IV. PAYMENTS TO 'ALIEN' INDIVIDUALS

Special tax laws apply to nonresident aliens in the U.S., therefore, Payroll must collect the information requested on the back side of Comptroller Form 26.

Before an individual, who is a non-U.S. citizen, provides services please contact Payroll at 2-2589 or 2-1953.  For information on obtaining the appropriate INS classification please contact the University's Office of International Affairs.

 IV.A. Completing Page 2 of the Form 26

All alien (non-U.S. citizen or organization) receiving miscellaneous income or contractor payments (referred to as the "Alien Payee") must complete Page 2 of the Form 26 and must furnish all required documents requested in the form. It is important for tax withholding purposes that the Alien Payee furnish information concerning his country of citizenship, country of residence, and the length of his presence/visit in the U.S. The Substantial Presence Test helps the Payroll Department determine the Alien Payee's residence status for tax purposes: U.S. Resident Alien or Nonresident Alien. 

For tax purposes, the University treats a U.S. Resident Alien the same way as a U.S. citizen. However, for non-resident aliens, the University must apply special procedures for tax-withholding and tax-reporting. In some cases, a nonresident may be eligible for a tax exemption or reduction; to qualify for such a status, the alien must complete the IRS Form 8233.

 

IV.B. Completing the Exemption from Withholding Form (IRS Form 8233)

Some nonresident aliens may be able to claim tax exemption or tax reduction due to an income tax treaty between the United States and the alien's country of residence. To claim exemption, a nonresident alien must complete IRS Form 8233, Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual. To complete this form, the nonresident alien must have a U.S. taxpayer identification number—for individuals, a social security number; for companies, a federal employer identification number—or must have applied for one very recently. See Exhibit B in Section VII of this document for a sample of the form.

If the person does not have one of these numbers and has not applied for one, then, regardless of where the person is from, that individual cannot claim exemption from tax withholding. Taxes will be deducted at the rate of 30% from any payment this person receives, as required by federal law. 

After the Payroll Department receives IRS Form 8233, a copy will be sent to the IRS. Generally, it takes the IRS 10 working days to process the form, so if a foreign person wishes to claim tax exemptions using this form, it will be 15 to 20 working days before the person receives their payment. 

If payment is needed before the 15-20 day limit expires, the Payroll Department will be required to withhold 30% tax from the money paid. The nonresident alien may then request a refund of tax withheld by filing IRS Form 1040NR, Income Tax Return for Nonresident Aliens, at the beginning of the next year, after receiving IRS Form 1042S from the University. 

Question 3(c)(1) on IRS Form 8233 requests the individual to indicate the tax treaty and provision under which the payment received is exempt from U.S. income taxes. (For a list of the appropriate treaty article citations, see the table below.)
 

IV.C. TAX TREATY TABLE FOR INDEPENDENT PERSONAL SERVICES

IV.D. Foreign Persons Who Cannot Work in the U.S. -- B-1, B-2 and W/T Visa Holders

U.S. law expressly forbids persons who hold “B-1, B-2 or W/T” visas from receiving any type of wage payments either as an employee or as an independent contractor.  Therefore, The University — including all departments and organizations within it — may not issue one-time lecture fee, consulting and other personal service, prizes and awards, or human subject fee payments to these individuals.

However, “B-1, B-2 and W/T” visa holders may receive the following types of non-wage payments:

• Academic Honoraria
• Travel and Housing expenses
• Royalty and Permission fees

Note, these individuals may also be eligible to claim tax treaty exemption provided that:

• A tax treaty exists between The United States and the individual’s country of residence, AND
• The individual has either a Social Security Number (SSN) or Individual Tax Identification Number (ITIN), AND
• The individual did not exceed the maximum number of days of presence in the U.S. (generally 183 days)

IV.E. Payments for Services Performed in Foreign Countries
  Services performed by U.S. Citizens or U.S. Resident Alien in a foreign country are both taxable and reportable. So, for example, if a U.S. citizen or resident performs a service for your department while in France, the university Payroll would need to report the worker's or contractor's income and present the worker with an IRS Form 1099 provided, of course, that the fee for the service is above $600. 

However, if the services rendered outside of the United States were performed by a Non-Resident Alien, payment for those services are both non-taxable and non-reportable. For example, if a French person performs a service for your department, in France (or Hungary or wherever outside the U.S.), then the University will not need to generate an IRS Form 1042S to report the income regardless the amount of the fee. 

IV.F. Independent Contractor Payments to Foreign Entertainers  "Entertainers" are considered a separate category of independent contractor by the IRS, and are not covered in this Guide. Generally, the same conditions apply. Entertainers must have a social security number or federal employer identification number before they can submit an Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual Form (IRS Form 8233). Without the IRS Form 8233, foreign entertainers are ineligible for treaty exemption.

Entertainers are covered under separate clauses under most tax treaties, with special withholding and exemption amount tables. For further information with regard to entertainers, please call the Payroll Department.

 IV.G. Completing the IRS Form 1001 for Tax Treaty Exemption or Reduced Tax Withholding Rate for Foreign Royalty Payments
   When paying royalties to foreign individuals/companies who reside in any of the countries on the list in Section III.H, they must complete the IRS 1001 Form to qualify for a tax treaty exemption or reduced withholding rate. 

The IRS 1001 Forms are valid for three calendar years. If the recipient continues to receive royalties after three years, they must then complete another 1001 Form. 

When a Direct Payment Voucher for a foreign royalty payment is submitted without an attached IRS 1001 Form , or without a valid form on file in the Payroll Department, the payment request will be taxed at a rate of 30%. 
 

Completing the IRS 1001 Form:

Top section of form: Complete name, address, city, state and postal code, U.S. identifying number (if any), recipient's country of residence for tax purposes, and country. 

Part 1: Check box g -- Royalties from use of films, television tapes, etc. 

Part 2: Leave blank. 

Part 3: Enter in the three years for which the reduced tax withholding rate will apply, 
starting with the current year. 

"Sign Here": Make sure the recipient signs and dates the form. 
 
 

IV.H. TAX TREATY TABLE FOR FOREIGN ROYALTY PAYMENTS