When there is a tax treaty between the United States and a foreign country, residents from the foreign country may be entitled to reduced tax rates or exemptions while in the United States under the treaty. The United States has income tax treaties with many foreign countries. Reduced rates and exemptions vary depending on the different treaties and countries.

To Whom Do Tax Treaty Reductions Apply?

Generally, the treaty provisions apply to the country that the treaty was made with. A U.S. citizen or resident who receives income from a treaty country and who is subject to taxes by a foreign country may be eligible for credits, deductions, and exemptions from that country. However, these treaties do not usually reduce the U.S. taxes of American citizens or residents.

What If There Is No Tax Treaty?

When there is no tax treaty between a country and the United States, the foreign residents from that country must pay income tax in the same manner as American citizens.

Do Foreign Residents Have to Pay State Income Taxes?

Many individual states of the United States tax the income of their residents, including all foreign residents, regardless of any tax treaties. This is because tax treaties generally only apply to federal taxes, and not state taxes. You should consult a tax lawyer in the state where you live to find out whether state taxes apply to your income.

Can I Claim Tax Deductions under Tax Treaties?

Most nonresident aliens cannot claim tax reductions for their spouse or children. However, tax treaties or special exemptions in the IRS code may provide certain visitors to claim tax deductions for dependents. These countries include:

  • India
  • Japan
  • South Korea
  • Canada
  • Mexico

What Can I Do If I Have Tax Treaty Issues?

You may want to consult a tax lawyer or financial lawyers who has knowledge of tax treaties and other international tax issues. An experienced tax lawyer would be able to tell you exactly what exemptions, deductions, or credits you qualify for saving you stress and money.