What is a tax treaty, and how does it apply with respect to payments to NRAs?
General Information A tax treaty is an agreement entered into between governments under which each country agrees to limit or modify the application of its domestic tax laws in an attempt to avoid double taxation of income to its residents (e.g. having the same income taxed by both countries). Tax treaties vary, but they generally limit or exempt U.S. taxation of compensation paid to residents of the foreign country. Some tax treaties are limited to an amount of time per year, and/or a limited dollar amount per year. Wages earned beyond either limit are subject to federal income tax. See IRS Publication 901 US Tax Treaties at the IRS web site for more information. (Please use the Glacier System to apply at Princeton University). As a result of the application of a tax treaty, a nonresident alien may be eligible to claim exemption from, or a reduced rate for, withholding on certain types of income including: • Employee Compensation Payments (service income) • Scholarship and/or Fellowsh
