NRA Tax

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NRA Tax PeopleSoftMary Fortier, NRA Tax Manager
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Did You Know . . .

• Maryland is ranked 11th state with most foreign
  students

2004-05 2005-06
13,439 12,887
(Open Doors Report, 2006 Fast Facts, Institute of
International Education, retrieved 10/22/07 from
http//opendoors.iienetwork.org/file_depot/0-10000
000/0-10000/3390/folder/50084/OpenDoors2006_Fast
Facts_FINAL.pdf)
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NRA Myths

• A one-time process
• Identify person everything is done
• Its between the individual IRS
• Underwithholding reconciled through tax return
• Some people are too important
• Cant subject them to the process
• We have few foreign students scholars
• Few NRAs means will never be audited
• NRA Office likes to be referred to as N-Rat

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NRA Facts

• NRA population is an ever-changing group
• Requires constant management
• Withholding agent responsible for NRA tax
  withholding reporting (not individual)
• Agent incurs back tax withholding fees plus
  penalties fines
• IRS monitors the following
• Inconsistent tax reporting
• Website information (events, speakers)
• Omission of Taxpayer ID
• NRA does not like others using this acronym
• Might want to say Nonresident Alien Tax

National Rifle Association
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NRA Scope
IMMIGRATION (Dept. of Homeland Security
ICE) Legal Work Authorization
NRA TAX
AUDITS (Federal State) Risk management
I-9 PROCESS (Department of Labor) Within three
days of hire
TAX ANALYSIS/MONITOR (Internal Revenue
Service) All payments
TAX WITHHOLDING/REPORTING Federal, FICA, State
Laws
TAXPAYER ID (Social Security Agency/ITIN
Unit) SSN or ITIN
FAIR LABOR STANDARDS ACT Pay for work performed
TAX TREATIES Monitor limits Annual renewal
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IRS Tax Categories
1 US Citizen
2 Permanent Resident Alien
3 Resident Alien for Tax Purposes (RA)
4 Nonresident Alien for Tax Purposes (NRA)

• Individuals choice
• Worldwide income taxed

• NRA withholding formula
• Not individual choice
• Only US income taxed

Terms are all IRS categories and not immigration
definitions
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IRS Income Types Codes

• Dependent Compensation Employee (17, 18, 19)
• Service/work required
• Includes wages, salary, travel payments
• Independent Compensation - Non-employee (16)
• Service/work required
• Includes consulting fees, guest speaker fees,
  honoraria, travel payments
• Scholarships Students (15)
• No service or work required and may include
  independent educational activity
• Includes tuition, room and board, stipend or
  living allowance, travel payment, books/supplies
• Royalties (12)
• Passive income
• Miscellaneous (50)
• No service required
• Includes prizes and awards

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IRS Required NRA Withholding

• Employee - Single, 1, NRA
• NRA means that agents add a non-cash amount to
  total of wages paid
• Total wages earned 200 (Bi-weekly period)
• Add 102 (IRS Publication 15, p. 14)
• Withhold tax at 302 amount
• Amounts differ based on type of payroll period
• Independent Compensation 30
• Scholarships 14

Unless exempt by tax treaty
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TU NRA Tax Systems

• Glacier Software (NRA Tax Office)
• Tax analysis, NRA monitoring, tax treaty limits
• PeopleSoft (Payroll Bursars Office)
• Tax status, tax withholding, payroll earnings
• Central Payroll Bureau
• POSC/payroll reports, tax reporting, SSN
  verification

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How to Identify Tax Category
Must ask question consistently to everyone
Individual Responsible
Question Are you a US Citizen or Permanent
Resident Alien?
US Citizen
Permanent Resident Alien
Yes
Resident Alien for Tax Purposes
No
Immigration Status
Nonresident Alien for Tax Purposes (NRA)
Tax Analysis NRA or RA
Withholding Agent Responsible
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When to Identify Tax Category

• Employees
• Question part of I-9 process (Human Resources)
• Complete Tax Residency Status Form
• US Citizen
• Permanent Resident Alien
• N Not indicated (Other)
• If N, go to NRA Tax Office for tax analysis
• Non-employees
• Question on all payment forms (Accounts Payable)
• If answered no, then paperwork sent to NRA Tax
  Office
• Non-qualified Scholarships
• Report 2x year (Bursars Office) requested by NRA
  Office

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PeopleSoft Coding Tax Status

• Tax Status Codes
• 1 US Citizen
• 3 Permanent Resident Alien
• 5 Nonresident Alien for Tax Purposes
• 6 Resident Alien for Tax Purposes
• N Not indicated
• Blank
• Enter in Citizenship Status Field
• Path Home gt Build Community gt Identification
  Data
• gt Use gt Citizenship/Passport Data

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PeopleSoft Reports

• Run bi-weekly Payroll report
• Monitor employees
• Tax status of N, 5, 6
• Tax Treaty Limits
• FICA
• Other taxes/issues
• Social Security Number reports
• SSN vs. ITINS
• No number
• Identify scholarship recipients
• N, 5, 6
• Tuition, fees, scholarships, book grants

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• University Internal Audits
• Maureen Higgins, CPA, MS Taxation
• Internal Audit
• University System of Maryland

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Internal Audit Office

• Conducts financial, operational, compliance,
  investigative, information systems, and follow-up
  reviews of the USM's institutions to ensure they
  are operating effectively, efficiently, and in
  accordance with applicable policies, standards,
  regulations, and laws.
• Provides services to the Regents, the Chancellor
  and management to assist them in meeting their
  legal, fiduciary, and management
  responsibilities.

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Internal Audit Function

• Audit Process
• Assessing Risk
• Selecting the Area to Audit
• Conducting a Preliminary Survey
• Evaluating the Control Environment
• Performing the Audit Field Work
• Issuing an Audit Report addressing Audit Issues
  and Recommendations

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Common NRA Audit Areas

• Nonresident Alien
• Employees
• Student Workers
• Independent Contractors
• Grants, Scholarships Fellowships

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Common NRA Audit Areas

• Determination of Tax Status NRA
• Accuracy of NRA Withholding Tax
• Timeliness of Tax Deposits
• Documentation of Income Tax Treaty Benefits
• FICA Withholding

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Internal Controls

• Documentation Records Retention
• Policies Procedures
• Software Assistance or Manual Processes
• Determining Tax Residency
• Monitoring Treaty Benefits
• Current Laws
• Reporting necessary IRS Forms
• Monitoring Immigration Changes
• Reconciliations Reviews
• Training Personnel
• Communication between Departments

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Anticipate IRS Audits

• Statute of Limitations Records Retention
• Immigration and Tax Residency Documentation
• Accuracy of Form W-4
• Form 1042-S Supporting Documentation
• Search for Unreported Transactions
• Treaty Eligibility Support
• Form W-8BEN
• Form 8233

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• IRS Audits for NRA Tax
• Dave Foreman, Tax Manager
• Office of the Comptroller
• University System of Maryland

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Comptrollers Office

• Prepare financial statements tax returns
• Coordinate audit process of financials/grants
• Facilitate IRS audits within USM system
• Assess tax liability
• Negotiate agreements with IRS
• Assist in system-wide policy setting in financial
  matters

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IRS Audit CY 2001

• The following payment types were reviewed
• Employees
• Independent contractors
• Scholarships/fellowships/grants

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IRS Audits Information Collection

• CY 2001 following requested for respective
  payment type
• Immigration status
• Copies of Form IAP-66/DS-2019
• Date of entry into US
• Service contracts
• Copies of Forms 1042-S and W-2 issued
• Copies of Tax Treaty Forms
• Copies of Form W-4
• Copies of Form W-9
• Date of payment, check or voucher numbers
  payment amount
• Scholarship analysis documentation

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IRS Findings CY 2001

• Rules lacking full compliance, especially
  employees
• Need to
• Identify all aliens on Payroll
• Document foreign origin work authorization
• Determine NRA vs. RA

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IRS Findings CY 2001 continued

• Follow withholding rules for NRAs
• NRA cannot write Exempt on W-4 (federal part)
• Single filing status only allowed
• May claim only 1 person exemption on W-4 (unless
  treaty exempt)
• Need to back out standard deduction benefit (NRA)
• Treaty benefit requires Form 8233 sent to IRS/5
  days
• If cannot secure W-4 as above, must withhold as
  Single, zero exemptions
• Report treaty exempt wages on 1042-S also on W-2

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USM Future Objectives

• Assess needs of USM institutions for NRA Tax
  support
• Develop policies procedures on USM level for
  Internal Audit purposes
• Create training tools reference materials
  (manual) for institutions to use

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QUESTIONS?