Taxes & Treaties for International Student Employees

1. Taxes & Treaties for International Student Employees Amanda Maines UB International Employment Tax Unit Suzanne Reusch New York State Department of Taxation & Finance

2. AGENDA • Tax Vocabulary • Income Tax Treaties • How To Claim a Tax Treaty Benefit • U.S. Income Tax Withholding • New York State Income Taxes

3. TAX VOCABULARY • IRS = Internal Revenue Service • Income Tax Return = form which all employees send to the IRS each year • To file an income tax return = to send it to the IRS • Income = money earned from a job, bank interest or investments • Wages or compensation = money earned only from a job

4. BACKGROUND ON U.S. TAXATION • There are two types of income tax that employees in the U.S. pay: • Federal (U.S.) tax • State (New York) tax

5. TAX VOCABULARY • To withhold income taxes (tax withholding) • to subtract income taxes directly from the employee’s paycheck • Exempt from paying income tax (tax exemption) • excused from paying income tax due to an income tax treaty

6. What about Income Tax Treaties?

7. INCOME TAX TREATIES • Exist between the United States and 47 foreign countries • 31 apply to students • Either reduce or exempt income tax on a portion of earnings • Apply only to federal and state tax • Based on country of foreign residence not citizenship

8. DIFFERENCES IN TAX TREATIES • Most income tax treaties exempt earnings from income taxes while others reduce income taxes. • There is a dollar limit on the amount of earnings that can be exempt from income tax. • Wages earned over the exempt dollar limit will have income tax withheld. • There is a time limit on the number of years that a foreign employee can benefit from the income tax treaty • Begins from date of arrival in the United States

9. DIFFERENCES IN TAX TREATIES • Retroactive clauses • If the exempt dollar or time limit is exceeded, the wages may be taxed back to the first dollar earned. • To find out more about a specific income tax treaty, see the Student Income Tax Treaties handout and IRS Publication 901.

10. How Do I Know if I am Eligible to Claim a Tax Treaty Benefit?

11. STUDENT INCOME TAX TREATIES

12. U.S. TAXATIONPUBLICATION 901

13. What Do I Need to Do to Claim a Tax Treaty Benefit?

14. FORMS USED TO CLAIM A TAX TREATY BENEFIT • FORM 8233 = “Exemption from Withholding on Compensation based on a Tax Treaty” • Use this form to claim a tax treaty exemption. • REVENUE PROCEDURE = Required statement that is attached to Form 8233 verifying your exempt status

15. The International Employment Tax Unit will prepare Form 8233 and the Revenue Procedure for you.

16. PRE-FILLED FORM 8233

17. PRE-FILLED FORM 8233

18. PRE-FILLED FORM 8233

19. FORM 8233: SIGN PART III Youra Name 1/10/08

20. REVENUE PROCEDURES • The Revenue Procedures require Students, Teachers and Researchers to attach a statement to Form 8233.

21. Sample RevenueProcedure Statement Youra Name 1/10/08

22. FORM 8233 OR FORM W-4? • Form 8233 is used to claim exemption from income taxes because of a tax treaty. • If there is no tax treaty between your country and the U.S., then you will complete Form W-4 instead.

23. W-4 Form Youra Name 1/10/2008

24. How Do I Pay U.S. Taxes?

25. U.S. TAXATIONTAX WITHHOLDING • Salaries, wages, or any other compensation for work paid to a nonresident alien employee are subject to tax. • Withholding = automatic deduction of income taxes from an individual’s paycheck • Your income taxes will be withheld from your paycheck by UB’s Human Resource Services.

26. What About New York State Taxes?

27. NEW YORK STATE TAXES • New York State complies with ALL Federal (United States) Tax treaties in accordance with the Internal Revenue Codes.

28. NEW YORK STATE TAXESWhich form to use? • For New York State Taxes, you will give to your new employer either: • IT2104 – Employee’s Withholding Allowance CertificateORIT2104E – Certificate of Exemption from Withholding

29. NEW YORK STATE TAXESWhich form to use? • IT2104 – Employee’s Withholding Allowance Certificate Use this form if:1) You intend to earn MORE than $7500 in gross income in New York State OR2) You can be claimed on another individual’s federal income tax return and you intend to earnMORE than $3000 in gross income in New York State.

30. NEW YORK STATE TAXES - Form IT-2104 1/13/2008 Youra Name DO NOT FILL THIS IN or ANY BOXES BELOW YOUR SIGNATURE & date

31. NEW YORK STATE TAXESWhich form to use? IT2104E – Certificate of Exemption from Withholding Use this form if all three of these exist: 1) You are a full-time student under the age of 25AND 2) You had no New York State tax liability in 2006AND 3)You DO NOT expect a tax liability for 2007 NOTE: If you are unsure complete IT-2104

32. New York State Taxes Form IT-2104-E X x x x x Youra Name DO NOT FILL in this BOX or any boxes BELOW SIGNATURE and DATE

33. CONTACT INFORMATION • Internal Revenue Service • 1-800-829-1040 • http://www.irs.gov • New York State • 1-800-225-5829 • http://www.tax.state.ny.us/pit • International Employment Tax Unit (UB) • Amanda Maines (716) 645-5000 ext. 1286 • amaines@business.buffalo.edu