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    Cotterpin's Avatar
    Cotterpin Posts: 1, Reputation: 1
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    #1

    Oct 18, 2010, 02:10 PM
    UK US Tax Treaty: Remuneration for researchers is exempt (20A) but are stipends?
    Hi! I am a British visiting Fellow on a J1 visa at a university in California, where I shall be for a total of 10 months. My letter of offer says that "In return for your contribution to Center activities as set forth in this invitation, we are pleased to offer a stipend of $xx,000 over the nine months of the fellowship. Please note that stipends are generally not considered to be compensation wages and [the university] thus does not withhold U.S. federal, state, or local taxes from them." I see that the US Treasury notes on article 20A of the UK US Tax Treaty of 2001 state that "[someone in my position] will be exempted from tax by the first-mentioned Contracting State on any remuneration for such teaching or research for a period not exceeding two years from the date he first visits that State for the purpose of teaching or engaging in research." But I have had a message from the payroll tax accountant here that "U.K. tax treaty (article 20) is apply for compensation or remuneration only. You are giving (sic) an Award (Fellowship) which is not considered salary. If you were paid salary for work performed for the University, you would be able to claim tax treaty benefit."

    It does not seem to me that the law distinguishes between an award (or stipend) and any other form of remuneration, and I think that I should therefore be exempt from US tax. I'd be grateful for any clarification of my position, please!

    Incidentally, I have not managed to find a full text of the UK US Tax Treaty. The version at http://www.ustreas.gov/offices/tax-policy/library/uktreaty.pdf seems, curiously, to omit article 20A. Would anyone be able to help with this too, please?
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #2

    Oct 19, 2010, 08:16 AM
    In my opinion, the stipend falls into the category of compensation for services rendered and ARE covered by Article 20.

    If the university does NOT agree and insists on withholding federal and state income taxes, you can still claim the exemption by submitting Form 1040NR with Form 8833 to explain the treaty position, which would result in a full refund.

    I believe that California, as a matter of STATE tax law, considers all stipends to be tax-free, but you may want to get clairifcation of that position from the California Franchise Tax Board.
    grubbunny's Avatar
    grubbunny Posts: 1, Reputation: 1
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    #3

    Mar 30, 2011, 04:39 PM
    Perhaps not a help now but the full text of the treaty is here:
    http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf
    with article 20A as an amendment here (p3):
    http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/ukprotoc.pdf

    I found the links through here http://www.irs.gov/businesses/international/article/0, id=169552,00.html
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