UPPS No. 03.04.06
Issue No. 4
Effective Date: 2/22/2016
Next Review Date: 1/01/2018 (E2Y)
Sr. Reviewer: Director, Payroll and Tax Compliance
This document establishes responsibility and policy regarding the payment to a nonresident alien (NRA) contractor or business entity for services performed within the United States.
This document also ensures that policy conforms to the United States Internal Revenue Code (IRC) and meets “Eligibility for Payment Rules” set by the United States Citizenship and Immigration Services.
A taxpayer identification number (TIN) is one of the following: a social security number, individual taxpayer identification number, or an employer identification number.
A nonresident alien, as set forth in IRC §7701(b), is an alien who has neither a substantial presence in the United States, nor a green card, nor a permanent residence in the United States.
A nonresident alien contractor does not have an employee-employer relationship with Texas State University, has not been offered employment at Texas State, and is working on a contracted and temporary basis.
A tax treaty exemption provides a federal tax withholding exemption for aliens from countries who have tax treaties with the United States. However, the Internal Revenue Service (IRS) imposes restrictions on the application of the tax treaty exemption.
PROCEDURE FOR PREPARING FOR THE NRA’S VISIT TO THE UNITED STATES
The account manager must discuss the visa requirements with the International Office or the Payroll and Tax Compliance Office before the NRA enters the United States. The NRA must obtain the type of visa that allows the NRA to receive compensation in the United States.
The account manager must notify the Payroll and Tax Compliance Office of the NRA’s campus visit at least 20 working days prior to the visit and provide the following information:
NRA’s country of residence;
whether or not the NRA has a TIN;
the dates of the NRA’s visit to Texas State and length of stay; and
the amount and nature of payment (honorarium, expenses, etc.).
PROCEDURE FOR APPLYING FOR A TIN FOR AN NRA
The NRA, either an individual or a business entity, who provides services for compensation in the United States for Texas State must have a TIN (see Section 02.01).
The Payroll and Tax Compliance Office may provide the NRA with the following forms for completion, if applicable:
Foreign National Information form, which requires a foreign address; and
IRS Form 8233 - Exemption From Withholding on Compensation for Independent Personal Services of a NRA, the application for Tax Treaty Exemption.
The NRA should meet with the Payroll and Tax Compliance Office while on campus or provide requested forms electronically along with the following documents:
an original unexpired passport, with photograph;
a visa unless the NRA is from a Visa Waiver Program country. (e.g., visa types are B-1/B-2, O-1, J-1 with DS-2019, F-1 OPT with valid EAD card); and
an electronic copy of their I-94 document (to be obtained by the Payroll and Tax Compliance Office directly from the Department of Homeland Security, I-94 website).
PROCEDURE FOR WITHHOLDING TAX FROM PAYMENT TO NRA
The Payroll and Tax Compliance Office will withhold federal tax from the NRA’s compensation at the rate of 30 percent, unless otherwise provided by federal law or an applicable tax treaty.
The Payroll and Tax Compliance Office will discuss the tax withholding requirements with the account manager. The department may increase the amount the NRA is paid so the net payment equals the original amount intended.
The Payroll and Tax Compliance Office will send IRS 1042-S forms (Foreign Person’s U.S. Source Income Subject to Withholding) to each NRA and submit the report to the IRS at the end of each tax year by the IRS deadlines.
The Payroll and Tax Compliance Office is responsible for withholding income tax when applicable and submitting payment to the IRS immediately following payment to the NRA.
The NRA contractor is responsible for filing an IRS 1040NR or 1040NR-EZ form either claiming their treaty exemption or requesting an income tax refund according to applicable IRS regulations.
REVIEWERS OF THIS UPPS
Reviewers of this UPPS include the following:
|Director, Payroll and Tax Compliance||January 1 E2Y|
This UPPS has been approved by the following individuals in their official capacities and represents Texas State policy and procedure from the date of this document until superseded.
Director, Payroll and Tax Compliance; senior reviewer of this UPPS
Associate Vice President for Financial Services
Vice President for Finance and Support Services