Important Changes

Foreign earned income exclusion. For 2000, the foreign earned income exclusion is $76,000. The exclusion increases to $78,000 for 2001. For more information, see chapter 3.

Estimated tax safe harbor for higher income individuals. For installment payments for tax years beginning in 2001, the estimated tax safe harbor for higher income individuals (other than farmers and fishermen) has been modified. If your 2000 adjusted gross income is more than $150,000 ($75,000 if married filing a separate return in 2001), you will have to deposit the smaller of 90% of your expected tax for 2001 or 110% of the tax shown on your 2000 return to avoid an estimated tax penalty. For more information, see Estimated Tax Form 1040-ES (NR) in chapter 8.

Documentation requirements. The Internal Revenue Service issued regulations relating to the withholding of income tax on certain U.S. source income paid to foreign persons. These regulations apply to payments made beginning January 1, 2001.

You may be asked to give withholding agents new withholding certificates that contain the necessary information and representations required by the regulations.

The following are the withholding certificates that you may be asked to complete and submit.

1. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, should be provided to a withholding agent or payer by a beneficial owner of certain types of income to:
   1. Establish foreign status,
   2. Claim that such person is the beneficial owner of the income for which the form is being furnished, and
   3. If applicable, claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty.
2. Form W-8ECI, Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States, should be provided to a withholding agent or payer by a foreign person to:
   1. Establish foreign status,
   2. Claim that such person is the beneficial owner of the income for which the form is being furnished, and
   3. Claim that certain income is effectively connected with the conduct of a trade or business in the United States.

The new certificates will replace the following forms and statement, which are no longer valid.

• Form W-8, Certificate of Foreign Status.
• Form 1001, Ownership, Exemption, or Reduced Rate Certificate.
• Form 1078, Certificate of Alien Claiming Residence in the United States.
• Form 4224, Exemption From Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States.
• Statement under regulation section 1.1441-5, relating to an individual's claim to be a U.S. citizen or resident.

Paid preparer authorization. Beginning with your return for 2000, you can check a box and authorize the IRS to discuss your tax return with the paid preparer who signed it. If you check the "Yes" box in the signature area of your return, the IRS can call your paid preparer to answer any questions that may arise during the processing of your return. Also, you are authorizing your paid preparer to perform certain actions. See your income tax package for details.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843- 5678) if you recognize a child.

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