Nonresident Alien Tax Compliance

1. Nonresident Alien Tax Compliance Tuesday, February 9, 2010 Mary Alice Boyd

2. 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

3. Overview of the Tax System • SystemResidency Status • US Tax System US Citizens • Lawful Permanent • Residents • Resident Alien for Tax • Purposes • Nonresident Alien Tax Nonresident Alien for Tax • System Purposes

4. 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

5. 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

6. Social Security/Medicare Taxes • Apply 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

7. 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 Taxable • Royalties Taxable / Lower Treaty Rate

8. 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

9. 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

10. 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

11. 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

12. Treaty Benefit Eligibility • The US has tax treaties with over 60 countries • Treaties offer tax exemptions for foreign nationals • who were or are tax residents (not citizens) of a • treaty country and meet specific criteria as defined • by the treaty • Many foreign nationals understand and expect • these benefits

13. 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

14. 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

15. 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

16. 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.

17. 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

18. 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

19. 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

20. Mary Alice Boyd Tax Manager (704) 687-5819 mboyd37@uncc.edu Rebecca Urquhart Tax Accountant (704) 687-5742 rmurquha@uncc.edu Questions