Nonresident Alien Tax Compliance

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Nonresident AlienTax Compliance
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? ? WHY ? ?

• Most payments made to, or on behalf of, a
  nonresident alien must be reported to the
  Internal Revenue Service.
• All reportable payments are subject to federal
  income tax withholding unless they are exempted
  by either U.S. tax law or by an income tax treaty.

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Payment Examples

• Compensation
• Independent Contractors
• Consultants
• Fellowships/Scholarships
• Book Allowances
• Living Allowances
• Honoraria
• Prize/Awards
• Royalties
• Stipends (must be further defined for specifics)

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Key Factors

• Each payment requires a review of key factors
• Visa Type
• U.S. Residency Status
• Substantial Presence Test

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Questions

• Can we legally pay this individual this type of
  payment?
• Do we have a reporting obligation?
• Do we have a tax withholding obligation?

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Methods of Payment

• Payroll
• Accounts Payable
• Travel
• Athletics
• Residence Life

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Tax Residency Determination

• U.S. Citizen
• Permanent Resident
• Resident Alien for Tax Purposes
• Non-resident Alien for Tax Purposes

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Tax Residency Determination

• Department Administrator can determine if the
  payee is a U.S. Citizen or Permanent Resident by
  asking the individual.
• If the individual discloses they are not a U.S.
  Citizen or Permanent Resident then Disbursement
  Operations will classify the payee.

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Two Tax Classifications

• Taxed and reported using U.S. tax law
• U.S. Citizen
• Permanent Resident
• Resident Alien for Tax Purposes
• Taxed and reported using NRA Tax Law
• Non-resident Alien for Tax Purposes

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Non-resident Alien For Tax PurposesTax
Withholding (Page 14)

• Analysis must be done to determine if we need
  to withhold at
• 14
• 30
• Graduated Withholding (with restrictions)
• Graduated Withholding (without restrictions)
• No tax withholding treaty exemption

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Alien Information Collection Form

• Every individual who is not a U.S. Citizen or
  Permanent Resident and receives a payment must
  complete an Alien Information Collection Form to
  determine
• U.S. Residency Status for Tax Purposes

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Alien Information Collection Form(Page 10)

• Personal Information
• Current Immigration Category
• Visa Status current historical
• Resident or Non-resident Alien Determination
• Summary
• Certification

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Alien Information Collection Form

• This form is reviewed by Judy Sawyer or completed
  by the individual with Judys help.
• to determine what monies the individual is
  legally eligible to receive and,
• to determine if the monies must be reported and
  taxed.

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Department Responsibility

• Ask the question of every payee
• Are you a U.S. Citizen or Permanent Resident?
• If yes no further action is necessary.
• If no the payee must complete an Alien
  Information Collection Form

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Duplication of Paperwork

• If we have made recent payments to the payee you
  do NOT have to obtain an AICF for each payment.
• However, you ALWAYS need to complete the
  information on the Rensselaer forms.

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Payroll Payments

• Flow Chart
• (Page 18)

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Accounts Payable Payments

• Flow Chart
• (Page 21)
• Direct Payment Request Form
• (Page 23)

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Travel Reimbursements

• Form
• (Page 28)

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Gross Up Calculation SampleMost often 30 is
the withholding

• Amount To Be Paid
• /
• 70
• Amount Charged to Dept

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Gross Up Calculation Sample

• Mr. Lee is to receive 400.00
• 400 / 70 571.43
• 
  
  
• Department Expense 571.43
• Tax Deducted 171.43
• Mr. Lee received a check for 400.00

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Income Tax Treaties

• An income tax treaty is an agreement between
  the U.S. and a foreign country that is intended
  to alleviate double taxation.
• There are currently 63 treaties with foreign
  countries.

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Tax Treaty (Page 32 - 36)

• The payee MUST complete a Form 8233
• There MUST be a social security number or
  evidence that the individual has Applied For a
  SSN.
• We MUST wait 10 days before executing the treaty
  benefit.
• No reimbursement of tax already withheld.

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B-1 and B-2 Visa Holders(Page 15)

• Travel reimbursements are not taxable or
  reportable IF the accountable plan rules are
  followed.
• Actual expenses and receipts are necessary

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B-1 and B-2 Visa Holders

• Can pay Honoraria, Guest Lecturer, Independent
  Contractor
• RESTRICTIONS
• The individual can only be on campus for a
  maximum of 9 days
• The individual must not have accepted such
  payment or expense reimbursement from more than 5
  institutions during the previous six months.
• A statement must be signed. (Page 16)

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NRA Working Outside the U.S.(Page 30)

• Need signed statement
• Not taxable in the U.S.
• Not reportable in the U.S.

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Payments to Performersand Their Agents

• (Page 31)

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Letter of Tax Information for Nonresident Alien
Students

• (Page 37 38)

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Annual NRA Tax Documents

• Possible 1042S
• Possible W-2
• NEVER a 1099-MISC

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2004 Statistics

• 1042S Forms (Treaty Payments, Fellowships, A/P)
  
• Payroll 394
• A/P 73
• Greater than 3 Million
• 942 W-2 Forms with NRA impact

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New Regulations Effective 1/1/06

• Announced 11/1/05 by the IRS
• Revised withholding tables for calculating NRA
  tax withholding
• Need new W-4 from MOST NRAs
• E-Mail notification has been sent to all effected
  NRAs.

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Department Administrator Responsibilities

• Determine if the payee is a U.S. Citizen or
  Permanent Resident
• If no, collect the Alien Information Collection
  Form
• Complete all sections of forms requesting
  information about the payee.
• (Direct Pay, Travel Reimbursement, Payroll)

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Disbursement Operations Responsibilities

• Ensure all NRAs are identified.
• Assist NRAs and department administrators in
  obtaining required documents.
• Advise departments regarding the appropriate type
  and method of payment.
• Determine tax status.
• Withhold appropriate tax.
• Ensure all documents are filed with the IRS.
• Ensure all necessary documentation is maintained
  for audit purposes.

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Need Assistance?

• Judy Sawyer
• x2385
• sawyej_at_rpi.edu

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Finance Web

• This power point presentation
• The Manual