A Tax Treaty May Exempt Income from US Tax (Common Examples)

Which Income is Exempt from US Tax Under a Tax Treaty?

Is Income Exempt from US Tax Under a Tax Treaty?

The United States has entered into several different international tax treaties with foreign countries across the globe. The US developed a model treaty that is used as the skeleton to the agreement with each country — and then modified depending on the specific agreement between the United States and the foreign country. Some tax treaties include information that may be interpreted to exempt certain types in categories of income depending on how long the person has been in the other country; the source of the income, and the category of income (it is not exempt in both countries, but rather one country based on either residence of the Taxpayer or source of the income). It is also important to note the tax treaties contain a clause referred to as the saving clause. The saving clause may limit or eliminate any benefit that may have otherwise been available to the person claiming the treaty benefit. Let’s take a look at six examples of when a Tax Treaty may be exempt.

Italy: Professors and Teachers

• • • ARTICLE 20: Professors and Teachers 1. A professor or teacher who makes a temporary visit to a Contracting State for a period that is not expected to exceed two years for the purpose of teaching or conducting research at a university, college, school, or other recognized educational institution, or at a medical facility primarily funded from governmental sources, and who is, or immediately before such visit was, a resident of the other Contracting State shall, for a period not exceeding two years, be exempt from tax in the first-mentioned Contracting State in respect of remuneration from such teaching or research. Link to Golding & Golding Italy Tax Treaty Summary.

China: Teachers, Professors and Researchers

• • • ARTICLE 19 (Teachers, Professors and Researchers) An individual who is, or immediately before visiting a Contracting State was, a resident of the other Contracting State and is temporarily present in the first-mentioned Contracting State for the primary purpose of teaching, giving lectures or conducting research at a university, college, school or other accredited educational institution or scientific research institution in the first mentioned Contracting State shall be exempt from tax in the first mentioned Contracting State for a period not exceeding three years in the aggregate in respect of remuneration for such teaching, lectures or research. Golding & Golding Link to China Tax Treaty Summary.

India: Students and Apprentices

• • • ARTICLE 21 Payments Received by Students and Apprentices: A student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in that other State principally for the purpose of his education or training shall be exempt from tax in that other State, on payments which arise outside that other State for the purposes of his maintenance, education or training. Link to Golding & Golding India Tax Treaty Summary.

Australia: Government Remuneration

• • • ARTICLE 19 Governmental Remuneration: Wages, salaries, and similar remuneration, including pensions, paid from funds of one of the Contracting States, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State. Link to Golding & Golding Australia Tax Treaty Summary.

Israel: Child Support Payment

• • • ARTICLE 20 (3): Child support payments made by an individual who is a resident of one of the Contracting States to an individual who is a resident of the other Contracting State shall be exempt from tax in that other Contracting State. Link to Golding & Golding Israel Tax Treaty Summary.

Korea: Social Security

• • • ARTICLE 24 Social Security Payments Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State (or in the case of such payments by Korea, to an individual who is a citizen of the United States) shall be taxable only in the first-mentioned Contracting State. This Article shall not apply to payments described in Article 22 (Governmental Functions). Link to Golding & Golding Korea Tax Treaty Summary.

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