Nonresident alien tax compliance
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Nonresident Alien Tax Compliance - PowerPoint PPT Presentation

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Nonresident Alien Tax Compliance. ? ? WHY ? ?. Most payments made to, or on behalf of, a nonresident alien must be reported to the Internal Revenue Service.

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Nonresident Alien Tax Compliance

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Nonresident AlienTax Compliance

? ? WHY ? ?

  • Most payments made to, or on behalf of, a nonresident alien must be reported to the Internal Revenue Service.

  • All reportable payments are subject to federal income tax withholding unless they are exempted by either U.S. tax law or by an income tax treaty.

Payment Examples

  • Compensation

  • Independent Contractors

  • Consultants

  • Fellowships/Scholarships

  • Book Allowances

  • Living Allowances

  • Honoraria

  • Prize/Awards

  • Royalties

  • Stipends (must be further defined for specifics)

Key Factors

Each payment requires a review of key factors

Visa Type

U.S. Residency Status

Substantial Presence Test


  • Can we legally pay this individual this type of payment?

  • Do we have a reporting obligation?

  • Do we have a tax withholding obligation?

Methods of Payment


Accounts Payable



Residence Life

Tax Residency Determination

  • U.S. Citizen

  • Permanent Resident

  • Resident Alien for Tax Purposes

  • Non-resident Alien for Tax Purposes

Department Administrator can determine if the payee is a U.S. Citizen or Permanent Resident by asking the individual.

If the individual discloses they are not a U.S. Citizen or Permanent Resident then Disbursement Operations will classify the payee.

Tax Residency Determination

Two Tax Classifications

  • Taxed and reported using U.S. tax law:

    • U.S. Citizen

    • Permanent Resident

    • Resident Alien for Tax Purposes

  • Taxed and reported usingNRA Tax Law:

    • Non-resident Alien for Tax Purposes

Non-resident Alien For Tax PurposesTax Withholding (Page 14)

Analysis must be done to determine if we need to withhold at:

  • 14%

  • 30%

  • Graduated Withholding (with restrictions)

  • Graduated Withholding (without restrictions)

  • No tax withholding – treaty exemption

Alien Information Collection Form

Every individual who is not a U.S. Citizen or Permanent Resident and receives a payment must complete an Alien Information Collection Form to determine;

U.S. Residency Status for Tax Purposes

Alien Information Collection Form(Page 10)

  • Personal Information

  • Current Immigration Category

  • Visa Status – current – historical

  • Resident or Non-resident Alien Determination

  • Summary

  • Certification

Alien Information Collection Form

  • This form is reviewed by Judy Sawyer or completed by the individual with Judy’s help.

    • to determine what monies the individual is legally eligible to receive and,

    • to determine if the monies must be reported and taxed.

Department Responsibility

  • Ask the question of every payee;

    • Are you a U.S. Citizen or Permanent Resident?

    • If yes; no further action is necessary.

    • If no; the payee must complete an Alien Information Collection Form

Duplication of Paperwork

  • If we have made recent payments to the payee you do NOT have to obtain an AICF for each payment.

  • However, you ALWAYS need to complete the information on the Rensselaer forms.

Payroll Payments

Flow Chart

(Page 18)

Accounts Payable Payments

Flow Chart

(Page 21)

Direct Payment Request Form

(Page 23)

Travel Reimbursements


(Page 28)

Gross Up Calculation SampleMost often 30% is the withholding

Amount To Be Paid




Amount Charged to Dept

Gross Up Calculation Sample

Mr. Lee is to receive $400.00

$400 / 70% = $571.43


Department Expense = $571.43

Tax Deducted $171.43

Mr. Lee received a check for $400.00

Income Tax Treaties

An income tax treaty is an agreement between the U.S. and a foreign country that is intended to alleviate double taxation.

There are currently 63 treaties with foreign countries.

Tax Treaty(Page 32 - 36)

  • The payee MUST complete a Form 8233

  • There MUST be a social security number or evidence that the individual has “Applied For” a SSN.

  • We MUST wait 10 days before executing the treaty benefit.

  • No reimbursement of tax already withheld.

B-1 and B-2 Visa Holders(Page 15)

  • Travel reimbursements are not taxable or reportable IF the accountable plan rules are followed.

    • Actual expenses and receipts are necessary

B-1 and B-2 Visa Holders

  • Can pay Honoraria, Guest Lecturer, Independent Contractor


  • The individual can only be on campus for a maximum of 9 days

  • The individual must not have accepted such payment or expense reimbursement from more than 5 institutions during the previous six months.

  • A statement must be signed. (Page 16)

NRA Working Outside the U.S.(Page 30)

  • Need signed statement

  • Not taxable in the U.S.

  • Not reportable in the U.S.

Payments to Performersand Their Agents

(Page 31)

Letter of Tax Information for Nonresident Alien Students

(Page 37 – 38)

Annual NRA Tax Documents

  • Possible 1042S

  • Possible W-2

  • NEVER a 1099-MISC

2004 Statistics

  • 1042S Forms (Treaty Payments, Fellowships, A/P)

    Payroll 394

    A/P 73

    Greater than $3 Million

  • 942 W-2 Forms with NRA impact

New Regulations Effective 1/1/06

  • Announced 11/1/05 by the IRS

  • Revised withholding tables for calculating NRA tax withholding

  • Need new W-4 from MOST NRA’s

  • E-Mail notification has been sent to all effected NRA’s.

Department Administrator Responsibilities

  • Determine if the payee is a U.S. Citizen or Permanent Resident;

  • If no, collect the Alien Information Collection Form

  • Complete all sections of forms requesting information about the payee.

    (Direct Pay, Travel Reimbursement, Payroll)

Disbursement Operations Responsibilities

  • Ensure all NRA’s are identified.

  • Assist NRA’s and department administrators in obtaining required documents.

  • Advise departments regarding the appropriate type and method of payment.

  • Determine tax status.

  • Withhold appropriate tax.

  • Ensure all documents are filed with the IRS.

  • Ensure all necessary documentation is maintained for audit purposes.

Need Assistance?

Judy Sawyer


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