If the individual is required to perform a service, the payment is considered compensation, is taxable and will be reported on Form W-2. Only good for one year. Must be renewed annually in January if tax exemption is to continue. Form 1001 is used for all non-compensation exemptions including scholarships, fellowships and royalty payments. Form is valid for three years and must be given to employer.
Form is retained for four years after the last year of tax treaty exemption.
Compensation paid to a Nonresident Alien employee is subject to special graduated withholding rates. If no W-4 Form is received, then tax at Single rate and zero allowances. All employee compensation payments that are exempt from taxation under an income tax treaty. Individual should never receive a Form 1099. Q-1 Visa holders stay beyond these time periods but are still considered Nonresident Aliens under a treaty with the alien s country of residence, there can be a situation where wages are excluded by treaty from income tax withholding but are still subject to FICA withholding.