How US Tax Treaties Handle 'Other Income' for Foreign Persons

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June 27, 2026·9 min read·Tax Treaty Analysis

If you pay a foreign person a US-source prize, an award, or some other payment that doesn't fit neatly into the usual buckets — not wages, not dividends, not interest, not royalties — you've landed in treaty territory that trips up even experienced payors. The US default is to withhold 30% of the gross payment (IRC §1441/§1442). A tax treaty may cut that to 0%, leave it at 30%, or cap it somewhere in between — and the only way to know which is to read the right article of the right treaty.

This is the "Other Income" article: the catch-all in a US income-tax treaty that governs income not dealt with by any of the specific articles. On a year-end Form 1042-S, this income generally reports under income code 23 (other income, including certain prizes and awards). Below is how to tell, country by country, whether the treaty actually helps.

The four patterns (plus a fifth trap)

Every US treaty's residual article falls into one of a small number of structures. The exact wording is what controls — and the difference between a 0% rate and a 30% rate often comes down to a single word like "only" or "also."

Pattern 1 — Residence-only (0%)

The treaty's Other Income article says that this income is taxable only in the country where the recipient lives. When the article reads that way, the United States gives up its right to tax the US-source payment entirely. The rate is 0%.

Treaties in this group include Germany, France, the United Kingdom, Japan, the Netherlands, and Austria (typically the residual article — for example, the US–Germany Other Income article and US–UK Article 22). A German resident who wins a US-source award documents residence on a Form W-8BEN (individuals) or W-8BEN-E (entities), and the correct withholding is 0%.

This is the pattern worth hunting for. It turns a 30% haircut into nothing.

Pattern 2 — Source-exception (30%)

The article looks similar at first glance, but the key word flips. Instead of "taxable only in" the residence country, it says income arising in the US may also be taxed in the country where it arises. That little word — also — is the United States affirmatively keeping its taxing right. The treaty has an Other Income article, the article addresses this income, and it hands the source country (the US) the right to tax it. The result is the full statutory 30%.

Treaties in this group include Canada, China, India, Australia, and Mexico (for example, the US–China and US–Australia Article 21 residual articles, each with a "may also be taxed" source clause).

Pattern 3 — No Other Income article at all (30% statutory)

Some treaties simply have no residual / Other Income article. Older treaties in particular were never written with a catch-all. When there's no article, there's no treaty rate to claim — so the income falls back to the plain 30% statutory rate under US law, with no treaty involved at all.

Treaties with no Other Income article include Egypt, Greece, Norway, Pakistan, Korea, Poland, Romania, and Cyprus, plus the nine former-Soviet states discussed below. (Watch out for false friends: the US–Cyprus treaty has an "Article 24," but it covers Social Security, not residual income — it is not an Other Income article.)

Pattern 4 — Rate cap (a capped percentage)

A handful of treaties take a middle path: the Other Income article lets the source country tax the income but caps the rate. The clearest example is Malta, whose Article 21(3) provides that the tax "shall not exceed 10 percent." A Maltese resident with US-source other income is withheld at 10% — not 0%, not 30%.

The fifth case — Suspended or terminated treaties (30%)

Two countries are written as residence-only (Pattern 1 by design) but deliver no relief today, because the treaty itself isn't operative:

• Russia — the US–Russia treaty's Other Income article is residence-only on paper, but the treaty is currently suspended. With no treaty in force, the rate is the statutory 30%.
• Hungary — the old US–Hungary treaty was terminated, with its benefits no longer available. The rate is 30%.

Do not read these as 0%. A residence-only article only helps while the treaty is in force.

The teaching point: Patterns 2 and 3 are not the same 30%

Patterns 2 and 3 both produce a 30% withholding, so it's tempting to treat them as interchangeable. For your records and your audit memo, they are not — and the distinction matters if the IRS ever asks why you withheld what you did.

• Pattern 2 (source-exception) is an affirmative treaty grant. The treaty has an Other Income article, you applied it, and the article expressly allows the US to tax the payment. Your memo should cite the article (e.g., "US–Canada Article XXII permits source-state taxation of this income"). The 30% is a treaty outcome.

• Pattern 3 (no article) involves no treaty at all on this income. There is no residual article to cite, nothing was "granted," and the 30% is pure US statutory law. Your memo should say exactly that — "the [country] treaty contains no Other Income article; the statutory 30% rate applies" — and should not claim the treaty authorized the withholding, because it didn't.

Writing "the treaty allows 30%" when the treaty has no relevant article is simply inaccurate, and an inaccurate audit trail is the kind of thing that turns a routine review into a longer one. Same number, different legal basis — document the basis.

A special case: the former-USSR / CIS states

This is a corner that catches people because of geography. The 1973 US–USSR income tax treaty never lapsed for several successor states — it still governs nine countries:

Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.

That 1973 treaty has no Other Income article (and no Directors' Fees article either); a general source rule governs residual income. So all nine are Pattern 3: US-source other income to a resident of any of them is withheld at the statutory 30%, with no treaty rate to claim.

Russia is the trap. Russia is not on the USSR-treaty list — it negotiated its own modern treaty, whose Other Income article is residence-only (Pattern 1 by design). But, as noted above, that treaty is currently suspended, so a Russian resident is also at 30% today — for an entirely different reason than the nine CIS states. The CIS nine are 30% because there's no article; Russia is 30% because its (otherwise 0%) treaty isn't in force. Don't let the shared 30% blur the two.

Worked example: the same prize, two countries

Acme Studios (a US company) awards a $10,000 cash prize to a foreign individual for winning an international short-film competition. The prize is US-source. Acme must determine its withholding before it pays.

Winner A is a resident of Germany. Germany's Other Income article is residence-only (Pattern 1). Germany has the sole right to tax this income, so the US rate is 0%. The winner files a Form W-8BEN claiming German residence and treaty benefits. Acme withholds $0 and pays the full $10,000, reporting it on Form 1042-S (income code 23) at a 0% rate.

Winner B is a resident of Canada. Canada's residual article is a source-exception (Pattern 2) — it lets the US also tax US-source income. There's a treaty article, but it grants the US the taxing right, so the rate is the full 30%. Acme withholds $3,000 and pays $7,000, again reporting on Form 1042-S at the applied 30% rate.

Same prize, same amount, same payor — a $3,000 swing driven entirely by which pattern the recipient's treaty follows. And had Winner B been a resident of, say, Egypt (Pattern 3, no article), the outcome would also be $3,000 withheld — but Acme's file should record it as a statutory result, not a treaty one.

Comparison at a glance

Why it matters

For a payor, the practical stakes are real money and a clean record:

1. There's a 30-point spread on the line. A residence-only treaty means 0% on income that would otherwise cost 30% — but only if you correctly identify the pattern and the recipient documents residence on a valid W-8BEN (individual) or W-8BEN-E (entity). No valid form, no treaty rate: you withhold 30% regardless of how favorable the article is. A W-8BEN from an individual is valid through the end of the third calendar year after signing, absent a change in circumstances.

2. You can't claim relief that isn't there. If the treaty is a source-exception, a no-article treaty, or suspended/terminated, the rate is 30% and no W-8BEN changes that. Withholding less because the country "has a treaty" is a costly misread — the payor is liable for under-withheld tax.

3. Document the basis, not just the rate. As above, record whether a 30% result is a source-exception treaty outcome or a plain statutory one. If you're ever asked to defend the number, the right citation is the difference between a quick answer and a long conversation.

When a treaty is ambiguous, an article is hard to classify, or you're unsure whether a country's treaty is currently in force, default to the conservative reading (withhold at the higher rate) and confirm with a qualified tax advisor before releasing payment at a reduced rate.

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This article is for general educational purposes and is not legal or tax advice. Withholding outcomes depend on the specific facts of each payment. Consult a qualified tax professional before making withholding decisions.