Which form to submit W-4 or Form 8233 as a NRA on F1-OPT?

[user17553787901]

I am an NRA on F1-OPT and started working as full time employee. I am eligible for tax treaty benefits under Article 21(2); however my new company has not considered it. They have asked me to submit Form W-4, which has NRA marked at step 4(c).

My question is :

1. Do I need to submit Form 8233 instead of W-4? My employer says form 8233 is only for independent contractors and not applicable to me since I am full-time employee.

2. Is there a different correct way to have the employer correctly consider tax treaty benefits?

Which form to submit W-4 or Form 8233 as a NRA on F1-OPT?

[pk]

@user17553787901 , first we  need a few bits of info ( to be able to focus the answer  to your situation).

(a) When fid you enter this country with F-1 ---- trying to understand whether you are still in or out of exemption period ?

(b) Which country are you from --- need to see the exact wording of the tax treaty ?  Many treaties  allow for an exclusion from US Tax of a fixed amount.  Thus form 8233 may not be applicable 

(c) If you are still in the exempt, you will have to file form 8843.   And of course  if you are NRA  at any point during the year ( depending on exact facts and circumstances ), you may have to file 1040-NR  ( Not supported by TurboTax --- use SprinTax or similar ) or dual status  ( 1040 + 1040-NR).

(d) During OPT, you are exempt from FICA

(e) Note even during  OPT you are not an employee but a trainee -- there are differences for tax purposes ( FICA/ vacation/overtime-pay etc.etc. )

(f) Do not understand whereon form W-4 you entered NRA -- 4c is for extra withholding.

I will circle back once I hear from you --yes ?

[user17553787901]

Hello @pk 

Thanks! Please see below my responses:

a) Still within 5 years exemption

b) Country - India. Treaty article - Article 21(2)

c) 1040-NR + 8843 is what I have used in last year filing. This is fine. The question is more on withholding tax documents needed by employer.

d) FICA exempt is known

e) 
f) Employer uses ADP. On providing Non-resident Alien, step 4c was auto populated as Non-Resident Alien

The main query is whether I need to submit Form 8233 to claim the $15,000 deduction under Article 21(2) or do I need to mark it as deduction under point 4(b) of W-4. Or both approaches are wrong and there is a different correct approach? 

[pk]

@user17553787901 , you have lost me here ---as I see the US-India Tax Treaty and the technical explanation there of , there is no such "Exemption " from tax especially the US$15,000 you are quoting.  Please can you provide a source --   ( I know China has a  US$5000 per year exemption.  

My source is US-India Tax treaty -- see here ----  India - Tax treaty documents | Internal Revenue Service.

Specifically article 21 of the said treaty --

1. 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.
2. In respect of grants, scholarships and remuneration from employment not covered by paragraph
1, a student or business apprentice described in paragraph 1 shall, in addition, be entitled during such
education or training to the same exemptions, reliefs or reductions in respect of taxes available to
residents of the State which he is visiting.
3. The benefits of this Article shall extend only for such period of time as may be reasonable or
customarily required to complete the education or training undertaken.

What this does for students from India , are two things ---  1.  any stipends, awards. gifts from India are not taxed as long as these are for purposes of schooling/training  ( education and living )  and  2.  even during the NRA days the student is given the same rights / deductions etc. as a US domestic student -- thus you use standard deduction and not forced to use itemized deduction.

Does this make sense ?    I am very interested in finding out how you got that "exemption from tax" figure.  Really would like to chase it down.

Namaste ji

pk

[user17553787901]

@pk : Please refer following link, which is one of the sources. https://www.irs.gov/pub/irs-pdf/p4011.pdf

The standard deduction amount was $14,600 till 2025, its increased to $15,000 from 2025.

Excerpt from this publication is below:
Unique Treaty Provisions
United States-India Income Tax Treaty, Article 21(2)
An Indian student or apprentice may take a standard deduction equal to the amount allowable on Form
1040 and may be able to claim the personal exemptions for a nonworking spouse and U.S. born-children.
However, benefits will be limited to certain credits, as the allowable exemption deduction is currently -0- until
2025. Treaty benefits for a scholar from India are very different from those for a student. The scholar benefit for
income code 19 is lost retroactively if the visit exceeds 2 years.
Generally, the standard deduction for Single taxpayers and Married Filing Separately taxpayers in 2024 is
$14,600

[pk]

@user17553787901 , right  and as mentioned above , under the  US-India  tax treaty an Indian student is treated  same as a domestic student even when filing a 1040-NR. Thus as I mentioned above standard deduction is available  to you --- it is NOT an exempt amount from taxation.  Your employer cannot exclude this amount from taxation.  When you file your 2025 return in 2026, the  standard deduction is subtracted from your adjusted gross income and the resultant taxable income is taxed based on the tax table.

So filing a form 8233 to exempt income does not apply.  Also the "scholar" reference in your post  is for J-visa ( mostly for Post-docs ).

I was suspecting that you had mistaken "deduction" ( standard ) for an exemption.

 Does all this now make sense ?   Is there more I can do for you ?

Namaste ji

pk

[user17553787901]

@pk Currently, the standard deduction is not auto subtracted by employer in payroll, which is handled by ADP.

The options provided to me by employer for tax withholding are either W-4 or 8233. If the form 8233 is not applicable in this case since its deduction not exemption, then how to handle the consideration of standard deduction in W-4? 

The current W-4 only says Non-resident Alien at step 4(c). It does not consider this standard deduction available under treaty benefits.

[pk]

@user17553787901 , sorry you are missing the point --- the employer DOES NOT ever subtract the standard / itemized deduction--- it depends on your filing status.  The employer only withholds your federal and state  taxes  ( and for most employees the FICA taxes ).

When you file your return  , next year, you include the deduction ( standard / itemized whichever is larger ) amount as  I mentioned  in my last post.  In your case and assuming that you file as single, yes it is 15,000 or thereabouts.  What the US-India tax treaty allows an Indian student to do is use the standard deduction  -- other international students are limited to using itemized deduction.

Now are we on the same page ?  

Is there more I can do for you ?  Do you wish to PM me  ( just NO PII -- Personally Identifiable Information)

pk

[AmeliesUncle]

---

@pk wrote:

 the employer DOES NOT ever subtract the standard / itemized deduction

---

The usual withholding tables/percentages DO factor in the Standard Deduction.  

If the W-4 is showing NRA, the employer should be using special payroll withholding calculations that assume he does NOT qualify for the Standard Deduction.  

A work-around would be to enter $15,750 (2025 amount for a single person) on line 4b of the W-4 (although the W-4 assumes a full year of working, which might not be the case for the OP).  Another POSSIBLE option is to just say you are not a Nonresident Alien on the W-4, but I am unsure if that will get them confused about if they need to withhold FICA or not.

[user17553787901]

Thanks @AmeliesUncle 

Since my W-4 shows NRA at step 4(c), I don't think the standard deduction is considered as it is not applicable to NRA.

I will check with employer if they can modify withholding calculations to consider standard withholding with NRA status. They use ADP so I am not sure it can be done.

I had previously considered the other workaround of having $15K in step 4(b) but I was confused if it was correct because this $15K is kind of standard deduction and step 4(b) says "deductions apart from standard".