Form 8833 & Tax Treaties – Understanding Your US Tax Return

Form 8833 & Tax Treaties – Understanding Your US Tax Return

Americans living abroad are spared double taxation through tax treaty agreements. If you live in a foreign country that has a tax treaty with the US, you may need to file IRS Form 8833 along with your tax returns every year. 

Find out more about Form 8833, instructions on how to file, and how this form might save you money in taxes when living in a foreign country. 

Key Takeaways

  • US tax treaties with foreign countries can protect US expatriates from double taxation. 
  • If you’re claiming a provision from a tax treaty, you’re typically required to file Form 8833. 
  • In some cases, savings clauses could prevent you from claiming a tax treaty benefit, but you may still be able to reduce your tax burden through other tax credits and deductions. 

What are US Tax Treaties? 

When living abroad, your foreign income may be taxed by the country where you’re residing. However, as a US expat, you’re still liable for US income taxes. A tax treaty between the US and another foreign country can remove this tax burden, so you don’t have to worry about paying taxes on the same income to two different countries. 

Generally, tax treaty provisions apply to US non-residents or dual-resident taxpayers. Under these treaty agreements, residents of countries outside the US may be taxed at a reduced rate, or certain income items received by these residents could be exempt from US taxes. 

Tax treaty provisions are generally reciprocal, which means they apply to both countries. A non-resident of the US would be able to apply the same treaty provision to US income that a US resident could apply to income received in the treaty country. 

Pro Tip

You can find an up-to-date list on which countries have tax treaties with the US on the IRS website.

Do Tax Treaties Prevent Double Taxation on States Taxes? 

Although tax treaties with foreign countries can protect your income on the federal level, you could end up owing state taxes. Some US states honor the provisions of US tax treaties, but some do not. If you are applying a tax treaty to any of your income, it’s important to determine whether your state of residence or the state that is the source of your income recognizes the tax treaty provisions. 

You can find this out by visiting your state’s department of revenue website to find out how overseas income is taxed (if at all). You can also reach out to a tax professional if you’re not sure if you’re on the hook for state income taxes. 

Every expat should know these 25 things about US expat taxes. Find out for yourself.
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How to File Form 8833 

If you’re required to file IRS Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), you’ll attach it to your tax return every year that the treaty provision applies to you. If you file online, ensure it’s completed and sent in with your tax returns.  

When filling out the form, you’ll need to provide key specific Information about the tax treaty, including: 

  • The country of your tax residence 
  • When you first entered the foreign country 
  • Your foreign residency status 
  • Why are you in the foreign country 
  • The article of the treaty that applies to your tax return 
  • The amount and type of income that’s exempt from taxation, based on the treaty 

Your answers will depend on the country where you’re residing, but an expat tax professional can work with you to make sure the right information is provided. 

Form 8833 must also include a general description of the treaty-based position you’re applying to your expatriate tax return. You must include the nature and amount of exempt income, deduction, or credit, along with the description and a brief summary of the facts upon which the treaty position is based. 

Once completed, attach Form 8833 to your US tax return to show the IRS that you are correctly complying with the treaty provisions that apply to you. 

Exceptions to Filing IRS Form 8833 

Although some US expats who want to take advantage of the benefits of a tax treaty will need to file IRS Form 8833, there are some exceptions. You typically are not required to file this form if: 

  • Under the treaty, you can claim a reduced or modified rate of withholding tax on interest, dividends, rent, royalties, or other fixed income subject to the 30% tax rate. 
  • You can claim an exemption under the treaty that modifies or reduces taxation of your employment income, social security, pension annuities, and other public pensions, as well as any income made from artists, athletes, teachers, students, or trainees. 
  • Your income is under $10,000. 
  • You are a partner in a partnership or a beneficiary of a trust or estate, and the entity reports your foreign income on its tax return. 
  • You can claim a modification or reduction of income tax under an International Social Security, Diplomatic, or Consular Agreement. 

Penalties for Failing to File IRS Form 8833 

The IRS uses Form 8833 to make sure treaty provisions are applied properly. If you fail to file  Form 8833 and you’re required to submit it, you can be charged a $1,000 penalty for each year you fail to disclose your treaty position. 

However, the IRS may abate the penalty if you can offer reasonable cause for failing to file IRS Form 8833. 

If you’re behind on your US expat tax returns, Greenback can work with you to catch up on late taxes and any other required forms. 

Is Claiming a Tax Treaty Provision the Best Strategy for US Expats? 

Figuring out if you need to apply a tax treaty provision to your expatriate tax return can be tricky. Because there are many ways to reduce expat taxes, you might find it challenging to decide which route is best for your situation. If you’re unsure if you should use Form 8833 on your US tax return, consult an accountant for advice. 

If you elect to use a tax treaty provision, you’ll need to ensure this is appropriately disclosed on Form 8833. Tax professionals can ensure this is done accurately to ensure no issues with your return. 

Pro Tip

If the savings clause in your tax treaty prevents you from claiming a provision in your treaty, you may still be able to avoid double taxation by claiming the Foreign Tax Credit or Foreign Earned Income Exclusion.

Tax Treaty Savings Clauses 

Now that you understand more about tax treaty provisions, you should know that many US tax treaties also contain a savings clause. This savings clause allows each country to tax its residents as if no tax treaty existed. Most of the time this clause excepts certain income types, meaning you still can claim treaty benefits.  

These clauses can be complicated and challenging to break down. A Greenback tax professional can help you understand how the savings clause in your country’s US tax treaty might prohibit you from claiming certain treaty provisions. 

Get Help Filing Form 8833 and Your US Expat Tax Return 

Still have questions about form 8833? Don’t worry — filing your taxes can be complicated and is even more cumbersome when you’re worrying about double taxation, tax treaties, and foreign income.  

Greenback can provide more information about Form 8833 and the tax treaty provisions that apply to you. We make tax prep easy, so you don’t have to stress about your tax compliance. Our team specializes in expat taxes and can help you apply the correct deductions and credits to your expat return. Contact us, and we’d be happy to help you.

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