NONRESIDENT ALIEN TAX POLICY
The University of Alabama
Tuscaloosa, Alabama
June 1, 2001
Table of Contents
I. GENERAL
SECTION 1.1 Scope of Policy
SECTION 1.2 U.S. Source Payment
SECTION 1.3 Definition of Student
SECTION 1.4 Definition of Postdoctoral Fellows and Visiting Scholars
SECTION 1.5 Definition of Nonresident Alien and Resident Alien
SECTION 1.6 Definition of Foreign National
SECTION 1.7 Amendment of Policy
II.
CLASSIFICATIONS OF PAYMENTS
SECTION 2.1 Employee Compensation Payments
A. Federal Income Tax
B. State Income Tax
C. FICA Tax
SECTION 2.2 Scholarship/Fellowship Payments
A. Federal Income Tax
B. State Income Tax
C. FICA Tax
SECTION 2.3 Independent Contractor Payments
A. Federal Income Tax
B. State Income Tax
C.
FICA Tax
III. FORMS AND PROCEDURES
Immigration
SECTION 3.1 INS Form I-94 Arrival/Departure Record
SECTION 3.2 INS Form I-9 Employment Eligibility Verification
SECTION 3.3 USIA Form IAP-66P Certificate of Eligibility for Exchange Visitor
SECTION 3.4 INS Form I-20P Certificate of Eligibility for Nonimmigrant Student
Tax Identification Numbers
SECTION 3.5 Form SS-5 Social Security Administration Application
SECTION 3.6 IRS Form W-7 Application for IRS Individual Taxpayer Identification Number
UA Internal Use
SECTION 3.7 UA Foreign National Information Form
SECTION 3.8 UA Nonresident Alien Student Tax Status Determination Form
Federal Tax
SECTION 3.9 IRS Form 8233 Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual
SECTION 3.10 IRS Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
SECTION 3.11 IRS Form W-9 Request for Taxpayer Identification Number and Certification
SECTION 3.12 IRS Form W-4 Employee’s Withholding Allowance Certificate
SECTION 3.13 IRS Form 8843 Statement for Exempt Individuals and Individuals with a Medical Condition
SECITON 3.14 IRS Form 8840 Closer Connection Exception Statement
State Tax
SECITON 3.15 AL DOR Form A-4 Employee’s Withholding Exemption Certificate
SECTION 3.16 AL DOR Form A-4E Employee’s Withholding Exemption Certificate
Year-End Reporting
SECTION 3.17 IRS Form 1042-S Foreign Person’s U.S. Source Income Subject to Withholding
SECTION 3.18 IRS Form 1042 Annual withholding Tax Return for U.S. Source Income of Foreign Persons
SECTION 3.19 IRS Form W-2 Wage and Tax Statement
IV. IMPLEMENTATION AND COMPLIANCE RESPONSIBILITIES
SECTION 4.1 UA Departments and Administrative Offices
SECTION 4.2 Nonresident Alien Tax Accountant
A. Tax Analysis
B. Year End Tax Reporting (1042-S)
C. Compliance Program
SECTION 4.3 Capstone International Services (CIS)
SECTION 4.4 Payroll Office
SECTION 4.5 Office of Student Receivables
SECTION 4.6 Tax Manager
APPENDICES
APPENDIX ONE U.S.
Tax Residency Tests
APPENDIX TWO
Income Tax Treaties in Force
APPENDIX THREE
Social Security Totalization Agreements
I. GENERAL
SECTION 1.1 – Scope of Policy
Effective as of June 1, 2001, this Nonresident Alien Tax Policy (referred to herein as the “Policy”) applies to “U.S. source payments” disbursed by The University of Alabama, Tuscaloosa (referred to herein as “UA”) to nonresident aliens who are students; employees, including postdoctoral/postgraduate fellows and visiting scholars; scholarship/fellowship recipients; and independent contractors.
SECTION 1.2 – U.S. Source
Payment
Unlike
U.S. citizens and resident aliens who are taxed on their worldwide income,
nonresident aliens are only taxed on income they receive from U.S. sources.
Nonresident aliens do not have to pay U.S. income tax on income
they receive from countries outside the U.S.
This income is referred to as “foreign source.”
The Nonresident
Alien Tax Accountant (referred to herein as “NRA Tax Accountant”) is responsible
for determining whether a payment is a “U.S. source” or “foreign source”
payment.
Payments
of employee compensation (including cash employee prizes and awards) and
payments to independent contractors are generally sourced in the country
where the service is performed.
Scholarship/fellowship payments generally are sourced in the country where the payer is located, regardless of the location of an agent who disburses payments for the payer.
SECTION 1.3 – Definition of Student
For purposes of this Policy,
a student is an individual who, either at
the undergraduate or graduates level, is enrolled in and regularly attending
classes and/or registered for research, thesis, or dissertation requirements.
The Payroll Office, with the assistance of other UA Department(s)
and Administrative Office(s), as necessary, shall be responsible for monitoring
the student status of individuals being paid as student employees.
An individual’s student status shall continue during the break between the conclusion of one academic term and the commencement of the immediately following academic term, unless UA’s student record system indicates the individual will neither be enrolled in and regularly attending classes nor registered for research, thesis, or dissertation requirements during the academic term that commences immediately after a break.
SECTION 1.4 – Definition of Postdoctoral Fellows and Visiting Scholars
For purposes of this Policy,
postdoctoral fellows are foreign nationals
who have completed the course, research, thesis, and/or dissertation requirements
for obtaining a postgraduate degree at UA or another educational institution.
UA hires these individuals as temporary employees.
At the same time, these individuals are gaining more experience
and training.
For purposes of this Policy, visiting scholars are foreign nationals who are experienced in their field of study and are hired by UA as temporary employees. They may be classified as Professors, Teachers, Instructors, Researchers, Visiting Scientists, etc.
SECTION 1.5 – Definition of Nonresident Alien and Resident Alien
For purposes
of this Policy, a nonresident alien
is a person who is not a U.S. citizen and who does NOT meet either the
Green Card Test or the Substantial Presence Test (see APPENDIX ONE).
For purposes
of this Policy, a resident alien
is a person who is not an U.S. citizen and who meets either the Green
Card Test or the Substantial Presence Test (see APPENDIX ONE). A resident alien generally is subject to the same tax withholding
and payment rules as a U.S. citizen; however, the NRA Tax Accountant is
responsible for determining whether the tax withholding and payment rules
applicable to a resident alien differ from the rules applicable to a U.S.
citizen.
A foreign
national who meets the Substantial Presence Test (and does not meet the
Green Card Test) may retain his or her nonresident alien status. The individual must demonstrate to the satisfaction
of the Internal Revenue Service (referred to herein as “IRS”) that he
or she has met the “Closer Connection Test” by filing Form 8840 Closer Connection Exception Statement
for Aliens (see SECTION 3.14).
SECTION 1.6 – Definition of Foreign National
For purposes
of this Policy, a foreign national
is a person who owes his permanent allegiance to a country other than
the U.S. This usually means that
the person is a citizen of another country.
A foreign national is presumed to be a nonresident alien unless
he/she meets either the Green Card Test or the Substantial Presence Test.
SECTION 1.7 – Amendment of Policy
Changes
in tax laws, the legal interpretation of tax laws, positions taken by
the IRS or other tax authorities or in UA procedure may require this Policy
to be amended.
II. CLASSIFICATIONS
OF PAYMENTS
This Policy
covers three classes of U.S. source payments to nonresident aliens:
·
Employee compensation payments,
·
Scholarship/fellowship payments,
and
·
Independent contractor payments.
SECTION 2.1 – Employee Compensation Payments
Employees are individuals who perform services subject
to the direction and control of UA, both as to what shall be done and
how it shall be done.
Employee compensation is paid by the Payroll Office to (or on
behalf of) an individual who performs services for UA.
Employee
compensation may only be paid to a nonresident alien who has been granted
an appropriate employment authorization and immigration status by the
Immigration and Naturalization Service (referred to herein as “INS”) and
who has a valid social security number.
The work authorization status of a nonresident alien shall be approved
by Capstone International Services (referred to herein as “CIS”).
Payments
to postdoctoral fellows and visiting scholars
are classified as employee compensation because work (service) is
performed in exchange for compensation.
Assistantships, which include graduate student, research
and teaching assistantships, are a form of financial assistance provided
to students to aid them in pursuing a course of study. Assistantship payments are designated as employee
compensation because work (service) is performed in exchange for compensation.
Employee prizes and awards include cash payments to employees based
on past accomplishments or activities as an employee, and such cash payments
are included in employee compensation.
A.
Federal Income Tax
In
general, federal income tax shall be withheld from all employee compensation
payments made to a nonresident alien, unless the payment is exempt from
withholding under federal law, which includes a tax treaty between the
U.S. and the nonresident alien’s country of tax residence. For a list of countries with which the U.S. has entered income tax
treaty agreements, see APPENDIX TWO.
CAUTION: The fact that an individual’s
country of tax residence is listed does not automatically mean that payments to the individual
will be exempt from tax. Exemption
will depend upon numerous factors, including: the specific provisions
of each treaty, the individual’s length of stay in the U.S., the type
of payment made, and whether the individual has met with the NRA Tax Accountant
to complete the appropriate forms.
Subject
to the provisions of applicable income tax treaties, the Payroll Office
shall withhold federal income tax at the applicable graduated tax rate
from employee compensation payments.
Nonresident aliens may claim a personal withholding allowance by
completing IRS Form W-4 Employee’s Withholding
Allowance Certificate (see SECTION 3.12) and submitting it to the
NRA Tax Accountant.
To
apply for a withholding exemption on employee compensation based on a
tax treaty, a nonresident alien must contact the NRA Tax Accountant to
complete IRS Form 8233 Exemption From Withholding
on Compensation for Independent (and Certain Dependent) Personal Services
of a Nonresident Alien Individual (see SECTION 3.9). Tax treaty
benefits will not be granted without a valid social security number.
If
the individual does not qualify for a tax treaty exemption, the NRA Tax
Accountant will make sure the individual is being taxed at the appropriate
tax rate.
B.
State Income Tax
Nonresident
aliens are subject to tax on all income received within, or for services
performed in, Alabama.
Subject
to applicable withholding exemptions, the Payroll Office shall withhold
State of Alabama Income Tax (referred to herein as “State Income Tax”)
at the applicable rate from employee compensation.
The following rules shall apply with regard to withholding exemptions:
1.
All employees must submit
either a completed State Income Tax Form A-4
or a completed State Income Tax Form
A-4E (see SECTIONS 3.15 and 3.16) to the NRA Tax Accountant, who will
forward the form to the Payroll Office.
2.
The Alabama Department of
Revenue does not currently recognize withholding exemptions based on tax
treaties; therefore, State Income Tax withholding cannot be adjusted based
on the provisions of such treaties.
C. Federal
Insurance Contributions Act (FICA) Tax
FICA
tax (the Old-Age, Survivors and Disability Insurance Tax and the Medicare
Tax) which is commonly referred to as the “Social Security Tax,” is imposed
in equal parts on both the employee and employer with respect to wages
paid to individuals working in the U.S.
Employment generally means any service, of whatever nature, performed
by an employee within the U.S. for an employer, regardless of the citizenship
or residence of the employee.
The
Payroll Office shall withhold the employee portion of the FICA tax from
all payments of employee compensation and pay the corresponding employer
portion of the FICA tax. However,
a nonresident alien employee and UA may be entitled to withholding/payment
exemption(s) from the FICA tax based upon the employee’s student status,
employee’s immigration status, a tax treaty, or a “Social Security Totalization
Agreement.”
1.
FICA Exemption Based Upon Student Status
An
employee and UA may be exempt from the employee and employer portions
of FICA tax based upon the student status of the employee. The student is exempt from FICA tax under Section 3121(b)(10) of
the Internal Revenue Code, if the student works for the school at which
he/she is enrolled and regularly attends classes.
In order to qualify for this exemption, the student must be enrolled
in at least half-time status. Half
time is defined as 6 hours for undergraduate and 4.5 hours for graduate
school. The Payroll Office monitors student status
every time the payroll is ran, and charges FICA tax as appropriate.
2.
FICA Exemption Based Upon Immigration Status
An
employee and UA may be exempt from the employee and employer portions
of FICA tax based upon the employee’s immigration status. To qualify for this exemption, the employee must be temporarily
present in the U.S. as a nonresident alien in F-1, J-1, M-1, or Q-1 immigration
status, and must perform service
in accordance with the primary purpose of their visa. If these criteria are met, the nonresident alien is exempt from
FICA tax under Section 3121(b)(19) of the Internal Revenue Code. The NRA Tax Accountant shall inform the Payroll
Office not to withhold FICA tax.
The
NRA Tax Accountant will apply the Substantial Presence Test (see APPENDIX
ONE) to visa holders in accordance with federal regulations, which include
the following:
(a)
Students
A
student who is in F, J, M, or Q immigration status is generally exempt
from counting days of presence as a student for purposes of the Substantial
Presence Test, provided that the student has not been exempt from counting
days of U.S. presence for any part of more than five (5) calendar years
due to student or non-student immigration status.
(b)
Teachers and Trainees (non-students)
A
teacher or trainee, other than a student, who is in J or Q immigration
status, is generally exempt from counting days of presence for purposes
of the Substantial Presence Test. The
teacher or trainee must NOT have been exempt as a teacher, trainee, or
student for any part of two (2) of the six (6) preceding calendar years.
Individuals
who are in F-2, J-2, or M-2 immigration status are not eligible for FICA
exemption under Section 3121(b)(19) because their primary purpose is to
be a dependent.
When
an employee has met the Substantial Presence Test, the NRA Tax Accountant
shall classify him or her as a resident
alien for tax purposes and the employee is no longer eligible for
exemption from FICA tax according to Section 3121(b)(19).
UA is required to withhold FICA tax retroactive to the first day
of physical presence in the U.S. in the year the individual became a resident
alien. If the employee is also
a student, he or she may still qualify for exemption under Section 3121(b)(10).
3. FICA Exemption Based Upon a Tax Treaty
An
employee may be exempt from the employee portion of FICA tax based upon
a tax treaty. To qualify for this
exemption, the employee must complete IRS
Form 8233 (see SECTION 3.9) and submit Form 8233 and other necessary
documentation to the NRA Tax Accountant.
In most cases, no withholding
exemption will be available to the employee due to a tax treaty. However, if a withholding exemption is available
to the employee, UA shall still pay the employer portion of the FICA tax.
4. FICA Exemption Based Upon a Social Security
Totalization Agreement
An
employee and UA may be exempt from the employee and employer portions
of FICA tax based upon a Social Security Totalization Agreement. To qualify for this exemption, the employee
must establish that the social security tax is being paid to his or her
country of residence with regard to the income earned in the U.S. The employee must obtain a “coverage certificate”
from the social security authorities in his or her country of residence
and submit the coverage certificate to the NRA Tax Accountant. The coverage certificate must contain the following:
(a)
The employee’s name, address,
and taxpayer identification number, date and place of birth, marital status,
citizenship, and country of lawful permanent residence;
(b)
the employer’s name, address,
and taxpayer identification number;
(c)
a statement that a Totalization
agreement is in effect between the foreign country and the U.S. under
which wages received by or paid to the employee by the employer are subject
to taxes or contributions under the social security system of the foreign
country; and
(d)
the date on which the Totalization
agreement began to apply and the date, if determined, when it will cease
to apply.
Upon
receipt of the coverage certificate, the NRA Tax Accountant shall retain
the certificate (the certificate is not to be filed with the IRS) and
inform the Payroll Office of the application of the Totalization agreement. See APPENDIX THREE for a listing of countries
that have Social Security Totalization Agreements.
SECTION 2.2 - Scholarship/Fellowship Payments
A “scholarship” is defined as “an amount paid or allowed to, or for the benefit of, a student, whether an undergraduate or graduate, to aid such individual in pursuing his studies.”
A “fellowship” is defined as “an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research.”
Scholarship/fellowship payments aid the recipient in covering the cost of tuition, fees, books, supplies and/or living expenses while pursuing a course of study or research.
In order for a payment to
be classified as a scholarship/fellowship, there must be no requirement
that the recipient perform services in order to receive the payment. Furthermore, the payment must not be contingent
upon the recipient’s choice of a particular faculty mentor or participation
in a specific research, teaching, or service project. The Tax Manager will make the final determination
of whether a payment is properly classified as a scholarship/fellowship.
Scholarship/fellowship
payments are generally disbursed to (or on behalf of) students through
the Office of Student Receivables, as a credit applied to the student’s
account. Certain scholarship/fellowship payments may
be disbursed through other offices; for example, monthly living expense
payments for student athletes or travel research fellowships are disbursed
through the Payroll Office, or training grant allowances through Accounts
Payable. Each disbursing office
is responsible for withholding any required taxes on scholarship/fellowship
payments, as determined by the NRA Tax Accountant.
A.
Federal Income Tax
“Qualified”
scholarship/fellowship payments, as defined by Internal Revenue Code Section
117, are not included in the student’s income for federal income tax purposes
and are not subject to federal income tax withholding. For a payment to be considered “qualified,”
a student (as permitted by the terms under which the payment is made)
must use the payment for:
1.
tuition and fees required for enrollment
or attendance, or
2.
fees, books, supplies, and equipment required
for courses of instruction.
NOTE:
Student insurance,
which is required of all foreign national students at UA, is considered
a qualified fee.
Scholarship/fellowship
payments paid in excess of qualified scholarships (i.e. room and
board, travel, dorm charges, student health and pharmacy charges, Dining
Dollars, and monthly stipends for living expenses) are included in the
student’s income. Subject to the
provisions of applicable income tax treaties, such excess payments are
subject to withholding under the following rules:
UA
shall withhold federal income tax at a rate of 14%, provided that:
1.
the recipient is temporarily present in
the U.S.,
2.
the recipient is in F, J, M, or Q immigration
status, and
3.
the recipient must be a “Candidate for a
Degree” - present to pursue study, training, or research.
If
the student does not meet the above requirements for application of the
14% withholding rate, UA shall withhold federal income tax from the scholarship/fellowship
payment at the rate of 30%.
To
apply for a withholding exemption on scholarship/fellowship payments based
on a tax treaty, a nonresident alien must contact the NRA Tax Accountant
to complete IRS Form
W-8BEN Certificate of Foreign Status of Beneficial Owner for United States
Tax Withholding, (see SECTION 3.10).
For a listing of countries with which the U.S. has entered income
tax treaty agreements, see APPENDIX TWO.
CAUTION: The fact that an individual’s
country of tax residence is listed does not automatically mean that payments to the individual
will be exempt from tax. Exemption
will depend upon numerous factors, including: the specific provisions
of each treaty, the individual’s length of stay in the U.S., the type
of payment made, and whether the individual has met with the NRA Tax Accountant
to complete the appropriate forms.
If
the individual does not qualify for a tax treaty exemption, the NRA Tax
Accountant will make sure the individual is being taxed at the appropriate
tax rate.
B.
State Income Tax
State Income Tax shall not be withheld from any scholarship/fellowship payments.
C.
FICA Tax
The employee
portion of the FICA tax shall not be withheld from scholarship/fellowship
payments, and UA shall not pay the employer portion of the FICA tax.
SECTION 2.3 - Independent Contractor Payments
Independent contractor payments are made in exchange for services performed by an individual who does not have an employee-employer relationship with UA. A Request for Independent Contractor Status Form (refer to UA SPENDING POLICY , Section VII) must be submitted in advance to the Tax Manager to obtain approval for payments to independent contractors. These are usually short-term visitors providing guest lectures, symposiums, etc.
Independent contractor payments will only be made to an individual whose immigration status allows the receipt of such payments as a matter of law and who has a valid taxpayer identification number. If necessary, the NRA Tax Accountant will consult with CIS to determine the legality of payment. Following are some examples of the most common visa types used by short-term visitors at UA, and the restrictions applicable to each:
B-1 Visitor for Business (and WB Visa Waiver
for Business)
B-2 Visitor for Tourism (and WT Visa Waiver
for Tourism)
May receive an honorarium payment for academic activities lasting no more than nine days at a single institution, if the visitor has not accepted such payment from more than five institutions during the previous six months (9-5-6 rule). If these criteria are not met, the visitor can receive expense reimbursements only (original receipts must be provided). Canadians are visa exempt, which means they do not require a visa to enter the U.S. Canadians admitted without documentation are considered to be under B-1 or B-2 status and may receive an honorarium provided that the 9-5-6 rule is met.
Citizens from the following countries may be granted WB or WT visa waiver stamps by simply completing the I-94W form upon entry into the U.S., as long as certain requirements are met. These countries currently are: Andorra, Argentina, Australia, Austria, Belgium, Brunei, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Monaco, the Netherlands, New Zealand, Norway, San Marino, Slovenia, Spain, Sweden, Switzerland, and the United Kingdom.
J-1 Exchange Visitors
Visitors who will exceed the 9-5-6 rule must obtain J-1 status in order to be paid an honorarium or fee. A J-1 visa is authorized for the sponsoring institution only. Therefore, if the individual is in the U.S. on a J-1 visa from another institution, payment from UA can only be made upon receipt of a letter from the sponsoring institution’s “Responsible Officer.” The letter, along with other documentation, must be forwarded to the NRA Tax Accountant to be placed in the individual’s tax file. Obtaining a J-1 visa requires 6 to 8 weeks of advance planning. A J-1 visa requires that UA prepare Form IAP-66 Certificate of Eligibility for Exchange Visitor (see SECTION 3.3) that must be sent to the invitee. The invitee will have to take Form IAP-66 to the Embassy or Consulate to apply for the visa. There is no cost to the individual associated with obtaining this status. CIS will provide assistance to departments needing to obtain J-1 visas for visitors. If these procedures are not followed, the visitor can receive expense reimbursements only (original receipts must be provided).
TN – Trade NAFTA
Individuals
from Canada or Mexico that exceed the 9-5-6 rule (and there is not enough
time to obtain J-1 status) may obtain TN status in order to be paid an
honorarium. The individuals must be in certain professions
and there is a cost to the individual.
Following is the procedure for obtaining TN Status:
1. Visitor will need to enter the U.S. through a “Class A” airport, which will have a special section set up in the U.S. customs area to process TN paperwork.
2. Visitor must present:
· Proof of citizenship: This may be a short- or long-form birth certificate, passport, or certificate of Canadian or Mexican naturalization.
· Original offer letter: This is a letter from UA to the individual which must contain the following information: title, job duties, period of employment, and amount of pay. In describing the title and job duties, avoid the word “training” which could be misinterpreted by INS officials to mean that the visitor is coming to receive training. For example, if the visitor will be leading a workshop, the word “teaching” would be a better choice.
· Proof of credentials: This is required to show that the individual qualifies for the professional TN status. Usually the proof consists of a notarized copy of their degree (which must be at least a bachelor’s degree). The degree must be related to the job they will be doing in the U.S.
· Payment: A $95 processing fee is required.
3. The visitor should allow an extra 2 ½ to 3 hours at the airport for processing.
4. The visitor will receive an I-94 card with TN stamped on it. On the back of the card, UA will be listed as the employing agent.
5. There is a maximum 12-month period for each TN approval. Therefore, the above process must be repeated each year as needed.
Although the TN status may be quicker to obtain, it is recommended that the individuals obtain J-1 status whenever possible. Therefore, departments should contact CIS as soon as there is intent to invite a short-term visitor.
Once it
is determined that a payment can legally be made, the NRA Tax Accountant
shall determine the individual’s tax status by performing a tax analysis,
and, if needed, shall assist in obtaining an Individual Taxpayer Identification
Number (see SECTION 3.6). Refer
to departmental responsibilities outlined in SECTION 4.1.
A.
Federal Income Tax
In
general, federal income tax shall be withheld from all independent contractor
payments made to a nonresident alien, unless the payment is exempt from
withholding under federal law, which includes a tax treaty between the
U.S. and the nonresident alien’s country of tax residence. For a listing of countries with which the U.S. has entered income
tax treaty agreements, see APPENDIX TWO.
CAUTION: The fact that an individual’s
country of tax residence is listed does not automatically mean that payments to the individual
will be exempt from tax. Exemption
will depend upon numerous factors, including: the specific provisions
of each treaty, the individual’s length of stay in the U.S., the type
of payment made, and whether the individual has met with the NRA Tax Accountant
to complete the appropriate forms.
Subject
to the provisions of applicable income tax treaties, UA shall withhold
federal income tax from independent contractor payments at the rate of
30%. To apply for a withholding exemption on independent contractor payments
based on a tax treaty, a nonresident alien must contact the NRA Tax Accountant
to complete IRS Form 8233 Exemption From Withholding
on Compensation for Independent (and Certain Dependent) Personal Services
of a Nonresident Alien Individual (see SECTION 3.9). Tax treaty benefits will not be granted without
a valid taxpayer identification number (see SECTIONS 3.5 and 3.6).
If
the individual does not qualify for a tax treaty exemption, the NRA Tax
Accountant will make sure the individual is being taxed at the appropriate
tax rate, which is 30%.
B.
State Income Tax
State
Income Tax shall not be withheld from any independent contractor payments.
C.
FICA Tax
The
employee portion of FICA tax shall not be withheld from independent contractor
payments, and UA shall not pay the employer portion of the FICA tax.
III.
FORMS
AND PROCEDURES
IMMIGRATION
SECTION 3.1 – INS Form I-94 Arrival/Departure Record
The INS
Form I-94 is used to document a foreign national’s entrance date, work
authorization status, and period of time admitted to the U.S.
SECTION 3.2 – INS Form I-9 Employment Eligibility Verification
This form
is used by the employer to verify an employee’s eligibility to work in
the U.S. UA is required to have
on file a completed I-9 for all employees, including foreign nationals. The hiring department is responsible for submitting
a completed Form I-9, along with copies of supporting documentation, to
the Payroll Office.
SECTION 3.3 – USIA Form IAP-66P Certificate of Eligibility for Exchange Visitor
Form IAP-66P
is a certificate of eligibility for prospective students, professors,
research scholars, short-term scholars, or specialists to apply for a
visa to travel to the U.S. It
also certifies that the prospective individual has applied for admission
and has been admitted to an institution for studies or employment.
With this form in hand, the prospective individual can visit any
U.S. consulate and apply for a J-1 visa. The certificate also certifies
that the prospective student has sufficient funds in readily available
format to support him/her self while studying in the U.S.
In order to remain in lawful status while in the U.S., among other
things, the J-1 individual must maintain a valid Form IAP-66P at all times.
The J-1 student also needs to have a valid Form IAP-66P in order
to be eligible for on-campus or off-campus employment.
There are other categories of the J-1 status, but UA is not authorized
to hire anyone who is not in one of the above J-1 categories.
SECTION 3.4 – INS Form I-20P Certificate of Eligibility for Nonimmigrant
Student
Form I-20P
is a certificate of eligibility for a prospective student to apply for
a visa to travel to the U.S. It
certifies that the prospective student has applied for admission and has
been admitted to an institution for studies.
It also certifies that the institution has verified that the prospective
student has sufficient funds in readily available format to support him/her
self while studying in the U.S. With
this form in hand, the prospective student can visit any U.S. consulate
and apply for an F-1 visa. In
order to remain in lawful status while in the U.S., among other things,
the student must maintain a valid INS Form I-20P at all times.
The student also needs to have a valid INS Form I-20P in order
to be eligible for on-campus or off-campus employment authorization.
TAX
IDENTIFICATION NUMBERS
SECTION 3.5 – Social
Security Administration Form SS-5
A nonresident
alien must have a Social Security Number (referred to herein as “SSN”)
if he or she is receiving:
1.
employee compensation payments,
2.
scholarship/fellowship payments,
or
3.
independent contractor payments.
*
The nonresident
alien must have a SSN before payment can be made or treaty exemptions
can be granted. Applications can
be obtained from CIS, the NRA Tax Accountant or downloaded from the Social
Security Administration web site: http://www.ssa.gov/online/ss-5.html. The individual will need to take the completed
application and the requested original documents to the local Social Security
Administration Office, which is located at 1118 Greensboro Avenue, Tuscaloosa,
Alabama. The individual must apply in person.
The nonresident
alien should receive his/her SSN via mail within 14 days. The individual should immediately take a copy
of the card to the NRA Tax Accountant, the Payroll Office and/or the Office
of Student Records.
*Nonresident
aliens who are not eligible for a SSN must obtain an Individual Taxpayer
Identification Number (referred to herein as “ITIN”).
SECTION 3.6 – IRS
Form W-7 Application for IRS Individual Taxpayer Identification Number
Nonresident
aliens who are not eligible to receive a SSN must apply for an ITIN using
IRS Form W-7. This generally applies
to independent contractors who are only here for a short period of time. The NRA Tax Accountant will assist the individual
with the application process for obtaining an ITIN. The
individual will need to apply in
person, to the office of the
NRA Tax Accountant, with original passport and INS documents.
UA must have an ITIN on file, or evidence that the individual has
applied for one, before payment can be made or treaty exemptions can be
granted. The nonresident alien
should receive his/her ITIN via mail within 6 – 8 weeks. To insure that UA gets a copy of the ITIN, it will be mailed to
the NRA Tax Accountant’s attention. The
NRA Tax Accountant will forward the ITIN to the nonresident alien. This form may be obtained from the NRA Tax
Accountant or downloaded from the IRS web-site: www.irs.gov/pub/irs-pdf/fw7.pdf
.
UA
INTERNAL USE
SECTION 3.7 – UA Foreign
National Information Form
This general
information form should be completed by the foreign national and taken
to the NRA Tax Accountant when the individual has his/her tax analysis
done. This form will serve as a back-up document
to basic, but very important, information about the foreign national’s
U.S. address, foreign address, citizenship, tax residency, current and
previous immigration status, primary purpose for visit and dates of entries
and exits. This will aid the NRA Tax Accountant in performing the tax
analysis as quickly and accurately as possible.
SECTION 3.8 – UA Nonresident
Alien Student Tax Status Determination Form
This form
is to be completed by the Office of Student Receivables and the NRA Tax
Accountant for any nonresident alien student receiving “excess credits”
(i.e. scholarship/fellowship credits on the student account in excess
of required tuition and fees). The
Office of Student Receivables will list the breakdown of the scholarship
payment that was applied to the student’s account.
The breakdown will consist of the “qualified scholarship” amounts
that are exempt under Section 117 of the Internal Revenue Code and the
excess amounts that are potentially taxable to the student.
The NRA Tax Accountant will then determine if the excess scholarship
payment is exempt under a tax treaty or if the student should be taxed
at the appropriate tax rate. The
NRA Tax Accountant will forward the form back to the Office of Student
Receivables to either exempt the scholarship payment from federal taxes
or charge the student’s account with any required federal tax withholding.
The NRA Tax Accountant will send the student a letter to explain the amount
of tax applied to his/her account.
FEDERAL
TAX
If a nonresident
alien qualifies for exemption from federal taxes on compensation earned
for personal service, he or she must complete IRS Form 8233 and have a
valid taxpayer identification number to receive tax treaty benefits. The distribution and review of IRS Form 8233
shall be the responsibility of the NRA Tax Accountant, who shall oversee
the accurate completion of this form.
The NRA Tax Accountant shall forward the completed form to the
IRS within five (5) days of its receipt from the nonresident alien.
This form
must be filed for each calendar year (January 1 – December 31) for which
a nonresident alien claims income tax treaty benefits. If this form is not completed, no benefits will be granted. Taxes will be withheld at the appropriate rate,
NO EXCEPTIONS. UA will not provide
any refunds of taxes withheld due to failure of the individual to complete
Form 8233. The individual will
have to apply for a refund when filing his/her U.S. income tax return.
In the
case of a UA employee, the NRA Tax Accountant will forward a copy of the
completed Form 8233 to the Payroll Office.
In the case of an independent contractor, the NRA Tax Accountant
will forward a copy of the completed Form 8233 to Accounts Payable as
an attachment to the Miscellaneous Disbursement Voucher (MDV) requesting
payment. The NRA Tax Accountant
reviews MDVs for nonresident aliens prior to payment being made.