nonresident alien tax compliance
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Nonresident Alien Tax Compliance. Tuesday, February 9, 2010 Mary Alice Boyd. Agenda. Overview of the Tax System Federal Income Taxes State Income Taxes Social Security/Medicare Taxes Types of Income Treaty Benefits Procedures Best Practices Resources Questions. - PowerPoint PPT PresentationTRANSCRIPT
Nonresident Alien Tax Compliance
Tuesday, February 9, 2010
Mary Alice Boyd
Agenda• Overview of the Tax System• Federal Income Taxes• State Income Taxes• Social Security/Medicare Taxes• Types of Income• Treaty Benefits• Procedures• Best Practices• Resources• Questions
Overview of the Tax SystemSystem Residency Status
• US Tax System US CitizensLawful Permanent ResidentsResident Alien for Tax Purposes
• Nonresident Alien Tax Nonresident Alien for Tax System Purposes
Federal Income Taxes
All US payments to NRAs are subject to 30% withholding except for:• Wages subject to wage withholding• 14% for non-service scholarships/fellowships
(qualifying F, M, J, or Q status only)• Exceptions under the tax code or a treaty
State Income Taxes• Non-wage compensation of more than $1,500
during the calendar year to a nonresident contractor for personal services performed in NC in connection with a performance, an entertainment or athletic event, a speech, or the creation of a film, radio, or television program, you must withhold NC income tax at the rate of 4% from this non-wage compensation
Social Security/Medicare TaxesApply to compensation for employment services
Exceptions for Social Security/Medicare taxes:• Student FICA Exception
– Students working on the campus of the institution where they are enrolled and regularly attending classes
– Same rules for US citizens• NRA FICA Exception
– Nonresident aliens– In F-1, J-1, M-1, or Q-1/Q-2 status– Engaged in employment consistent with the
purpose of the visit• Totalization agreement exception with a
certificate of coverage
Types of income and what income is taxable?
Compensation• Dependent
– Wages / Salary / Stipend Taxable / Treaty Exempt– Travel Reimbursement / Payment “Accountable Plan”
• Independent– Ind Per Services / Consulting Fees Taxable / Treaty Exempt– Honorarium / Guest Speaker Fees Taxable / Treaty Exempt– Travel Reimbursement / Payment “Accountable Plan”
Scholarships/Fellowships – Tuition / Fees Excluded under Section 117– Room / Board Taxable / Treaty Exempt– Stipend Taxable / Treaty Exempt– Book Allowances Excluded under Section 117– Travel Reimbursement / Payment Taxable / Treaty Exempt
Prizes and Awards TaxableRoyalties Taxable / Lower Treaty Rate
Compensation• Dependent Wages
– Subject to graduated withholding rates with restrictions– Unless exempt from withholding under a treaty
• Independent Wages– Subject to 30% withholding
– Unless exempt from withholding under a treaty
Honorarium Payments• 9-5-6 Rule
– Covered aliens may accept an honorarium payment for usual academic activity
– lasting not longer than 9 days at any single institution, and
– If the alien has not accepted such payment from more than 5 institutions
– In the previous 6-month period
– Covered aliens: B-1, B-2, VWB, VWT, aliens from Canada and aliens with valid border-crossing card
Are travel expenses taxable?• The “Accountable Plan” rules only apply when there is
a compensatory relationship – Employees and Independent Contractors who
receive compensation
• The “Accountable Plan” rules do not apply if there is not a compensatory relationship
– Students and scholars who receive non-service scholarships and fellowships
Other Payments• Scholarships and Fellowships
– Subject to14% withholding to F, J, M and Q status individuals
– Unless exempt from withholding under a treaty or the Internal Revenue Code
• Prizes and Awards– Subject to 30% withholding
Treaty Benefit Eligibility• The US has tax treaties with over 60 countries
• Treaties offer tax exemptions for foreign nationalswho were or are tax residents (not citizens) of a treaty country and meet specific criteria as definedby the treaty
• Many foreign nationals understand and expect these benefits
Considerations When Granting Treaty Benefits
• US tax status: NRA or RA• Social Security Number or ITIN• Country of tax residency• Primary purpose of visit as evidenced by
– DS-2019 for J exchange visitors– I-129 petition and letters for H-1B, O-1, Q– I-20 for F and M visitors– Conducting research, teaching, training, other
paid activities• Status of the organization (educational, research,
medical, etc.)• Type of income paid
Procedures for Paying Nonresident Aliens
• Step 1 – Complete required forms• Step 2 – Submit forms to Tax Office • Step 3 – Submit DPR and required forms to A/P
Step 1 – Complete required forms• Taxpayer Information Form (Vendor Information
Form)
• Foreign National Information Form (FNIF)• Visitor and Student version• Copies may be necessary
• Form W-8BEN
• http://finance.uncc.edu/Forms/FormsHome.html
Step 2 – Submit forms to Tax Office
• Tax Office will review FNIF for completeness and payment eligibility
• Copies of immigration documents may be necessary at this point
• Once reviewed, tax office will let you know if individual is eligible for payment, and if there will be tax withholdings, treaty benefits, etc.
Step 3 – Submit DPR and required forms to A/P
• A/P and any other necessary parties will review • DPR and forms will be sent to Tax Office for
sign off
Best Practices• As soon as you know you will have a foreign visitor,
start the paperwork– Don’t start paperwork after the visitor has performed services
or you risk not being able to pay the visitor• All payments to nonresident aliens should be processed on a DPR• All travel guidelines and requirements apply to foreign visitors
– Accountable plan (nontaxable)– Use this for travel portion of trip to make less of the payment taxable
• Keep the gross-up option in mind• NRA rules and regulations are mandated by the IRS, NC Department
of Revenue, US Immigration Services, and US Department of Homeland Security
• Let visitors know we have a tax office if they want to discuss the tax implications of their payment
• When in doubt, call or email the Tax Office
Resources• Tax Office Website
– Tax Guide for NRAs: http://finance.uncc.edu/Tax/TaxLinks.html
• IRS Publications – 15T, Employer’s Tax Guide– 515, Withholding on Nonresident Aliens and
Foreign Entities– 519, US Tax Guide for Aliens
Questions
Mary Alice BoydTax Manager(704) [email protected]
Rebecca UrquhartTax Accountant(704) [email protected]