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Individual Tax

Draft Nonresident Alien Instructions Updated to Remove COVID Exception

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has issued draft instructions to Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, removing reference to the COVID-19 Medical Condition Travel Exception, which was only available in 2020.

Background.

Compensation paid to a nonresident alien individual for independent personal services (self-employment) performed in the U.S. is generally subject to a 30% withholding rate, or to graduated tax rates. However, some payments may be exempt from withholding due to a tax treaty or personal exemption amount. (Instructions to Form 8233)

Form 8233 is used to request exemption from withholding. Nonresident alien students, teachers, and researchers performing dependent personal services also use Form 8233 to request exemption from withholding. (Instructions to Form 8233)

In June 2020, the IRS released Rev Proc 2020-20, 2020-20 IRB. This procedure provided relief from being considered a U.S. resident for certain nonresident alien individuals stranded in the United States due to the COVID-19 public health emergency. The relief was only available for the 2020 tax year. The relief was sometimes referred to as the COVID-19 Medical Condition Travel Exception.

The IRS then issued revised instructions detailing how an individual could request such relief. The revised instructions noted that the form itself would not be updated and that individuals should continue using the September 2018 revision of Form 8233. See IRS Updates Nonresident Alien Form Instructions, Payroll Update (11/13/2020).

Reference to travel exception removed from instructions.

Because the relief was only available for the 2020 tax year, the IRS has removed reference to it in the latest draft instructions.

The draft instructions note that they are to be used with the September 2018 revision of Form 8233.

To continue your research on treatment of the COVID-19 emergency as a medical condition for purposes of the exception, see FTC 2d/FIN ¶O-1065.1.

 

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