Author Archives: Carol Coburn

“The Tax Court in Brief”

“The Tax Court in Brief”

Plentywood Drug, Inc. | April 26, 2021 | Holmes| Dkt. No. 17753-16

Short Summary: The Tax Court was asked to decide whether rent paid by the Taxpayer was reasonable. The Taxpayer was owned by four related individuals (the “Shareholders”). The Shareholders owned the building where the the Taxpayer was operating. The Taxpayer paid rent of $83,584, $192,000, and $192,000 for 2011, 2012 and 2013, respectively.

The IRS disallowed certain rent deductions by the Taxpayer to the Shareholders because the IRS stated that the rent paid by the Taxpayer was greater than what the fair market rent would have been paid at an arm’s length transaction. The IRS recharacterized the excess rent as dividends, therefore, the Taxpayer would not be able to deduct the dividends.

The Taxpayer and the IRS introduced experts to testify regarding the fair market value of rent for the building. This case is unique because there were no comparable properties in this small town of 1,700 people.

The IRS does not often question the reasonableness of a rent agreed to by parties at arm’s length. When there is a close relationship between the lessor and lessee and there is no arm’s length dealing between them, the IRS will inquire into what constitutes reasonable rent.

Key Issues: What is the fair market rent for the building?

Primary Holdings: The Court, after considering each party’s expert witness, concluded that a proper rent would be $15.90 per square foot for the main retail space of the store and $8 per square foot for the basement storage space in the building, resulting in a total fair market value of rent each year of $171,187.50. The Court denied the Taxpayer a deduction of approximately $20,000 for tax years 2012 and 2013.

Key Points:
IRC section 162(a) allows a taxpayer to deduct the “ordinary and necessary” expenses it pays in carrying on a trade or business. The IRC specifically lists the rent paid by a business as one of these deductible expenses.
The expense for rent, to be ordinary and necessary, must be reasonable to be deductible. Any part of the rent that is unreasonable is not ordinary and necessary and thus not deductible.
The Court is not bound by the opinion of any expert witness and may accept or reject expert testimony in the exercise of its sound judgment.
When measurements were made and accepted by parties operating at arm’s length, the Court may rely on those figures in computing a proper price per square foot.

36 Small Business Deductions, From A to Z

36 Small Business Deductions, From A to Z
Is your small business taking advantage of every tax deduction it qualifies for? Here are 36 deductions that may help your business save money on taxes.

Also referred to as tax write-offs, business deductions are allowable expenses that you can use to lower your business’s taxable income.

Many of the most common tax-deductible business expenses, like startup costs and home office expenditures, are closely related to your business operations. Others, such as healthcare and dependent care costs, aren’t as closely related, but they’re equally legitimate.

Some expenditures qualify as deductions under some circumstances but not under others.
This article is for small business owners who want to know which tax deductions they can and cannot take.

If you’re like most business owners, you’re always looking for ways to reduce your tax liability. One way to do this is to take advantage of as many business tax deductions as you can. The list of these deductions is extensive, and knowing which items are on that list is good preparation for meeting with your tax preparer (and we urge you to use one) at tax time.
What are small business tax deductions?

Small business tax deductions are allowable expenses that can reduce your business’s taxable income. These deductible business expenses are also referred to as tax write-offs.

The IRS taxes businesses on their net income, which is calculated by subtracting business expenses from gross income. Many operating expenses are tax deductible, but some are not or are deductible only under certain conditions.

According to the IRS, no expense can be deductible unless it’s both ordinary and necessary. An ordinary expense is one that’s common and accepted in your business. For example, if you own a bakery, the cost of flour and sugar is an ordinary expense. A necessary expense is one that’s helpful and appropriate for your trade and business, such as travel expenses to attend an annual industry convention.

It’s also a good idea to be aware of which tax deductions come with restrictions or prerequisites. This is especially true because of the many tax changes that have occurred as a result of recent tax reform and because improperly trying to claim a deduction can trigger an audit by the Internal Revenue Service.

Key takeaway: You can use business tax deductions to reduce your business’s taxable income and, in turn, its tax liability. All expenses deducted must be both ordinary and necessary.
Business tax deduction checklist

Here’s our list of 36 small business deductions, from A to Z. Discuss these options with your CPA or tax attorney to find out which ones your business qualifies for.

1. Advertising and marketing
There’s good news when it comes to advertising and marketing expenses. Not only are these expenses 100% deductible, but the list of allowable deductions is long.

That list includes (but isn’t limited to) the cost of a business logo design, printing (e.g., business cards or brochures), online and print ad space, website design/creation, social media marketing campaigns, event sponsorship and promotional mailings for existing and potential customers.

However, you can’t deduct any expenditures you incurred to sponsor a political campaign or event in your business’s name.

2. Bank fees
It’s fine to deduct service charges, funds transfer fees and overdraft fees associated with your business bank or credit card account. The same holds true of merchant or transaction fees paid to a third-party payment processor.

3. Bonus depreciation
Through 2022, you can deduct 100% of the cost of qualified property. This means tangible property with a recovery period of 20% or less. Examples include off-the-shelf computer software; certain film, television and theatrical production costs; and some plants that bear fruit and nuts.

4. Business gifts
Holiday gifts for clients, customers and other business associates are considered deductible business expenses. However, you can deduct only $25 annually for business gifts given to any one individual. Promotional items, like pens and calendars, don’t count toward the limit if each one costs $4 or less, has your business’s name clearly and permanently imprinted on it and is one of a number of identical widely distributed items.

5. Business income
Business owners who report their operations on Schedule C of their personal income tax return qualify for a 20% deduction on their business income. The deduction phases out for high-income earners (over $160,000 for single filers, $160,725 for married filing separately and $321,400 for joint filers).

6. Business insurance premiums
Premiums paid on business interruption, business vehicle, liability, professional liability/malpractice and workers’ compensation insurance policies fall into this category. So do employee health, dental, vision and life insurance premiums. One caveat: Life insurance premiums aren’t deductible if you or your business is the beneficiary on the policy.

7. Business meals
You can deduct 50% of “qualifying” food and beverage costs. “Qualifying” means the meal must be an ordinary and necessary part of conducting your business – for example, to discuss your services with a prospective client or show your company’s new merchandise to an existing or potential customer. It can’t be lavish or extravagant, and you or one of your employees must be present at the restaurant or other venue when the food and beverages are consumed.

The cost of meals for employees is also deductible. You can deduct 100% of the cost of food and beverages served at office social events, such as parties and picnics. Meals provided to employees for other reasons – for example, dinner when they’re working late – are 50% deductible.

8. Business use of your vehicle
The entire cost of operating your vehicle qualifies as deductible if it’s driven only for business purposes, rather than for both business and personal purposes. Otherwise, you can deduct just the costs related to business use – for example, gas and tolls paid while driving to appointments with clients but not while transporting your family to the beach.

The IRS allows two methods to calculate deductions in cases where a vehicle is used for business and personal reasons:

Standard mileage rate: Start with the number of miles you drove the vehicle during the tax year. Then, multiply that number by the standard mileage deduction (currently $0.58 per mile).

Actual expense method: Add up your expenditures to operate the vehicle during the tax year, including those for gas, oil, repairs, tires, insurance, registration fees and lease payments. Multiply this figure by the number of miles you drove the vehicle for business during the tax year.

9. Charitable contributions
Sole proprietors, limited liability companies (LLCs) and partnerships can’t deduct contributions as a business expense, but you, as the business owner, may be able to claim the deduction on your Schedule A. The donation must be to a qualified organization. Corporations can deduct charitable contributions of up to 25% of their taxable income.

10. Child and dependent care
To qualify for this deduction, the person receiving the care you’re paying for must be a child under 13 or a spouse or other dependent who’s physically or mentally unable to care for himself or herself. The credit is worth 25% to 30% of your allowable expenses, depending on your income.

11. Cleaning supplies and janitorial services
You’re allowed this business deduction for any expenses related to keeping your business sanitized. That means cleaning supplies, trash removal, recycling and sanitation.

All properties cleaned are eligible. For example, if you own a retail store and an office, you can deduct all expenses related to keeping both facilities clean and sanitized.

If you have a home office, you can also deduct a portion of your payment to an individual or cleaning service you’ve hired to clean your house. The deduction is calculated based on the square footage of the office.

12. Contract labor
Payments to freelancers and independent contractors are deductible. Supply a 1099-MISC form to any individual who delivers $600 or more worth of services to your company in any tax year.

13. Cost of goods sold
This isn’t a standard deduction; instead, it’s factored into reporting revenue from the sale of inventory. You don’t deduct the cost of your inventory items (i.e., the cost of goods sold); rather, you reduce your gross receipts from the sale of inventory items so your income is modified accordingly.

14. Depreciation
Thanks to tax reform, business owners no longer need to depreciate the cost of assets over a period of years. Instead, they can write off the entire cost of new purchases of items such as computers, furniture and equipment. The cost of these items used is now 100% deductible, too.

15. Education
The IRS allows you to fully deduct education costs if incurring these expenses adds value to your business by helping to maintain or enhance the expertise and skills needed to operate it. Examples of valid business education expenses include classes, workshops, seminars and webinars that pertain to your field; subscriptions to trade or professional publications; and books tailored to your industry.

Transportation to classes or other educational sessions also qualify for the full deduction, but education expenditures that would qualify you for a new career or that are unrelated to your business do not.

16. Family and medical leave (paid)
Under the Tax Cuts and Jobs Act, business owners can claim a credit for wages paid to employees on family and medical leave. The credit starts at 12.5% for payments of 50% of a person’s salary and increases to up to 25% if the leave payment rate is 100% of the normal rate.

17. Health insurance
If you are self-employed, you can deduct the costs of your personal health insurance premiums. However, you need to meet certain criteria:

Your business must be claiming a profit, not a loss, for the tax year.
You must be ineligible for an employer’s health plan, including your spouse’s plan. If you were eligible to enroll in such a plan but didn’t, you can’t claim this deduction.
You can claim premiums only for the months when you were not eligible for an employer’s health plan.

18. Healthcare out-of-pocket expenses
In addition to healthcare premiums, self-employed business owners can deduct other out-of-pocket medical expenses, like office co-pays and prescriptions. These costs are classified as itemized deductions on Schedule A.

19. Home office
Regularly and exclusively designating part of your home to perform administrative or managerial activities for your business gives you the right to claim a home office deduction for utilities, rent, mortgage interest, real estate taxes, depreciation and cleaning/repair fees. The deduction is calculated based on the area of your home multiplied by $5 and has a cap of $1,500.

20. Interest
If you take out a loan or use a credit card to cover business expenses, you’re entitled to deduct interest paid to the lender or credit card company. There are a few caveats, though. You must be legally liable for the debt; if someone else gets a loan or mortgage to help you out, you’re not legally liable for the debt even if you make payments on it. You and the lender must intend for the debt to be repaid; you can’t take a gift of funds from a relative or friend and call it a loan.

You and the lender also must have a true “debtor/creditor” relationship, with a schedule of regular payments. If a loan is part business and part personal, you can deduct only the portion of the loan that’s for business.

21. Legal and professional fees
You can take a deduction for legal and professional fees charged by accountants, attorneys, bookkeepers, online bookkeeping service providers and tax preparers. Their services must be necessary for and directly related to running your business.

22. Local transportation
Local transportation costs, like Uber fare to visit a vendor or prospective customer or client, are deductible.

23. Maintenance and repairs
Maintenance and repairs to your business premises are fully deductible, but expenditures for capital improvements, such as a new roof, may not be immediately deductible. If you have a home office, you can deduct a percentage of what you spend on maintenance and repairs to your home, based on its square footage.

24. Moving expenses
Any costs to move business equipment, supplies and inventory from one business location to another qualifies as a deduction.

25. Organizational costs
This is a deduction you can leverage during your first year in business, and it’s up to $5,000. Organizational costs include expenses you incur in forming your business structure, such as fees for forming a legal entity.

26. Real estate losses
“You can deduct up to a certain amount of losses against your income if you actively participate in renting your property, depending on your adjusted gross income. A real estate loss would be when expenses pertaining to a rental property exceed the rental income. If you are a real estate professional, i.e., you spend more than half your working hours – a minimum of 751 hours in a year – in the real estate business, you can deduct real estate losses without a cap.

27. Rent
Rent paid for any location used to conduct business, as well as equipment rental costs, can be deducted as a business expense. But if you rent your home, you can’t take a deduction for payments to the landlord, even if you have a home office. These payments can be deducted as a part of home office expenses.

28. Research and development
You can claim this credit for expenses you incur in seeking information that’s technological in nature and will help you develop a new or improved business component. For example, if you owned a catering business, you’d qualify for the research and development credit if you invested in developing equipment that automates a food preparation process.

29. Retirement plans
You can take deductions on contributions to your own retirement plan and to retirement plans you’ve set up for employees. You’re also entitled to a tax credit equal to 50% of the first $1,000 you invest in starting a retirement plan.

30. Salaries, wages and benefits
Payments to employees – including salaries, wages, bonuses, commissions and taxable fringe benefits – are deductible business expenses. If you own a C corporation or an S corporation and perform more than minor services there, you can be considered a salaried employee, and your salary is also deductible. But sole proprietors, partners and members of an LLC aren’t employees, and any monies paid to them can’t be written off.

31. Startup costs
Startup costs include expenditures to start a business or to investigate opening or acquiring a business. Travel and other expenditures related to finding suppliers, customers and distributors, along with the cost of advertisements announcing a new business, also fall into this bucket. There is a $5,000 deduction for startup costs.

32. Supplies
Go ahead and deduct the cost of items your small business uses in its day-to-day operations, like ingredients for a catering company or cleaning supplies for a janitorial service.

33. Taxes and licenses
Here is a list of taxes and licensing fees that qualify as deductible business expenses:

· State income taxes
· Payroll taxes
· Real estate taxes paid on business property
· Sales tax
· Excise taxes
· Fuel taxes
· Business licenses

34. Telephone and internet
Telephone and internet services that are integral to conducting your company’s business are considered deductible business expenses. If you use a landline at home, you can’t deduct the cost of your first line, even if it’s used only for work. However, you can deduct the cost of a second line devoted to business.

If your cell phone and internet connection are used for personal and business reasons, the entire cost can’t be deducted – just the percentage of the cost that’s allocable to your business.

35. Travel
Whether incurred by you or your employees, the costs of airfare, meals, lodging and miscellaneous business travel expenses are fully deductible.

Examples of miscellaneous expenses include the use of your car or other transportation services while in the business destination, parking, tolls, dry cleaning, tips, business calls and shipping of materials or samples to the city where you’re doing business. However, the cost of commuting to and from work daily is not deductible.

36. Work opportunity credit
You can take advantage of the work opportunity credit if your business pays first- and second-year wages to targeted employees, like veterans, long-term recipients of family assistance funds from the government and youths hired for summer jobs.

The credit is calculated as a percentage of the employees’ wages and ranges from $2,400 to $9,600 per employee, depending on the type of targeted employee.

IRS Revenue Rulings: Loan Guarantee Under PPP

IRS Revenue Rulings: Loan Guarantee Under PPP

May a taxpayer that received a loan guaranteed under the Paycheck Protection Program (PPP) authorized under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) (covered loan), and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020) deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the
covered loan based on the otherwise deductible expenses?

FACTS
In each of the following situations, the taxpayer computes taxable income on the basis of the calendar year for federal income tax purposes and received a covered loan from a private lender in 2020.

Situation 1. During the period beginning on February 15, 2020, and ending on December 31, 2020 (covered period), Taxpayer A (A) paid expenses that are described in section 161 of the Internal Revenue Code (Code) and section 1106(a) of the CARES Act (eligible expenses). These expenses include payroll costs that qualify under section 1106(a)(8) of the CARES Act, interest on a mortgage that qualifies as interest on a covered mortgage obligation under section 1106(a)(2) of the CARES Act, utility payments that qualify as covered utility payments under section 1106(a)(5) of the CARES Act, and rent that qualifies as payment on a covered rent obligation under section 1106(a)(4) of the CARES Act. In November 2020, pursuant to the terms of section 1106 of the CARES Act, A applied to the lender for forgiveness of the covered loan on the basis of the eligible expenses it paid during the covered period. At that time, and based on A’s payment of the eligible expenses, A satisfied all requirements under section 1106 of the CARES Act for forgiveness of the covered loan. The lender does not inform A whether the loan will be forgiven before the end of 2020.

Situation 2. During the covered period, Taxpayer B (B) paid the same types of eligible expenses that A paid in Situation 1. B, unlike A, did not apply for forgiveness of the covered loan before the end of 2020, although, taking into account B’s payment of the eligible expenses during the covered period, B satisfied all other requirements under section 1106 of the CARES Act for forgiveness of the covered loan. B expects to apply to the lender for forgiveness of the covered loan in 2021.

Bartering

Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.
Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.
Bartering Income Is Taxable
Bartering is the trading of one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no exchange of cash.

If you barter, the value of products or services from bartering is taxable income. Here are four facts about bartering that you should be aware of:

1. Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to members who barter and file a copy with the IRS.

2. Bartering income. Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes, or excise taxes on their bartering income.

4. Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office today.

IRS Criminal Investigation Division Highlights Successes A Message from James C. Lee, Chief Criminal Investigation

IRS Criminal Investigation Division Highlights Successes
A Message from James C. Lee, Chief Criminal Investigation

IRS Criminal Investigation Marks International Fraud Awareness Week Highlighting Successes From FY20 (This was previously posted by the IRS Highlighting Fraud Awareness Week In December)

This week we recognize International Fraud Awareness Week by highlighting our many successes in combating fraud and protecting taxpayers. Earlier this week, I had the pleasure of publishing our FY 2020 Annual report which focuses on business results and successes from the previous fiscal year. This year was different as half of the year was spent under the new realities that COVID-19 has brought us. Court appearances were virtual and significantly delayed as judicial districts around the country came up with creative ways to be safe and keep the work moving. Interviewing taxpayers took on new challenges with PPE while search warrants also brought about a new list of precautions, we must take to protect all involved.

Through all of these challenges, I’m extremely proud of the results we were able to attain. For example, we opened more investigations in FY20 than we did in FY19 in most of our program areas, our conviction rate is still the highest in federal law enforcement, and we are the go-to agency for complex financial investigations in the world.

Peeling back the numbers, there are several reasons for our successes. Our investment in cybercrimes and data analytics has positioned us to be at the forefront of cases involving cryptocurrency and tracing those transactions. Our partnerships with the J5—the Joint Chiefs of Global Tax Enforcement—are now seeing enforcement results. Our outreach to the public is reducing the number of potential victims from falling prey to fraud schemes. And our ability to share, ingest, use data from our federal partners with our Nationally Coordinated Investigations Unit (NCIU) has enabled us to anticipate certain criminal schemes and react with unprecedented speed to investigate and stop additional financial fraud from happening.

International Fraud Awareness Week is a global effort to minimize the impact of fraud, including tax fraud, by promoting anti-fraud awareness and education. The IRS’s efforts to combat tax and other financial fraud help protect taxpayers around the world and highlight how important fraud prevention is to society. Each case we bring represents more than one person going to jail. The vast network of people affected by various frauds can be staggering. One case can mean millions of dollars that was used to perpetrate some form of fraud instead of helping American business owners who are struggling to stay on their feet. One case can mean hundreds of hours spent by government agencies processing paperwork for criminals instead of processing legitimate business owner’s requests. One case can mean thousands of hours spent by law enforcement chasing down criminals who exploited the relief programs rather than working on other types of criminal cases. One case can have incredible impacts around the world.

Equally as important as putting fraudsters in jail is the education piece of fraud awareness week. During a global pandemic, criminals pop up with new schemes trying to take advantage of individuals during their most vulnerable times. There is no morality among criminals. It is a special kind of evil to steal from someone who is already struggling. That’s why, in addition to launching an aggressive campaign to combat this criminal behavior, we also launched an aggressive public education campaign, conducting more than 200 media interviews and outreach events to warn the public of the various schemes we are seeing.

One of the buzzwords you hear a lot is about partnerships with government – public-private partnerships, international partnerships, federal-state partnerships. I can tell you that the cooperation the IRS is leading in many of these areas rivals the best we have ever seen in government. Different agencies and organizations bring different areas of expertise, and the result of our cooperation is bad news for the criminals. Working together is no longer a novel concept – it is something we do every day. Public-private partnerships are no longer an exception, they are the rule. And our international partnerships, like those with our J5 partners—they suck the oxygen out of the space where criminals operate.

I could not be prouder of the special agents of IRS Criminal Investigation and our efforts to combat fraud on a global scale. While there is a long way to go before we take a victory lap, I also know that we are on the right path to make a real difference.

Must You Pay Social Security and Medicare Tax?

Nonresident aliens who are F-1, J-1, M-1 or Q-1 visa holders are not subject to social security and Medicare taxes (FICA) on services are performed to carry out the purpose for which they are admitted to the United States [IRC sec. 3121(b)(19)]. This generally includes on-campus work for which authorization is granted on Form I-94, Arrival and Departure Record, or Form I-20, Certificate of Eligibility for Nonimmigrant Student Status.

A nonresident alien admitted to the US as a student is not permitted to work off campus for a wage or to engage in business unless given approval by the U.S. Citizenship and Immigration Services (CIS). This should be noted on the student’s copy of Immigration Form I-20, or Form I-688B, Employment Authorization Document.

Off-campus work due to severe economic necessity or for optional practical training is considered by the IRS to qualify for the exemption. The IRS does not consider other off-campus work performed by a nonresident alien student to be performed to carry out the purpose of a student visa.

Resident aliens, as well as nonresident aliens who are F-2, J-2, M-2, Q-2 or any other types of visa holders, are not exempt from FICA taxes as nonresident aliens. However, IRC section 3121(b)(10) provides an exemption from FICA for services performed in the employ of a school, college, or university, if the service is performed by a student who is enrolled and regularly attending classes at that school, college or university.

Therefore, international students who do not qualify for the exemption for nonresident aliens might be exempt under this provision. On the other hand (just to add a bit more to the confusion), the law allows states to provide Social Security coverage for services performed by students for the public school the student is attending under agreements established with the Social Security Administration.

If a state has exercised its option to provide for coverage of student services, section 3121(b)(10) of the Code provides that those services will not qualify for the student FICA exception. If you wish to read the official announcement from the IRS on who might qualify for this student exemption, here is a link to the ruling: Rev. Proc. 98-16.

How to Obtain a Refund
If FICA has been withheld from your wages by mistake (look in box 4 of your W-2), you should first ask the employer who withheld the tax for a refund. If the employer does not grant a refund, a refund can be claimed from the IRS on IRS Form 843. Follow the instructions for claiming a refund in Chapter 8 of IRS Publication 519. Both Form 843 and Publication 519 can be printed from the US Treasury’s Forms and Publications site. Note that you must additionally attach IRS Form 8316, a statement from your employer (if possible), and a copy of your W-2, visa, INS Form I-94, INS Form I-538 (if you have one), and a statement saying “tax was withheld by mistake and my employer denied me a refund.” This information is sent in its own envelope (separate from your tax return) to Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, U.S.A.

Totalization Agreements
If you are in the United States only temporarily for work or study and are not exempt from social security under one of the above provisions, your US social security contributions may provide benefits in your home country under a “totalization agreement” that the US has negotiated with several other countries. For more information on totalization agreements and the countries participating go to the Social Security Administration’s Office of International Programs site.
How To Get Your Employer To Withhold The Proper Amount

If you have checked your country’s treaty with the US and have found you qualify for a treaty exemption on your wage or scholarship income, you must file IRS Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the payor of the exempt income.

You must include with Form 8233 a statement detailing your eligibility for the specific tax treaty exemption. You will find sample statements for each treaty country in IRS Publication 519, Appendix A (for students) and Appendix B (for teachers and researchers). Form 8233 and Publication 519 can be downloaded from the US Treasury’s Forms and Publications site, or you can call 1-800-TAX-FORM (1-800-829-3676) and ask for them to be mailed to you.