withholding Agent Acceptance and Certification. Once signed, here are the additional steps required to file:

1. Obtain three copies of the completed form, including any attachments.
2. Provide the NRA individual with a copy.
3. Keep one copy for your own records.
4. Forward one copy to the IRS Department of the Treasury.

The form must be mailed to the specified address or faxed to 877-824-9781 or 267-466-1365 within five days of signing and approval.

Exemption is retroactively effective to the date covered by the form, but you must give the IRS at least 10 days for review. If the IRS rejects your employee’s Form 8233, you must immediately begin withholding the applicable taxes from their paychecks.

What Are the Key Terms on Form 8233?

Knowing these key terms can help you better understand Form 8233:

• NRA employee: Any employee who isn’t a US citizen or US resident is considered an NRA employee. They’re subject to US taxes on income from US sources.
• Green Card test: An individual with a Permanent Resident Card (a Green Card) from the US Citizenship and Immigration Services (USCIS) passes this test.
• Substantial presence test: An individual who’s physically present in the US for certain minimum periods passes this test.
• Independent personal services: These are services a self-employed NRA individual performs as an independent contractor in the US.
• Dependent personal services: These are services an NRA individual performs as an employee working for an employer in the US.
• Tax treaties: Two countries establish income tax rules and regulations for their citizens and residents in these agreements.
• Withholding agent: This is any individual or entity who controls or is in custody of an amount for an NRA employee that's subject to withholding.
• Beneficial owner: In most cases, this is the individual required to include the gross income payment on a tax return.
• Taxpayer identification number (TIN): A TIN is any identification number used by the IRS, such as an SSN, ITIN, EIN, and others.

For more information on these key terms, check out the Form 8233 instructions.

How Is Form 8233 Different from Form W-8 BEN?

In general, W-8 forms are used to verify an NRA employee’s country of residence for tax purposes. The W-8 BEN (a.k.a a Certificate of Foreign Status) is used to certify that a foreign person is the beneficial owner of the compensation they receive while doing business in the US. Individuals complete W-8 BEN, and entities complete W-8 BEN-E.

Foreign individuals must generally pay a 30% tax withholding on certain types of income, such as interest, dividends, royalties, annuities, premiums, and rents. These sources require the submission of a W-8 BEN to prove the NRA individual owns that income subject to tax withholding. If they're eligible due to a treaty, the form allows for a reduction or exemption of those taxes.

While it may seem like IRS Form W-8 BEN and Form 8233 serve the same purpose, they don't. Form 8233 applies only to those earning income from providing personal services, not any of the aforementioned income sources.

Additionally, Form 8233 must be submitted to and approved by the IRS before the employer reduces or exempts any tax withholding. However, W-8 BEN instructions indicate this form is sent to the withholding agent, not the IRS.