Most tax treaties provide special limits with respect to income earned by performing entertainers. Relevant categories for performers include "public entertainment" or if that is not listed, "independent personal services" (or if a musician is considered an employee, "dependent personal services"). Most tax treaties contain one or more provisions that exempt self-employed nonresident aliens (independent contractors) from U.S. tax.^{Footnote 6} Depending on the nature of the nonresident alien's self employment, an exemption may be available for U.S. source income where the alien: (1) has no "permanent establishment" or "fixed base" in the U.S.; (2) spends fewer than a certain number of days in the U.S. during the year; and (3) earns less than a specified amount of income. Some treaties do not contain all three limitations on the nonresident alien.

These limitations in effect deny to performing entertainers tax treaty benefits allowed to other professions. Musicians are usually included within the definition of entertainers. For example, the tax treaty between Australia and the United States contains a provision for "independent personal services" as well as for entertainers' "public entertainment." Normally, an Australian resident earning income in the U.S. for independent personal services is not taxed in the U.S. if (1) the individual is not present in the U.S. for more than 183 days during the year; and (2) does not have a fixed base regularly available to him for the purpose of performing his activities. However, if the Australian individual is performing services as an entertainer, the tax treaty grants a limited exemption from U.S. tax only up to gross payments of $10,000 (including paid or reimbursed expenses) received during a tax year. In addition, to qualify for the tax treaty exemption the Australian entertainer must also meet the above two requirements imposed on all Australian individuals performing independent personal services. If the Australian entertainer fails either of the two general tests for the independent personal service exemption, the income received will be fully taxed even if it does not exceed $10,000. Also, the Australian entertainer completely loses benefit of the tax treaty exemption if cumulative entertainer personal service income from all sources exceed $10,000 (including paid or reimbursed expenses) during a tax year. If the tax treaty exemption threshold is exceeded, the entertainer's total entertainer personal services income, from the first dollar earned or received, will be subject to U.S. tax and NRA withholding.

Use caution when deciding not to withhold: Unfortunately for most performing entertainers, IRS regulations do not generally allow an exemption from NRA withholding for foreign entertainers even when the entertainer qualifies for the tax treaty exemption. This is because the dollar threshold in most tax treaty entertainer provisions prevents the withholding agent from knowing whether the entertainer qualifies for a tax treaty exemption until the close of the tax year. If the foreign entertainer claims an income tax treaty exemption on Form 8233, the arts organization may consider not imposing NRA Withholding if the foreign entertainer convincingly indicates that he or she will not exceed the applicable U.S. personal services income threshold that would eliminate such tax treaty exemption. The arts organization's decision not to withhold should be made with extreme care because of the possibility that the arts organization may be liable for taxes, penalties, and interest if NRA Withholding was applicable.