The United States has negotiated tax treaties with many countries around the world that can benefit U.S residents and companies who do business abroad. Reduced tax rates, exemption from double taxation, and other significant benefits can be applied to various forms of international income, including employment wages, interest, and retirement income. In order to prove that an individual or company is eligible to take advantage of treaty rates, they must prove their U.S residency to the foreign government who has provided their income.
That’s where Form 6166 comes in. Also known as a Certification of U.S. Tax Residency, this form confirms to treaty partners that the applicant has a legitimate claim to the benefits defined by the tax treaty. Use the links to jump to a specific section or keep reading for a closer look at IRS Form 6166:
What is Form 6166?
Form 6166 is a letter printed on stationary from the U.S Department of Treasury that is used as proof to foreign governments that U.S residents are eligible to receive tax treaty benefits. In order to receive a Certification of U.S. Tax Residence, you have to send in Form 8802 with all the appropriate personal information to the IRS. You cannot request Form 6166 without first filing Form 8802, and you must refile for every tax year in which you are requesting the treaty benefits.
Take a look at this example: John is an interior designer who traveled to Sweden several times in 2018 to work on a high-end restaurant chain. He was paid by a Swedish company for his services, and can avoid the higher taxation rates of Sweden by claiming his U.S. residency. John now must show the Swedish government Form 6166 as proof that he is allowed to take advantage of the benefits for the 2018 tax year. If he plans to do more work in Sweden in 2019, he will have to file another Form 6166 for the 2019 tax year.
Typically, it takes 4-6 weeks to receive your Certification of U.S. Tax Residence. It’s important to note that you cannot file Form 6166 if you have not filed a required U.S. tax return or if you have filed a U.S tax return as a nonresident. For nonresident aliens working in the U.S, IRS Form W8 is used to report income regardless of your immigration status.
Who Is Eligible for Form 6166?
Typically, the IRS will only issue a Certification of U.S Tax Residence if it can confirm that one of the following applies to the tax year you are requesting:
- You filed an appropriate income tax return based on your filing status (ex: individual, domestic corporation, etc.)
- If you require a certification for a year in which a return isn’t due yet, you’ve filed a tax return for the most recent year in which a return was due
- You are not required to file an income tax return for the requested tax period and other documentation is provided as proof
You are not eligible for Form 6166 if any of the following applies to the tax period you are requesting certification for:
- You did not file a required U.S. return
- You filed a return as a nonresident
- You are a dual-resident individual who has either made or has plans to make the decision that you are not a resident of the United States
- You are a fiscally transparent entity organized in the United States and you do not have any U.S. partners, beneficiaries, or owners
- The entity requesting certification is an exempt organization that is not organized in the United States
- The entity requesting certification is a trust that is part of an employee benefit plan during its first year of existence, and it is not administered by a qualified custodian bank
Instructions for IRS Form 6166
Unlike most other forms from the IRS, Form 6166 does not require you to fill out line after line of personal information. The U.S Tax Residency Certificate is obtained through Form 8802, which has much more complex instructions and must be submitted with an $85 fee. Be sure to submit it at least 45 days before you need the certificate. If there are any issues or delays with Form 8802, the IRS will contact you after 30 days.
Additionally, the IRS will only process Form 8802 if it is postmarked on or after December 1st of the year prior to the tax year requested. For example, if you are requesting tax treaty benefits for the 2018 tax year, the IRS will not accept Form 8802 if it is received with a postmark date before December 1st, 2017.
Once the IRS has mailed you Form 6166, you must get it authenticated in order for it to be valid in a foreign country. The legalization process is different in every country, but it always involves receiving various signatures and seals that are placed on the document to verify its origin. A more streamlined process, known as Apostille, is available if the foreign country is party to the Hague Convention which removes the requirement for legalization of foreign public documents.
Where to Send Form 6166
After receiving IRS Form 6166 in the mail, you can send it to the foreign withholding agent or other appropriate person in the foreign country in which you’re claiming tax treaty benefits. Some countries will withhold tax at their own rates and refund you after receiving proof of U.S residency, while others will withhold tax at the treaty-reduced rates immediately.
If you encounter any issues with the application process for Form 6166, consult an IRS tax advocate to assess your forms for any missing or incorrect information. When high foreign taxation rates are on the line, it’s critical to stay on top of deadlines, provide accurate information, and go through the proper channels so more of your international income can go into your pocket. Contact Community Tax for a free consultation today!