University of Dallas
TAX GUIDE FOR FOREIGN VISITORS
For
Use By: Administrative Staff
Departmental
Staff
Faculty Members
Foreign Scholars
Foreign Students
Effective: January, 2001
Executive Summary
Tax Guide for Foreign Visitors
What has Changed?
The
Immigration and Naturalization Service (INS) has tightened its rules regarding
payments to foreign visitors. Effective
January 1, 2001, UD Departments will be responsible to ensure that No Payments to Foreign Visitors of any kind are allowed unless
the appropriate authorization and visa status has be granted by the Immigration
and Naturalization Service in advance
of their coming to UD (must have a valid I-94 Form). Prior to this recent rule
change a 10 day grace period had been allowed. This grace period is being
eliminated by the INS.
Does this impact only Students?
No,
any individual who is a foreign visitor, whether they are a student, visiting
faculty member, employee, or independent contractor are subject to the rules
outlined in the attached policy statement.
Are certain types of payments not subject to the
new rules?
No,
all forms of payment, whether wages, honorarium, scholarships, independent
contractor payments, or reimbursement of expenses must be considered. The
foreign visitor’s visa status, country tax treaty, and other factors must be
assessed to determine if the payment is taxable, non-taxable or even if it is
allowed. Some visa types restrict any type of payment.
What if I ignore this, are there penalties for
Non-compliance ?
The
IRS has assessed colleges and universities for the full amount of any tax that
should have been withheld, along with penalties and interest charges, even if
the tax was ultimately paid by the foreign visitor on her/his U.S. tax return.
Consequently, taking the necessary steps to ensure that the appropriate tax
treaty is applied or withholding is completed, is essential. Departments that
fail to comply will bear any fine levied by the IRS.
If you don’t want to read the
whole policy, what is the most important paragraph?
It
you are pressed for time everyone should read Paragraph 2.2, Sponsoring Department Responsibilities.
For further questions please
contact the Business Office and speak to Cathy Graham or Henry Glospie.
Acknowledgements
This guide has been a
collaborative effort of those in the Business Office.
Dale Larson Director of
Finance
721-5236
Henry Glospie Assistant Director of Finance 721-5177
Cathy Graham Payroll Manager 721-5195
Marcia Miller Bursar 721-5281
Fanny Martin Accounts Payable 721-5029
Carla Rahman Accounts Receivable 721-5381
Mario Sevilla Accountant 721-5223
James Stroud Payroll/Acct. Receivable
Coordinator 721-5402
LuLu Aguas Receptionist 721-5244
A special thanks to
Cathy Graham, Payroll Manager at University of Dallas, and Anna Sorkness,
Director of Payroll at University of Texas-San Antonio, who provided invaluable
Non Resident Tax information for this guide.
Page
Table
of Contents
Introduction
Section
1: Definition of Terms
1.1 Candidate
for a Degree 2
1.2 Employee
Wages 2
1.3 Fellowships
and Scholarships 2
1.4 FICA 3
1.5 Immigrant
(Resident for Immigration Purposes) 3
1.6 Immigration
and Naturalization Service (INS) 3
1.7 Independent
Contractor Payments 4
1.8 Internal
Revenue Service (IRS) 4
1.9 Nonimmigrant
(Nonresident for Immigration Purposes) 4
1.10 Nonresident
(for Tax Purposes) 4
1.11 Resident
(for Tax Purposes) 4
1.12 Taxable
Income 5
1.13 Taxes
5
1.14 Travel
(Transportation, Meals and Lodging In Transit) 5
1.15
Withholding 5
Section 2: U.S. Tax Obligations of
University of Dallas and Sponsoring
Departments
2.1 University
Responsibilities 6
2.2 Sponsoring
Department Responsibilities 6
2.3 Classification
of Payments for Withholding Purposes 7
2.4 Foreign
Source Income Exclusion 7
2.5 Federal
Income Tax 8
2.6 FICA
Tax 9
2.8 Exemptions
from Withholding Tax 10
2.9 Required
Forms 10
2.10
Penalties and Sanctions 10
Section
3: U.S. Tax Obligations For Foreign Visitors
3.1 Tax Basics for Nonresidents 11
3.2 Nonresidents
‑ U.S. Nonresident Alien Income Tax Return (1040‑NR) 12
3.3 Residents
‑ U.S. Individual Income Tax Return (Form 1040) 13
3.4 Certificate
of Compliance ‑ "Sailing Permit" (IRS Form 1040-C or Form 2063) 13
3.5 Additional
Tax Information Statement 13
3.6 Social
Security or Individual Taxpayer Identification Number 14
3.7 Penalties
and Sanctions 14
Section 4: Residency Determination for
Tax Purposes
4.1 Resident for Tax Purposes 15
4.2 Nonresident for Tax Purposes 15
4.3 Green Card Test 15
4.4 Substantial Presence Test 16
Section 5: Short Term Visitors
5.1 Immigration Law Restrictions 17
5.2 B-1 and B-2 Visas 17
5.3 Visa Waiver for Business (VWB) and
Tourism (VWT) 18
5.4 J-1 Visas for Short Term Visitors 18
5.5 Income Tax Withholding 18
5.6 Payment Processing 19
Section
6: F-1 and J-1 Students
6.1 General Provisions 20
6.2 Possible Sources of U.S. Income 20
6.3 Tax Implications 20
Section 7: J-1 Scholars (Professors and Researchers)
7.1 General
Provisions 21
7.2 Possible
Sources of U.S. Income 21
7.3 Tax
Implications 21
Section 8: H-1B, O, P, TC & TN Visa Status (Temporary Workers and Trainees)
8.1 General Provisions 22
8.2 Possible Sources of U.S. Income 22
8.3 Tax Implications 22
Section 9: Tax Treaties 23
Appendix
A: IRS Forms and Publications
Appendix B: Tax Treaties Currently in
Force
Introduction
The purpose of this publication
is to inform foreign students, faculty, and staff of the rules that the
University of Dallas (UD) operates under, based on the tax and immigration laws
of the United States. In addition, this
tax guide is to be used as a reference tool for University personnel who
interact with foreign students, faculty and staff. However, no one from any
UD department can act as a tax consultant, give personal tax advice, or
represent an individual dealing with the IRS while in their official role at
the University of Dallas.
This guide does not
cover all tax situations; it covers only those most common to the majority of
foreign students, faculty and staff. It
presents basic information about the tax status of various kinds of university
payments to students, faculty and staff.
By explaining some of these tax regulations and qualifications, the
intent is to provide information that will assist foreign visitors and
university personnel in making the correct decisions concerning the tax
implications of payments that UD makes.
UD must fulfill its
tax reporting obligations and can, in case of a tax question or problem, assist
in supplying payroll and other appropriate documentation to explain payments
made to individuals.
Users of this guide
should be aware of the necessary limitations on the information presented
herein. While it is hoped that this
material will be useful, it should not be construed as either a complete
treatment of all tax questions, or an official UD statement as to the subject
matter reviewed.
Foreign students, faculty and staff with tax
questions or problems are advised to seek assistance from the IRS by calling
(202) 874-1460 (not a toll free number).
In the United States, the individual taxpayer is responsible for
filing an appropriate and accurate tax return and negotiating all tax matters
with the IRS. Taxpayer assistance is
available from the IRS website: www: irs.ustreas.gov
Section
One Definition
of Terms
1.1 Candidate
for a Degree
1.2 Employee
Wages
1.3 Fellowships
and Scholarships
1.4 FICA
1.5 Immigrant
(Resident for Immigration Purposes)
1.6 1mmigration
and Naturalization Service (INS)
1.7 Independent
Contractor Payments
1.8 Internal
Revenue Service (IRS)
1.9 Nonimmigrant
(Nonresident for Immigration Purposes)
1.10 Nonresident
(for Tax Purposes)
1.11 Resident
(for Tax Purposes)
1.12 Taxable
Income
1.13 Taxes
1.14 Travel
(Transportation, Meals and Lodging In Transit)
1.15 Withholding
1.1 Candidate for a Degree
A candidate for a degree is
broadly defined to include any full-time or part-time student enrolled at the
University of Dallas (“UD” or the “University”) in a course(s) which may lead
to a degree, whether or not the student's particular educational program leads
to a degree.
1.2 Employee Wages
Employee wages are payments
for services that an individual performs or carries out for the university as
an employee. Services performed by an
employee are subject to the direction and control of the university, its
faculty or staff. Employee wages are not
the same as payments made to a foreign visitor for working as an independent
contractor. See the discussion of
independent contractor payments at Section 1.6 below for the definition of non‑employment
related services. Employee wages can only be paid to foreign visitors who have been
granted an appropriate employment authorization and visa status by the
Immigration and Naturalization Service (INS) to allow them to be compensated
for services.
1.3 Fellowships
and Scholarships
Fellowship or scholarship
payments are made to assist a person in pursuing a course of study or
research. For years beginning with
1987, the IRS allows that amounts paid to individuals as qualified
scholarships and fellowships can be excluded from taxable income (meaning the payments
are not taxable) if the following two requirements are both met:
· the scholarship or fellowship is awarded to
a candidate for a degree.
· the scholarship or fellowship is used to
pay for (i) tuition and fees required
for enrollment
or
attendance at UD, and/or (ii) other
mandatory fees, books, supplies and equipment required
to
be used by all students in a particular course of study.
Fellowship
or scholarship payments made to foreign visitors may include a combination of
the following:
· tuition, fees, books, and course‑related
materials
· stipends for living expenses including
meals, lodging, and other personal items
· medical insurance premiums paid to
insurance companies
· airfare purchases from airline companies or
travel service providers
Portions of fellowship
and scholarship payments that are used for meals, lodging, non‑mandatory
medical insurance, travel, personal living expenses, or other non‑course
related expenses are often referred to as stipends, and must be included in
taxable income unless excluded by tax treaty.
Also, any amount of a fellowship or scholarship that is paid in exchange
for employment‑related services, including teaching and research
services, is taxable unless a tax treaty exclusion applies.
A post‑doctoral
fellowship award is made to an individual to further her/his pursuit of a
course of study or research beyond the doctoral level. The entire post‑doctoral fellowship
award must be included in taxable income.
Fellowships and scholarships are granted by the
Department regardless of status and can only be paid to foreign visitors who
have been granted the appropriate authorization and visa status by the INS
(must have a valid I‑94 authorization).
1.4 FICA
FICA (which is short
for the Federal Insurance Contribution Act) is a tax that is assessed against
employee wages paid to individuals.
This is a separate tax from the federal income tax and is used to fund
the retirement and medical benefits paid by the Social Security
Administration. One half of this tax
(7.65% of wages) is withheld from the payments to the individual, while the
University pays the other one half of this tax (also 7.65% of wages).
1.5 Immigrant
(Resident Alien for Immigration Purposes)
An immigrant, or resident
alien for immigration purposes, is a "green card" holder and is often
referred to as a lawful permanent resident (LPR). An immigrant, or resident alien, is a non‑U.S. citizen who
has been authorized to live and work in the U.S. indefinitely.
1.6 Immigration
and Naturalization Service (INS)
The INS is the U.S.
government agency that is responsible for overseeing the entry of foreign
visitors into this country. The INA
sets the restrictions that apply to the various visa categories (the United States
Information Agency sets the restrictions for J cultural exchange visa
programs).
1.7 Independent
Contractors Payments
Payments
to independent contractors are for services performed by foreign visitors which
may be outside the scope of employment.
Independent contractors are not the same as employees. Services that are treated as independent
contractor payments must have all of the following characteristics plus a
completed University of Dallas Independent Contractor Policy. (Please contact the Business Office for a
copy this Policy).
· the foreign visitor must not be under the
direction or control of the University, its faculty, or staff, in regard to the
means and method that are being used to perform services for the university,
· the services or task being performed is of
short duration and will not result in the foreign visitor entering a long‑term
working relationship with the University, and
· a written contract or agreement exists that
identifies the services that are to be performed.
Independent contractor payments
can only be made to foreign visitors who have been granted the appropriate
employment authorization and visa status by the INS (must have valid I‑94
authorization).
1.8
Internal
Revenue Service
The Internal Revenue Service
(IRS) is the U.S. government agency that collects taxes. To make this process easier, the IRS
provides various forms ‑ withholding allowance certificates, income tax
returns, etc.‑ which are used to help foreign visitors pay the taxes that
apply to them. The IRS is also the part
of the U.S. Government that determines
how much you owe in taxes, and whether an organization that pays income to a
foreign visitor is required to withhold specific amounts from that income.
1.9 Nonimmigrant (Nonresident
for Immigration Purposes)
A nonimmigrant, or
nonresident for immigration purposes, is a person who is not a citizen of the
U.S. and has been admitted to the U.S. for a temporary stay that will end when
the purpose of that stay has been met.
1.10 Nonresident
(for Tax Purposes)
A
nonresident for tax purposes 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 described in Publication 519, U.S. Tax Guide for Aliens.
1.11
Resident (for Tax Purposes)
A resident for tax purposes is a person who is not a U.S. citizen and
who meets either the "green card" test or the "substantial
presence" test described in Publication 519, U.S. Tax Guide for
Aliens.
1.12 Taxable Income
Any money paid to a
foreign visitor or paid to a third party on their behalf on which taxes are
required to be paid to the U.S. government is called taxable income. Employee wages and stipend payments are
considered taxable income. Federal tax will be withheld by UD from these
payments at the appropriate rate.
1.13 Taxes
Individuals earning
money in the United States must pay taxes.
Taxes are used to support the various functions of the U.S. government.
1.14 Travel
(Transportation, Meals and Lodging In Transit)
Travel payments can be made to
foreign visitors in payment for, or reimbursement of, a number of
travel-related expenses including the cost of meals, lodging, transportation
costs such as air fare and automobile rental, and other related expenses
incurred while in transit. There is no
distinction between amounts paid directly to travel service providers, such as
airlines, and payments made directly to the foreign visitor. Any travel
expenses that are paid or reimbursed by the University in order to transport a
foreign visitor to or from the University will not be considered as taxable
income to the traveler, as long as the traveler properly accounts to the
University by providing timely substantiation of the business or scholarly
purpose of the travel in accordance with the tax rules for accountable plans.
1.15 Withholding
Withholding means that
the taxes a foreign visitor is obligated to pay to the U.S. government will be
taken out of the paycheck or stipend check by UD, then sent to the U.S.
government, as required by law.
Section Two: U.S Tax Obligations of the University and
Sponsoring Departments
2.1
University
Responsibilities
2.2
Sponsoring
Department Responsibilities
2.3 Classification
of Payments for Withholding Purposes
2.4 Foreign
Source Income Exclusion
2.5 Federal
Income Tax
2.6 FICA
(Social Security Tax)
2.7 Exemptions
from Income Tax Withholding
2.8 Required
Forms
2.9 Penalties
and Sanctions
2.1 University
Responsibilities
The
University is responsible for maintaining compliance with both the letter and
intent of all federal laws. The
implications for university departments, faculty, and the foreign visitors that
they host are that UD must maintain full compliance with federal tax laws, as
well as federal immigration laws.
UD
also has a responsibility to the foreign visitors who come to campus to pursue
their education or other scholarly activities to insure that payments made to
them by the university are properly reported to the appropriate federal
agencies. Properly reporting payments
that are made to foreign visitors will greatly reduce the potential for future
tax or immigration problems for visitors.
The Business Office is available to assist departments, faculty, and
foreign visitors in gathering and coordinating the appropriate information that
is needed to maintain compliance with the tax and immigration laws.
2.2 Sponsoring
Department Responsibilities
University departments
that host foreign visitors will generally be aware that the visitors will be
coming to the university, in many cases far in advance of their actual arrival
date. Accordingly, the hosting
department or faculty member bears primary responsibility for ensuring that
payments are in compliance with federal laws and immigration laws. The Business Office is available to assist
departments and faculty members in acquiring all of the information and forms
required by the federal government.
The Business Office
(Henry Glospie or Cathy Graham in Payroll) must be contacted prior to
making any contractual arrangement to pay a foreign visitor, to insure that
violations of immigration law do not occur.
(Such violations could lead to fines of up to $10,000 assessed against
UD, or detention or deportation of the foreign visitor.)
Departments must ensure that no payments of any kind are
made to foreign visitors unless they have been granted the appropriate
authorization and visa status by the Immigration and Naturalization Service
(INS) in advance of their coming to UD (must have valid I-94
authorization). Hosting department will
be responsible for any penalties, fines, and interest from noncompliance. Hosting department must ensure that each
foreign visitor has either a social security number or an individual taxpayer
identification number (ITIN).
2.3
Classification
of Payments for Withholding Purposes
Payments
that are discussed in this tax guide fall into three broad categories of:
· employee wages
· independent contractor payments
· fellowship and scholarship grant payments
It
is likely that certain types of payments to a foreign visitor are taxable,
while other payments to the same visitor are not taxable. Also, certain payments that are taxable to
one foreign visitor may not be taxable to a visitor from a different country because
of an exemption in a tax‑treaty.
Accordingly, it is important that the University determine the
taxability (or non‑taxability) of each type of payment made to each
foreign visitor in order to know whether withholding is required and, if so,
the amount required to be withheld from the payment.
2.4 Foreign
Source Income Exclusions
2.4.1
For
Services Performed Outside the United States
Payments
that are made by UD to nonresident aliens, for services that the nonresident alien
performs in a country outside of the United States, are not subject to federal
income tax withholding. This exclusion
applies only for services performed in a foreign country for an individual who
is not a citizen or resident of the United States. The services are considered to be “sourced” in a foreign country
and, therefore, are not subject to federal tax withholding.
2.4.2
For Grants Funded from Outside
the United States
Fellowship and scholarship
grants that are paid for with funds that have come from the foreign visitor's
country of residence (or another country outside of the United States) are not
subject to tax withholding. Such grants
are considered to be “sourced” in a foreign country and, therefore, are not
subject to federal tax withholding.
2.5 Federal
Income Tax
All employee wages,
independent contractor payments, and taxable portions of fellowship and
scholarship payments that a foreign visitor receives from the University are
considered taxable income, unless they are specifically exempt from tax
by a tax treaty. In general, the
University is required to withhold federal income tax on foreign visitor income
as follows:
2.5.1 For Nonresidents
(Nonresident Aliens for tax purposes)
Employee Wages, generally, have income tax withheld at
graduated rates usually applicable for single taxpayers with one exemption,
plus an additional $15.30 BI-weekly, unless
specifically excluded from tax by a tax treaty between the U.S and the
foreign visitor's country of residence.
The visitor using IRS Form 8233 when compensation is involved regardless
of whether or not a treaty claim is being made must claim foreign status. For students, teachers and researchers, a statement
letter containing specific IRS wording must also be completed and attached to
Form 8233. Also, students, teachers, and graduate assistants need to fill out a
Foreign National Information form before they can receive any form of payment;
these forms are available in the Payroll Office. Form 8233 and attachments should be mailed to: IRS, International
Returns Section, P. O. Box 920, Bensalem, PA 19020-8518 or faxed to
215-516-1507 which the IRS prefers because of the short turn-around time.
Independent Contractor
Payments have income tax withheld at the rate of 30%,
unless specifically excluded from tax by a tax treaty between the U.S. and the
foreign visitor's country of residence.
Exemption must be claimed by the visitor using IRS Form 8233.
Fellowship and
Scholarship Payments have income tax withheld at the rate of
14% on the taxable portions of the payment (amount not used for tuition, books,
fees, and course‑required supplies and materials), unless specifically
excluded from tax by a tax treaty between the U.S. and the foreign visitor's
country of residence. Exemption must be
claimed by the visitor using a W-8BEN.
The W-8BEN is used as a certification of an individual’s foreign status
for tax purposes to claim treaty exemption on scholarship/fellowship payments
and certain other NON-compensatory payments.
Some Non-Resident
Aliens have to file BOTH forms, because they work part-time on campus (8233)
AND receive scholarship or fellowships (W-8BEN). Effective, January 01, 2001 you will need to get a W-8BEN
completed from any Non-Resident Alien to whom you make a payment, or you will
have to assume they are a U.S. Citizen and do withholding of 30%. Please see Appendix C for copies of these
forms.
2.5.2
For
Residents (Resident Aliens for tax purposes)
Employee Wages have income tax withheld at
the same graduated rates that are used to withhold tax on U.S. citizens.
Independent Contractor
Payments do
not have income tax withheld, as the visitor is not considered to be an
employee. Please see Henry Glospie or
Fanny Martin in the Business Office to obtain the University of Dallas’
Independent Contractor form to present with payment voucher for payment of an
independent Contractor.
Fellowship and
Scholarship Payments do not have income tax withheld. The portion used to pay tuition and fees,
and books and equipment required for enrollment in the University or in
the courses, is nontaxable. However,
portions of scholarship payments used for living expenses, travel, or fees and
equipment that are not required will be taxable to the recipient.
2.6 FICA (Social Security
Tax)
2.6.1 Employee Wages
FICA is withheld at the rate
of 7.65%, with a matching percentage paid on behalf of the individual by the
university, unless specifically excluded from tax by a totalization agreement
between the U.S. and the foreign visitor's country of residence.
Special exemptions are
available from FICA withholding under certain circumstances:
· services performed by visitors temporarily
in the U.S. on an F-1, J-1, M-1 or Q-1 visa, which are consistent with the
purpose for which the visitor has been granted visa status, are exempt from
FICA as long as the visitor is classified as a nonresident for tax purposes
· services performed by a nonresident student
who is employed by the university while enrolled and regularly
attending classes are exempt from FICA
· services performed for state or local
government, unless an agreement with the federal government is involved, are
exempt from FICA
· services performed for a foreign government
are exempt from FICA
· services performed for an international
organization are exempt from FICA
2.6.2 Independent
Contractor Payments
Payments
for independent personal services do not have FICA tax withheld.
2.6.3 Fellowship
and Scholarship Payments
Payments for fellowships and
scholarships do not have FICA tax withheld.
2.8
Exemptions
From Income Tax Withholding Requirements
A number of possible
exemptions from withholding may apply to a foreign visitor. Several have been mentioned above, but a
more complete listing follows:
Foreign
Source Income is not subject to withholding. Foreign source income is income that comes
from a payor whose residence is outside the United States, or income paid to a
nonresident performing services outside the U.S.
Tax
Treaty Exclusions may apply, but must be evaluated on a
country‑by‑country basis.
Per Diem Payments for
USAID Grants may be exempt from withholding but only if the
foreign visitor is involved in a USAID training program in the United States.
2.8 Required
Forms
Foreign visitors from
countries that have entered into a tax treaty with the U.S. may be able to
exclude all or a portion of the payments that they have received from U.S.
sources under the provisions of that treaty.
If a tax treaty exists between the foreign visitor's country of
residence and the U.S. that allows some or all of the visitor's income to be
considered nontaxable, the visitor must provide certain forms to the
University.
2.9 Penalties
and Sanctions
The IRS has recently
initiated a series of audits of colleges and universities that focus, among
other things, on compliance with the areas of the tax laws that are discussed
in this guide. In cases where taxes have
not been withheld, the IRS can assess the University the full amount of tax
that should have been withheld, along with penalties and interest charges, even
if the tax was ultimately paid by the foreign visitor on her/his U.S. tax
return. In the event that such an assessment
occurs in an audit, the University will bill these amounts back to the
sponsoring department.
Section Three: U.S. Tax Obligations For Foreign Visitors
3.1
Tax
Basics for Nonresidents
3.2
Nonresidents
‑ U.S. Nonresident Alien Income Tax Return (1040NR)
3.3
Residents
‑ U.S. Individual Income Tax Return (Form 1040)
3.4 Certificate
of Compliance ‑ Sailing Permit IRS Form 1040‑C or Form 2063)
3.5 Additional
Tax Information Statement
3.6 Social
Security or Tax Identification Number
3.7 Penalties
and Sanctions
3.1 Tax
Basics for Nonresidents (for tax purposes)
A nonresident's tax
responsibility is complex. The
definition of what to include as income and what might be exempt from taxes can
be confusing. This Foreign Visitor Tax Guide is basically designed to help the
nonresident alien. Therefore, the
following information is provided in some detail to inform and direct the
nonresident alien in tax basics as they relate to the individual's tax
obligation.
Income received by a
nonresident may be subject to income tax.
However, a nonresident may be exempt from paying U.S. income tax because
of a tax treaty between the U.S. and his/her country of residency. The U.S. currently has a number of treaties
with other countries. Each treaty is
different. A payment must meet the
strict requirements of the treaty in order
to be exempt from tax. If the
income is not exempted by a tax treaty, the nonresident alien pays U.S. tax
only on income from sources inside the U.S.
A nonresident receives no tax exemption for dependents.
All nonresidents must file IRS Form 1040NR (Income Tax Return for
Nonresident Aliens) on or before April 15th each year, even if all income is
exempt from tax because of a treaty (see Section 3.2, following).
Striking differences
exist between the taxation of residents and nonresidents of the United
States. The basic characteristics of
the nonresident taxation follow. More
detailed information is available in IRS Publication 519, “U.S. Tax Guide for
Aliens”.
1. Tax is generally levied on U.S. source income
only.
2. Tax treaty provisions may exempt some income
from tax.
3. Interest income may be tax‑free.
4 Nonresident aliens cannot file jointly with
their spouse.
5. Generally only one personal exemption is
allowed regardless of family status.
6. No standard deduction is permitted (except
for students from India).
7. Itemized deductions are generally limited to:
a. state and local taxes withheld,
b. contributions to charity,
c. casualty/theft losses, and
d. miscellaneous business deductions.
8. Investment income is generally taxed at a
flat 30%.
9. No child or dependent care credit is
permitted.
A
number of special rules regarding the standard deduction and spousal exemptions
are in effect for residents of India, Mexico, Canada, South Korea, and
Japan.
3.2 Nonresidents
‑ U.S. Nonresident Alien Income Tax Return (1040NR)
3.2.1 What
To File
A
nonresident files her/his tax return on Form 1040NR – “U.S. Nonresident Alien
Income Tax Return” or 1040NR-EZ – “U.S. Income Tax Return for Certain
Nonresident Aliens with No Dependents”.
UD will report earnings to nonresident aliens on a Form W‑2 and/or
a Form 1042S. Nonresidents must file an
annual tax return if they earned any U.S. source income during the tax
year. Holders of F, J, M and Q visas
are required to file Form 1040NR or 1040NR-EZ, even if they earned no income at all during the calendar year. In addition, an individual who has had too
much tax withheld from her/his wages will want to file in order to claim a
refund.
3.2.2 When
To File
If the nonresident
earned employee wages subject to withholding during a year, her/his tax return
must be filed on or before April 15, of the following year. If no U.S. employee wages were received, the
return is due June 15, of the following year.
3.2.3 Where
To File
All nonresident tax returns must be mailed to: Internal Revenue Service Center
Philadelphia,
Pennsylvania 19255 U.S.A.
3.2.4 Tax Return Record Keeping
Every
taxpayer should retain a photocopy of the completed tax return and any
documentation submitted with it. Proper
response to an IRS inquiry regarding a prior year's return is virtually
impossible without an exact copy of that return. Occasionally circumstances require the taxpayer to submit a copy
of a prior year return to the IRS. In
addition, nonimmigrants applying to the Immigration and Naturalization Service
for permanent residence may be required to produce copies of their tax returns
for the current and previous two years.
3.3 Residents ‑ U.S. Individual Income
Tax Return (Form 1040)
A resident alien pays U.S. tax on
income from all sources worldwide and generally cannot take advantage of
tax treaties between the U.S. and other countries. Individuals who are resident aliens for tax purposes can claim
exemptions for dependents. A resident's income is generally subject to tax in
the same manner as an U.S. citizen; that is, a resident is taxed on and must
report income from all sources, including those outside the United States.
Foreign
visitors who are residents for tax purposes must report all interest,
dividends, wages, or other compensation for services, income from rental
property or royalties, and other types of income, whether from sources within
or outside the United States, on IRS Form 1040, 1040A, or 1040EZ. The University will report earnings to
resident aliens on a Form W-2 (for employee wages) or a Form 1042(for
independent personal services and scholarships) that must be filed with the tax
return.
3.4 Certificate of
Compliance ‑ "Sailing Permit" IRS Form 1040-C (or Form 2063)
A Certificate of
Compliance, or “Sailing Permit,” is a form that a nonresident must file with the
IRS to demonstrate that he or she has paid all applicable U.S. taxes before
leaving the U.S. Holders of F,
J, H-3, and H4 visas are not required to obtain the Certificate
of Compliance if they had no U.S. source income other than:
(a) allowances
or payments to cover study expenses (including travel, maintenance, and
tuition), or
(b) wages
from INS authorized work (including practical training).
Permanent residents
(green card holders) and all nonresidents with a visa status other than those
noted above must still obtain a Certificate of Compliance from the IRS before
leaving the U.S.
The
following information will be useful to foreign visitors who must obtain a
Certificate of Compliance prior to departure from the U.S.:
· IRS Form 2063 is required if the foreign
visitor has no U.S. taxable income at time of departure.
· IRS Form 1040-C is required if the foreign
visitor has U.S. taxable income at time of departure.
· The appropriate form should be obtained and
filed at least 14 days before departure, but no more than 30 days before
departure.
· The appropriate form can be obtained from
the local IRS office. An IRS employee
will provide assistance to the visitor in completing the form.
3.5 Additional Tax
Information Statement
For
all nonresidents for tax purposes, the IRS is requiring a statement detailing
the basis of the individual’s claim to nonresident alien status. This statement should be filed with the IRS
Form 1040NR (Income Tax Return for Nonresident Aliens) or 1040NR-EZ (U.S.
Income Tax Return for Certain Nonresident Aliens with No Dependents) on or
before April 15 of the following year, or June 15 if no U.S. source income has
been received.
3.6 Social
Security or Individual Taxpayer Identification Number
3.6.1 Social Security
Number
A foreign visitor must
obtain a Social Security number when the visitor is going to receive payments
for employee wages. A Social Security
number is obtained by filing a Form SS-5 at the local Social Security Administration
Office. In addition to having a
completed Form SS-5, foreign visitors who are applying for a Social Security
number must have their passport, I94, for F1-I20 along with a letter from the
International office, for J-1 IAP-66, and at least one other piece of
identification with them when they visit the Social Security Administration
office.
In some countries,
foreign visitors can apply for a Social Security number at the U.S. Embassy
prior to their arrival in this country.
Foreign visitors who wish
to claim tax treaty exemption for employee wages must have a Social Security
number or proof of application prior to receiving payment. Social Security numbers are assigned one
time to an individual, and that number belongs to them for their lifetime.
3.6.2 Individual
Taxpayer Identification Number (ITIN)
The Social Security Administration will not issue
social security numbers to a nonresident alien unless the individual is employable
or is offering personal services for compensation as an independent
contractor. Beginning January 1, 1997,
an individual taxpayer identification number (ITIN) must be issued to any
nonresident alien individual who cannot obtain a social security number. Foreign visitors who wish to take treaty
benefits on independent personal services and other payments must have an ITIN
for the Form 8233, which is required in those cases.
Foreign visitors can obtain an ITIN by filing a
Form W-7, “Application for IRS Individual Taxpayer Identification Number.” The original or a certified copy of the
foreign visitor’s passport, birth certificate, driver’s license, identity card,
or immigration documentation must be submitted with the Form W-7 to the IRS
office in Philadelphia, another designated IRS office (not all IRS offices
process Forms W-7), or a Certified Acceptance Agent. The IRS will return any original documents to the individual. University departments that have
interactions with nonresident aliens should remember that it usually takes
about six weeks to get an ITIN.
3.7 Penalties
and Sanctions
Failure
of a nonresident to comply with the U.S. tax law can lead to the imposition of
fines and penalties to be assessed by the IRS against the foreign visitor. Failure to file the appropriate tax returns
or making intentionally false statements on these returns can lead to criminal
penalties. Penalties can also be
assessed against the University for making payments and reporting without
proper identification numbers.
Section Four: Residency
Determination for Tax Purposes
4.1 Resident
for Tax Purposes
4.2 Nonresident
for Tax Purposes
4.3 Green
Card Test
4.4 Substantial
Presence Test
4.1 Resident
for Tax Purposes
A resident for tax purposes is a person who is not a U.S. citizen and who meets
either the "green card" test or the "substantial presence"
test described in Publication 519, U.S. Tax Guide for Aliens.
With regard to residency
determination for tax purposes:
· F, J
and M student visa holders and their dependents are generally considered residents after their first five
(5) calendar years in the U.S., once they meet the “183 days” requirement.
· J,
and Q non-student visa holders (researchers, scholars, teachers, etc.) and
their dependents are generally considered residents after their first two
(2) calendar years in the U.S., once they meet the “183 days” requirement.
· H
and O visa holders are considered residents
only if they meet the "substantial presence" test described in
Section 4.4 of this guide.
4.2 Nonresident
for Tax Purposes
A nonresident for tax purposes 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 described in Publication 519, U.S. Tax
Guide for Aliens. With regard to
residency determination for tax purposes:
· F, J and M student visa holders and their
dependents are generally considered nonresidents
during their first five (5) calendar years in the U.S. This
is a one-time exclusion.
· J and Q non-student visa holders
(researchers, scholars, teachers, etc.) and their dependents are generally
considered nonresidents during their first two (2) calendar years in
the U.S.
· H
and O visa holders are considered nonresidents
unless they meet the "substantial presence" test described in
Section 4.4 of this guide.
4.3 Green Card Test
A
person is a resident for tax purposes if he/she is a lawful permanent resident
of the U S. A person has this status if
he/she has been issued an alien registration card, also known as a "green
card," by the Immigration and Naturalization Service (INS). The person need not be in possession of the
"green card" itself. The
right to lawful permanent residence is granted at the time of the final
interview with Immigration and Naturalization Service officials and is
evidenced by the Service's stamp in the applicant's passport. The "green card" may not arrive
for several months after the interview.
4.4 Substantial
Presence Test
4.4.1 Counting Days
A
person is a resident for tax purposes if he/she meets the substantial presence
test for the calendar year. To meet
this test, the person must be physically present in the U.S. on at least:
1. 31 days during the current year, and
2. 183
days during the three‑year period that includes the current year and the
two years immediately before that, counting:
a. all the days the person was present in the
current year, AND
b.
1/3 of the days the person was present in the first year before the
current year, AND
c.
1/6 of the days the person was present in the second year before the
current year).
4.4.2 Days
That Are Not Counted
J and Q non-student
visa holders (professors, researchers, etc.) and their dependents do not count
days for the first two calendar years.
A six-year lookback period is required, in which any two of the last six
years may be considered exempt from counting days toward the substantial presence
test. Once the two-year exception is
used, days must be counted.
F,
J, or M student visa holders and their dependents do not count days for the
first five calendar years.
It is important to note that the counting rules are based on
a “calendar” year, not a 12-month period.
For example, a foreign visitor enters the U.S.
on December 15, 1996 as a J nonstudent visa holder. For purposes of the substantial presence
test, 1996 is the “1st calendar year”, even though the visitor was present for
only 16 days of that calendar year. 1997 is the “2nd calendar year.”
This individual's exemption would end effective July 2, 1998. He/she would become a resident alien for tax
purposes retroactively to January 1, 1998.
4.4.3 Circumstances That
Disqualify From the Substantial Presence Test
A person will not meet the
“substantial presence” test if the person:
(1) is present in the U.S. on fewer than 183 days during the current
year, and (2) it is established for the current year that the person has a tax
home in a foreign country that has a “closer connection” to that country than
to the U.S. The “closer connection”
exception is discussed in detail in IRS Publication 519, U.S. Tax Guide for
Aliens.
To retain nonresident status after five years, F-1
student visa holders must be present in the U.S. fewer than 183 days or must
establish that they have a tax home in a foreign country, and that they have a
“closer connection” to that country than to the U.S. on Form 8840. The IRS will approve this status in a
letter. Until the individual receives
IRS approval, he/she will be considered a resident for tax purposes.
Section Five: Short
Term Visitors
5.1
Immigration
Law Restrictions
5.2
B-1
and B-2 Visas
5.3
Visa
Waiver for Business (VWB) and Tourism (VWT)
5.4
J-1
Visas for Short Term Visitors
5.5
Income Tax Withholding Requirements
5.6 Payment
Processing Requirements
5.1 Immigration
Law Restrictions
In past years,
immigration and tax law restrictions were rather loosely interpreted by many
colleges and universities; however, the IRS and the Immigration and
Naturalization Service have recently undertaken stricter enforcement
measures. This may impact on those who
are hosting foreign faculty, scholars, researchers, performers, artists or
those performing other services.
However, these restrictions should not discourage anyone from inviting
foreign visitors to the University for short-term stays. In most cases, it is possible to legally
reimburse them for expenses (such as accommodations and travel) and/or pay them
for services performed for UD, provided that the foreign visitor enters
the United States with the proper visa, typically a J-1 visa. UD faculty members who travel abroad, and
who may extend an invitation to a foreign colleague, should be aware that for
some countries it may take several months to obtain the proper visa.
In order to ensure
that (a) foreign visitors can receive
the appropriate payments; (b) they are
not denied entry into the U.S.; (c) they do not have more taxes withheld than are
necessary; and (d) hosting departments
are not assessed fines by the IRS or the INS, faculty members who plan to host
foreign visitors should have their departmental administrative personnel or
account manager contact the Business Office prior to making any
contractual arrangement to pay or reimburse a foreign visitor.
5.2 B-1 and B-2 Visas
5.2.1 B-1
Visitor for Business
Foreign visitors present in
the U.S. on B-1 visas are prohibited
from being paid any form of salary as an employee or for independent
contractor services for compensation for
services rendered with one exception.
The only types of payments that a B-1 visa holder may receive while in
the U.S. are as follows:
· May be paid an honorarium by a non profit institution if
certain criteria are met.
See the following for
the criteria and forms to be filled out.
· Reimbursement for expenses including
accommodations, meals, and travel expenses
Payments
may be made directly or to the provider of the service and are not taxable or
reportable.
· Scholarship or fellowship grants where the
visitor is enrolled in a course of study and renders no services for the
university.
5.2.2 B-2 Visitor for Tourism
Foreign visitors in
the U.S. on B-2 visas are prohibited from receiving payments of any kind, for any reason with one exception. May be paid an honorarium by a non-profit
institution if certain criteria are met.
5.2.3 Academic
Honorarium for B Nonimmigrant Aliens Criteria:
Any alien admitted
with a B1-B2 visa may accept an honorarium payment and associated incidental
expenses for usual academic activity
or activities. With the 9/5/6 Rule; not
lasting longer than 9 days at a single institution and if the alien has not accepted
such payment or expenses from more than 5 institutions in the previous 6-month
period.” Visiting B1-B2
visitors MUST fill out the
University’s B Honoraria Eligibility Certification form and present with A/P
Voucher for payment along with copies of I94, Passport, and nature of payment
request. A copy of the B Honoraria
Eligibility Certification is in Appendix C.
Withhold at 30%, unless requesting a treaty benefit.
5.3
Visa
Waiver for Business (VWB) and Tourism (VWT)
The immigration law status
of visa waivers for business (VWB) and tourism (VWT) are identical to their B
visa counterparts.
5.4 J-1
Visas for Short Term Visitors
5.4.1 Possible Sources
of U.S. Income
J-1 non-student (professor
and researcher) visas allow for employment of foreign visitors on campus exclusively. Permission to work off-campus must be
obtained from the sponsor, which is the University of Dallas.
5.4.2
Tax
Implications
Refer to Sections 2.5 -
2.7 of this guide to determine whether federal income tax, FICA taxes apply to
the type of payments being made to the foreign visitor.
5.5
Income
Tax Withholding Requirements
In general, all income paid
by the University to a foreign visitor is taxable unless the income is
exempt from tax under the provisions of a tax treaty between the U.S. and the
person's country of residence, or under a provision of the Internal Revenue
Code. The University is required by law
to withhold the taxes from these payments at the following rates, unless
exempted by treaty, or the tax code:
· employee wages: income tax at graduated
rates for single taxpayers with one exemption, plus $15.30 BI-weekly for
nonresident aliens
· fellowships & scholarships: 14% income tax
· independent contractor payments (and
reimbursements of expenses): 30% income
tax
5.6
Payment
Processing Requirements
Departments that are planning to invite a foreign
visitor to University of Dallas who will enter the U.S. on a B-1 visa or a VWB
waiver must ensure that the following forms are completed, or copies are
obtained, in order to comply with the IRS rules. Exemptions from withholding under a tax treaty for employee
wages, independent contractor payments, or scholarship payments may not be
honored unless the visitor has, or has applied for, a social security number
(or individual taxpayer identification number, if applicable).
IRS Form W-8BEN: This must be filed
with the University by the foreign visitor in order for fellowship and
scholarship payments to be exempt from withholding tax under a tax treaty,
to the extent a treaty exemption applies.
UD A/P Voucher, for payment through Accounts Payable: In
addition to the standard information required on this form, copies of the following items must be
attached in order to process the payment:
· INS Form I-94, Arrival-Departure
Record: The I-94 is issued to the
visitor on arrival in the U.S. and is attached to the passport or visa
document,
· Social Security Card or confirmation of
application for social security number (or documentation of the individual
taxpayer identification number if applicable),
and
· Passport page containing the visitor's
picture.
Section Six: F-1 and J-1 Students
6.1
General
Provisions
6.2
Possible
Sources of U.S. Income
6.3 Tax
Implications
6.1 General
Provisions
F-1
and J-1 student visa holders are generally considered nonresident aliens for
their first five calendar years in the U.S.
F-1
and J-1 category students who have been in the U.S. for more than five (5) consecutive
years are generally considered to be resident aliens. Students with F-1 or J-1 visas become eligible to use the
substantial presence test after five years as nonresident aliens. For example, a student with a J-1 visa who
arrived in the U.S. in 1992 files nonresident alien tax returns (IRS Form
1040-NR) from 1992 through 1996. The
student passes the substantial presence test (described in Section 4.4 of this
guide) in 1997. The
student is considered a resident alien for tax purposes in 1997 (See Section
3.3).
All
students who have been in the U.S. for more than five (5) years will be treated
as residents for tax purposes.
Individuals who wish to be treated as nonresidents for tax purposes must
establish to the satisfaction of the Internal Revenue Service (on Form 8840)
that they are complying with the terms of their student visa and do not intend
to permanently reside in the United States, and they must provide to the
University a written statement from the IRS substantiating their continued nonresident
status.
All
J-1 students who are paid as university employees or independent contractors
must be prepared to provide verification that they have work authorization on
an annual basis, (i.e., every year that they are present at UD we require
new 8233, and W-4 each January and a new W8-BEN every three years).
6.2 Possible
Sources of U.S. Income
F-1 Student and J-1 Exchange Visitor
(Student) visas allow for employment of foreign visitors
on campus and off-campus under certain circumstances. Off-campus work that is curriculum-related practical training is
authorized. Post-graduate practical
training is possible for up to 12 months for F-1 students and up to 18 months
for J-1 students. F-1 and J-1
Students are authorized to work a
maximum 20 hours per week while class is in session and a maximum 40 hours
per week during recesses and vacations.
INS can access penalties and/or deport F-1/J-1 students who work more
than the 20-hours a week because they fall out of status with the INS.
6.3 Tax
Implications
Refer
to Sections 2.5 - 2.7 of
this guide to determine whether federal income tax, FICA taxes apply to the
type of payments being made to the foreign visitor.
Section
Seven: J-1
Scholars (Professors and Researchers)
7.1
General
Provisions
7.2
Possible
Sources of U.S. Income
7.3
Tax
Implications
7.1 General
Provisions
J-1 non-student visa
holders (professors, researchers, etc.) are generally considered nonresident
aliens for their first two calendar
years (or two of the last six calendar years if they have previously been
present in the U.S.).
J-1
non-student visa holders who have been in the U.S. at least two years are
generally considered to be resident aliens.
Non-students with J-1 visas become eligible to use the substantial
presence test after two years as a nonresident alien. For example, a teacher with a J-1 visa who arrived in the U.S. in
1995 files nonresident tax returns (IRS Form 1040NR) for 1995 and 1996. The teacher passes the substantial presence
test, i.e. “after 183 days of presence”, in 1997. The teacher is considered a resident alien for tax purposes in
1997.
7.2
Possible
Sources of U.S. Income
J-1 non-student (professor and
researcher) visas allow for employment of foreign visitors on
campus exclusively. Permission
to work off-campus must be authorized by their sponsor (University of Dallas).
7.3 Tax
Implications
Refer
to Sections 2.5 - 2.7 of this guide to determine whether federal income tax.
FICA taxes apply to the type of payments being made to the foreign visitor.
Section 8: H-1B, O, P, TC & TN Visa Status
(Temporary Workers and Trainees)
8.1
General Provisions
8.2
Possible Sources of U.S. Income
8.3 Tax Implications
8.1 General
Provisions
H-1B visa holders are generally considered nonresidents
unless they meet the “substantial presence” test. There is no specific amount of time that these visa holders will
be considered nonresidents as there is with F and J visa holders.
O
and P visas are issued to artists, performers and aliens of extraordinary
ability. These visa types are treated
in the same manner as the H-1B.
TC and TN visas are issued to Canadians
and are the equivalent of the H-1B for Canadian citizens. TN visas can also be issued to Mexicans.
8.2
Possible
Sources of U.S. Income
H-1B,
O, P, TC and TN visas (except H-4 dependents) allow for employment of
foreign visitors exclusively on the campus of the sponsoring institution. Additional employment for a foreign visitor is
possible only with approval of an additional H petition of the INS.
8.3
Tax
Implications
Refer to Sections 2.5 - 2.7 of this guide
to determine whether federal income tax, FICA taxes apply to the type of
payments being made to the foreign visitor.
In addition, H-1B visa holders are subject to FICA withholding. It is important to note that any change of
visa status to H-IB status must be communicated to the UD payroll office
immediately.
Section 9: Tax Treaties
Residents
of certain foreign countries may be entitled to reduced tax rates, or exemption
from tax, under an applicable tax treaty between their country and the United
States. The hosting department or foreign visitor must notify the payroll
office that the visitor is a resident of a country with which the United States
has an income tax treaty.
Notification
that the visitor qualifies for a reduced rate of income tax withholding, or
exemption from income tax withholding must be received before this exemption
can be granted. The visitor will also
need to submit certain IRS forms (Form W-8BEN and/or Form 8233, Foreign
National Information Form, and required IRS statement, depending on the type of
payment that the visitor is receiving) that authorizes University of Dallas to
grant the treaty exemption. It is important to note that simply because
a treaty between the U.S. and the foreign visitor's country of residence is in
existence, this does not always mean that the types of payments made by UD to
the visitor are exempt from tax under their country's tax treaty. In addition, certain countries place
specific dollar limitations on the amount of money that can be exempt from tax
under their treaties.
Contact
Cathy Graham in Payroll to determine the specific treaty provisions available
for each foreign visitor.
See
Appendix B for a list of tax treaties currently in force between the U.S. and
other countries.
