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Does anyone know how someone with NEC income (with a treaty rate of 0%) should fill in the "number of months claimed in prior tax years" line of schedule OI on form 1040NR? (Instructions are here)

It appears this line is intended for situations where an exemption is time limited. So it seems fairly irrelevant for overseas residents who receive annuities or royalties which are (by treaty) only taxable in the other country.

All the same it looks like it needs to be completed. The obvious interpretation is to do it in 12 month increments (even for once a year payments). So someone who had received an annual check for five previous years should enter 60 months?

But would it matter whether or not they had filed returns for those years? A person who receives only NEC income is not required to file if they were correctly withheld and don't owe any tax (page 4, para 2 of the instructions). Presumably though the treaty is still being "claimed"?

Could it even be the other way around, with the "prior tax years" referring to those where a return wasn't filed? (so the IRS knows that the treaty was claimed during that time?)

I'm probably overthinking this, but I want to be sure I fill everything in properly.

Thanks if anyone can help.

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You're over-thinking that. For each year you claimed the treaty benefit - add 12 months in that field. For partial year - the relevant amount of months. If you didn't claim the treaty benefit (e.g.: didn't have that kind of income in one of the years) - don't add that year to the count.

This is indeed intended for treaty benefits which are limited, in most cases - for students exempting their earnings while working on campus.

  • Thanks again for taking the time to reply to me. I recieve an NEC check once a year, should I put 12 months? Would it even be acceptable to just leave the line blank, given it is intended for people like visitng students etc? – CC8899 May 15 '15 at 15:12
  • I'd put 12 for each year. – littleadv May 15 '15 at 15:41
  • "income in one of the years" - for how many years. I claimed the tax treaty for 2013, then I was not in US, now I'm filing for 2015. Does 2013-month go there or not? – MajesticRa Mar 14 '16 at 4:23
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As I already told you the NEC income does not need to be reported on schedule OI, Item L. Only ECI income that is exempt under treaty should be reported on Schedule OI, Item L.

Remember, being taxed at 0% does not mean exempt.

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