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.

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Nonresident alien tax compliance

Nonresident Alien Tax Compliance

Tuesday, February 9, 2010

Mary Alice Boyd



  • 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 system

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

  • SystemPurposes

Federal income taxes

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

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 taxes

Social Security/Medicare Taxes

  • Apply to compensation for employment services

    Exceptions for Social Security/Medicare


  • 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

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 FeesTaxable / Treaty Exempt

    • Honorarium / Guest Speaker FeesTaxable / Treaty Exempt

    • Travel Reimbursement / Payment“Accountable Plan”

  • Scholarships/Fellowships

    • Tuition / FeesExcluded under Section 117

    • Room / BoardTaxable / Treaty Exempt

    • StipendTaxable / Treaty Exempt

    • Book AllowancesExcluded under Section 117

    • Travel Reimbursement / PaymentTaxable / Treaty Exempt

  • Prizes and AwardsTaxable

  • RoyaltiesTaxable / Lower Treaty Rate



  • 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

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

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

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

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

Considerations when granting treaty 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

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

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


Step 2 submit forms to tax office

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

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

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



  • Tax Office Website

    • Tax Guide for NRAs:


  • IRS Publications

    • 15T, Employer’s Tax Guide

    • 515, Withholding on Nonresident Aliens and

    • Foreign Entities

    • 519, US Tax Guide for Aliens


Mary Alice Boyd

Tax Manager

(704) 687-5819

[email protected]

Rebecca Urquhart

Tax Accountant

(704) 687-5742

[email protected]


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