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Accounts Payable & Disbursements Training _____________________________________________________________ DAY TWO Taxable Payments Made Through the Vendor System ______________________________________________________________ Asger Pedersen Accounting Services & Controls Agenda DAY TWO

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accounts payable disbursements training

Accounts Payable & Disbursements Training

_____________________________________________________________

DAY TWO

Taxable Payments Made Through the

Vendor System

______________________________________________________________

Asger Pedersen

Accounting Services & Controls

agenda
Agenda

DAY TWO

(Today)

Taxable Payments Made Through the Vendor System

  • Review: General Disbursements Issues
  • Independent Personal Services Payments
  • Vendor Payments with Income Tax Implications
  • California Non-Wage Tax Withholding
  • Taxation of Scholarship / Fellowship Grants
  • Nonresident Alien Tax Issues

DAY TWO Taxable Payments Made through the Vendor System

class focus
Class Focus

AWARENESS– Policies, Procedures, Responsibilities

PROCESSES – serving stakeholders

TOOLS– providing user functionality

Ask questions!

DAY TWO Taxable Payments Made through the Vendor System

review general disbursements issues the essentials
Review: General Disbursements IssuesThe Essentials

Accounting looks for evidence of both Authorization and Approval

No payment transaction should lack appropriate authorization, approval and substantiatingdocumentation

See discussion at PAYMENT PROCESSING AT UCSB: OVERVIEW at following web link:

http://www.accounting.ucsb.edu/pdf/ap_overview.pdf

DAY TWO Taxable Payments Made through the Vendor System

review general disbursements issues all payment requests must evidence
Review: General Disbursements IssuesAll payment requests must evidence
  • Authorization— a commitment
    • By an authorized individual (PI’s, LV buyers, Purchasing, Contracts & Property Office)
    • In the form of a requisition, purchase order, contract, agreement or letter of understanding
  • Approval — an acknowledgement
    • By a departmental approver (signer with authority to disburse from the budget in question)
    • In the form of an invoice or payment request referencing a valid authorization

DAY TWO Taxable Payments Made through the Vendor System

review general disbursements issues relationships compliance issues
Review: General Disbursements IssuesRelationships & Compliance Issues

All payment requests …

  • Infer a contractual relationship
    • Buyer/Seller – common goods & services
    • Employer/Employee – dependent personal services
    • Client/Service provider – independent persnl servcs
  • Raise tax compliance issues
    • Sales/Use tax – common goods & services
    • Income tax reporting – dependent and independent personal services providers
    • Income tax withholding – as triggered by taxpayer’s status (residency, entity type, back-up withholding)

DAY TWO Taxable Payments Made through the Vendor System

review general disbursements issues the different types of services
Review: General Disbursements IssuesThe Different Types of Services

Payments for common goods & services

  • Under Low Value (LV), Vendor Blanket (VB) or High Value (SB) authorizations

Payments for personal, professional services

  • Requiring Payroll processing or
  • Letter of Understanding (LE), Business Services Contract (CT) or High Value Purchase Order (SB)

See discussions at PAYMENT PROCESSING AT UCSB: SELECTED TOPICS at following web link:

http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments governing u c policies
Independent Personal Services PaymentsGoverning U.C. Policies

The following are links to relevant UC policies

BFB* BUS-43, Materiel Management

http://www.ucop.edu/ucophome/policies/bfb/bus43.html

BFB* BUS-77, Independent Contractor Guidelines

http://www.ucop.edu/ucophome/policies/bfb/bus77pdf.html

BFB* BUS-34, Securing the Services of Independent Consultants

http://www.ucop.edu/ucophome/policies/bfb/bus34.html

*Business and Finance Bulletins (BFB)

See also Summary of Authorizations Required for Approval at

http://www.accounting.ucsb.edu/pdf/AP_summary_of_auths_for_payment.pdf

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments local policy administration
Independent Personal Services PaymentsLocal Policy Administration

Contracts & Property or Purchasing units

  • Authorizes contracts for services
  • Links to forms, guidance, policies
    • http://www.busserv.ucsb.edu/contractsproperty/index.htm
    • http://www.busserv.ucsb.edu/purchasing/index.htm

Accounting Services & Controls

  • Processes contract payments
  • Links to forms, guidance, policies
    • http://www.accounting.ucsb.edu/disbursement/forms.shtml

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments authorizing services contracts
Independent Personal Services PaymentsAuthorizing Services Contracts
  • You do not have the authority to sign contracts on behalf of UC unless delegated to you by Regents/Chancellor/campus Materiel Manager
    • Must go through Contracts & Property office
  • No agreements should be executed outside established policy and procedure parameters
    • Know contract authorization vehicles and limits
  • No services should be performed without a fully executed Letter of Understanding (LE), Purchase Order (SB), or Business Services Contract (CT)
    • Violations could result in personal/institutional liabilities

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments authorizing services contracts11
Independent Personal Services PaymentsAuthorizing Services Contracts

Tools and guidance at the Purchasing / Contracts & Property web sites

  • Request for Independent Consultant Services

http://www.busserv.ucsb.edu/Forms/ConsultantRequest.pdf

  • Request for Personal or Professional Services Agreement

http://www.busserv.ucsb.edu/Forms/RequestforService.pdf

  • CONTACTS:
    • Julie Sears, Materiel Manager, julie.sears@buss.ucsb.edu, x2585
    • Randy Stoskopf, Contracts & Property Administrator, randall.stoskopf@purc.ucsb.edu, x3001

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments status determination per bfb bus 77
Independent Personal Services PaymentsStatus Determination per BFB BUS-77
  • Employee status
    • Employer controls results, methods and means
  • Non-employee status
    • Employer controls only the results
  • Status determination tools
    • Independent Contractor Pre-hire Worksheet, Exhibit D

http://www.ucop.edu/ucophome/policies/bfb/bus34a3.pdf

    • See also Purchasing’s Relationship Determination Table

http://www.busserv.ucsb.edu/purchasing/goods_services/indepcontractors_psa.htm

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments services definitions from bfb bus 43
Independent Personal Services PaymentsServices Definitionsfrom BFB BUS-43
  • Common goods and services – Standard supplies and services readily obtainable through conventional commercial channels (covered in DAY ONE class)
  • Personal services – infrequent, technical, or unique functions performed by an independent contractor
    • Usually an individual, perhaps part-time
    • For example; translation, technical editing or appraisal
  • Professional services – infrequent, technical, and/or unique functions by an independent contractor
    • In an occupation rendering such services full time, often partnerships, firms, corporations
    • For example; medical, engineering, performing arts, management consultation

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments services definitions from bfb bus 4314
Independent Personal Services PaymentsServices Definitionsfrom BFB BUS-43
  • Independent contractor – Arelationship where the University controls only the result, not the manner of performance
  • Independent consultant – When the University controls neither the result not the manner of performance
    • Competence to provide professional or technical advice

ALL BUT #1 REQUIRE INCOME TAX REPORTING

See also the Payment Processing under Contracts for Independent Personal Servicesdiscussion at the following web link

http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments the purpose of a contracts for services
Independent Personal Services PaymentsThe Purpose of a Contracts for Services
  • Documents scope – Who, what, when, where and why
  • Documents purpose – What project, what mission and funding source
  • Documents expectations – Outcome, output for how much compensation
  • Documents risk – How much risk and who assumes it

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments contract vehicles limits
Independent Personal Services PaymentsContract Vehicles / Limits
  • Letter of Understanding (LE) — low dollar, simple event,very low risk
    • Speakers, trainers, workshop facilitators
    • Cannot exceed $1,500 for one-time event
    • Very low risk, off-campus or on-campus with UCSB providing facilities, equipment

See How to Hire Speakers & Trainers (non-academic activities) at Contracts & Property web page

http://www.busserv.ucsb.edu/contractsproperty/speakers_trainers.htm#instructions

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments contract vehicles limits17
Independent Personal Services PaymentsContract Vehicles / Limits
  • Purchase order (SB) – simple event,very low risk
    • Speakers, trainers, workshop facilitators exceeding $1,500 but not over $10,000
  • Contracts (CT) –any risk level
    • If over $10,000, even if very low risk
    • Any amount: if higher risks, unique require-ments (catering, props, equipment)
    • Consultants – All, no matter the amount
    • Contractors – Professional, unique skills

See links to Campus Catering Policy and Guidelines

http://www.ehs.ucsb.edu/units/envhlth/ehrsc/caterguide.htm

http://www.policy.ucsb.edu/housing-svcs/newfoodpolv41.pdf

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments honoraria unique status
Independent Personal Services PaymentsHONORARIA—UNIQUE STATUS

In recognition of special services or distinguished achievements for which custom forbids a fixed price

  • Person with academic credentials in academic setting
  • Approval by department heads, deans or Chancellor required
  • No local policy statement, but local approval limits apply

See AMC* D-371-35, Disbursements: Honorarium Payments

http://www.ucop.edu/ucophome/policies/acctman/d-371-35.pdf

*Accounting Manual Chapter

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments other payment processing types
Independent Personal Services PaymentsOTHER PAYMENT PROCESSING TYPES

Undergraduate Research Grants

Prizes, Awards and Gifts

Stipend Payments

Leases and Contract Payments

Settlement Payments

Home-Stay Payments

For detailed discussions of above topics see Selected Topics at this web link:

http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments responsibilities
Independent Personal Services PaymentsResponsibilities

When Procuring Personal Services

  • Campus departments
    • Initiate procurement process by submitting relevant data and required forms
  • Contract & Property (Business Services)
    • Administers processes for requisitioning services, executing contracts
  • Accounting Services & Controls
    • On the basis of data supplied, properly tax codes payment transactions

DAY TWO Taxable Payments Made through the Vendor System

independent personal services payments questions
Independent Personal Services PaymentsQuestions

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications who is tax reportable exempt
Vendor Payments with Income Tax ImplicationsWho is Tax-Reportable? — Exempt?
  • Reportable: vendor system compensation to individuals and sole proprietors
  • Exempt: generally corporate entities because they are “fully audited”

AMC* D-371-12.1,Disbursements: Accounting for and Tax Reporting of Payments Made Through the Vendor System

http://www.ucop.edu/ucophome/policies/acctman/d-371-12-1.pdf

  • How to tell the difference: Payers expected to certify vendors on IRS Form
    • Disclose TIN and residency/immigration status
    • Certify to back-up withholding status

W-9, Request for Taxpayer Identification Number & Certification

http://www.irs.ustreas.gov/pub/irs-pdf/fw9.pdf

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications tax reporting elements on form 5
Vendor Payments with Income Tax ImplicationsTax Reporting Elements on Form-5

Compliance questions:

  • UC Employee? If “Yes”, provide justification for non-payroll treatment.
  • UCSB Student? If “Yes”, ( ) undergraduate? or ( ) graduate? or ( ) non-degree candidate?
  • IndependentService Provider/Consultant? If “Yes”, ( ) individual/partnership? or ( ) incorporated entity?
  • California Nonresident? If “Yes”, is work performed in California? ( ) Yes, ( ) No
  • Nonresident Aliens? If “Yes”, is work performed in US? ( ) Yes, ( ) No
  • Taxpayer Identification Number (TIN)

See form and instructions at

http://www.accounting.ucsb.edu/forms/form5.shtml

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications tax reporting elements on form 524
Vendor Payments with Income Tax ImplicationsTax Reporting Elements on Form-5
  • Tax coding accuracy requires
    • Description of nature of transactions
    • Correct disclosure of payee status
    • Disclosure of location of activity
  • Types of TIN(Taxpayer Identification Number):
    • Social Security Number (SSN) issued by SSA
    • Employer Identification Number (EIN) issued by IRS
    • Individual Taxpayer Identification Number (ITIN) issued by the IRS

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications taxable reportable travel
Vendor Payments with Income Tax ImplicationsTaxable/Reportable —Travel*
  • Moving Expenses
  • Unrecovered Travel Advances
  • Unsubstantiated Travel Expenses
  • Discount, Rebate, or Premium Coupons on Transportation Tickets
  • Unsubstantiated Travel Expenses incurred by Independent Contractor/Consultant

See also BFB** G-28, POLICY AND REGULATIONS GOVERNING TRAVEL

http://www.ucop.edu/ucophome/policies/bfb/g28toc.html

*Per tables in AMC* D-371-12.1

**Business and Finance Bulletin

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications tax exempt items travel
Vendor Payments with Income Tax ImplicationsTax Exempt Items—Travel*
  • Per Diem for Foreign Travel
  • Actual Travel Expenses for following expenses
    • Spouse on University business
    • Pre-employment (PE) Interview and spouse accompanying on PE interview
    • Rendering charitable service to University
    • Accepting a non-reportable prize or award
    • Independent Contractor/Consultant
    • Subsistence for travel assignments of more than one year

See also BFB** G-28, POLICY AND REGULATIONS GOVERNING TRAVEL

http://www.ucop.edu/ucophome/policies/bfb/g28toc.html

*Per tables in AMC* D-371-12.1

**Business and Finance Bulletin

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications taxable reportable other payments
Vendor Payments with Income Tax ImplicationsTaxable/Reportable – Other Payments*
  • Fees for Professional Services (Resident or Non-Resident Alien)
  • Payments to attorneys for legal expenses
  • Health care commissions to non-employees
  • Damage payment - services prior to signing loyalty oath
  • Rent, Royalties
  • Prizes and awards to Faculty
  • Prizes and awards to employees – cash
  • Prizes and awards to non-employees
  • Uniform allowance (under a non-accountable plan – lump sum allowances)
  • Human subject payments

*Per tables in AMC* D-371-12.1

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications tax exempt items other payments
Vendor Payments with Income Tax ImplicationsTax Exempt Items – Other Payments*
  • Lease purchase agreement payments
  • Overtime meals
  • Employee non-cash award expenditures
  • Uniform allowance or reimbursement (under an accountable plan – business connection, substantiation, return of excess amounts )
  • Vendor system settlement payments

*Per tables in AMC* D-371-12.1

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications responsibilities
Vendor Payments with Income Tax ImplicationsResponsibilities

DAY TWO Taxable Payments Made through the Vendor System

california non wage tax withholding overview and references
California Non-Wage Tax WithholdingOverview and References

CA Non-Resident Income Tax Withholding Factors

  • On non-wage compensation for services performed in California by California nonresidents
  • Applies to residents of foreign countries performing services in California
  • California does not recognize foreign tax treaties

AMC D-371-77, Disbursements: State Tax Withholding from Nonwage Payments to Nonresidents of California

http://www.ucop.edu/ucophome/policies/acctman/d-371-77.pdf

See following State of California Franchise Tax Board Publications, Guidelines for Determining Resident Status

http://www.ftb.ca.gov/forms/misc/1031.pdf

DAY TWO Taxable Payments Made through the Vendor System

california non wage tax withholding california non resident status
California Non-Wage Tax WithholdingCalifornia Non-Resident Status
  • Determining California Non-Resident Status
    • Individuals – less than nine months of year in California
    • Corporations, Partnerships, LLC’s
      • NOT organized or existing under laws of the State
      • NOT qualified by Secretary of State to transact business in California

DAY TWO Taxable Payments Made through the Vendor System

california non wage tax withholding income tax withholding performing entities
California Non-Wage Tax WithholdingIncome Tax Withholding—Performing Entities
  • Entertainment – Payments to performing entities (Dept. of Arts & Lectures)

See Nonresident Withholding—Entertainment Guidelines

http://www.ftb.ca.gov/forms/misc/1024.pdf

  • Tax Withholding Procedures—performers
    • Payments subject to 7% withholding if total gross is over $1500 for tax year
    • Waiver or reduced rate may be requested from State Franchise Tax Board
    • Approval or denial provided on Form 595 – attach if applicable

DAY TWO Taxable Payments Made through the Vendor System

california non wage tax withholding income tax withholding general
California Non-Wage Tax WithholdingIncome Tax Withholding—General
  • General – fees for professional services, consulting, conducting seminars, prizes, awards, royalties

Payee may submit Nonresident Withholding Waiver Request

http://www.ftb.ca.gov/forms/02_forms/02_588.pdf?75622

  • Tax Withholding Procedure—general
    • Payments subject to 7% withholding if total gross is over $1500 for tax year
    • Request waiver or reduced withholding on Form 588
    • The FTB will issue a determination letter – must be attached

DAY TWO Taxable Payments Made through the Vendor System

california non wage tax withholding income tax withholding corporations
California Non-Wage Tax WithholdingIncome Tax Withholding—Corporations
  • Corporate (also partnerships and LLC’s) – Payments to such entities with no permanent place of business in state

Corporations may execute a Withholding Exemption Certificate

http://www.ftb.ca.gov/forms/02_forms/02_590.pdf?75622

  • Tax Withholding Procedure—corporate entities
    • Payments subject to 7% withholding if total gross is over $1500 for tax year
    • Request waiver or reduced withholding on Form 590
    • The FTB will issue a determination letter – must be attached

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants degree vs non degree candidates
Taxation of Scholarship / Fellowship GrantsDegree vs. Non-Degree Candidates
  • DEFINITIONS
    • Degree Candidate – Undergraduate and graduate students including full and part-time students who are merely attending an accredited educational institution authorized to provide a bachelor or higher degree
    • Non-Degree Candidate – Post-doctoral fellow or a student enrolled in a “certificate” program

AMC* T-182-77, Taxes: Taxation of Scholarship and Fellowship Grants and Educational Assistance

http://www.ucop.edu/ucophome/policies/acctman/t-182-77.pdf

* Accounting Manual Chapter

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants qualified vs nonqualified amounts
Taxation of Scholarship / Fellowship GrantsQualified vs. Nonqualified Amounts
  • Payments to Degree Candidates
    • Qualified Amounts – Used for tuition and fees and related course requirement expenses is excludable from the recipient’s gross income if the recipient is a candidate for a degree for the purpose of studying or conducting research at an educational institution.
    • Nonqualified Amounts – For incidental expenses; e.g., room and board or expenses for individual papers/research projects, is not excludable from gross income. Therefore such expenses are taxable.

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants tax reporting of grants
Taxation of Scholarship / Fellowship GrantsTax Reporting of Grants
  • Degree Candidates
    • Neither the qualified nor the nonqualified portions are reportable by the University.
    • Any amount used for nonqualified expenses must be reported by the recipient on his/her tax return.
  • Non-Degree Candidates and Post-Doctoral Fellows
    • No amount is considered qualified; the entire amount of the grant is taxable and must be reported by the recipient on his/her tax return, though not reportable by the University.

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants when work is a condition of grant
Taxation of Scholarship / Fellowship GrantsWhen Work Is a Condition of Grant
  • Compensation for Services—Payroll treatment

Any portion of a grant representing payment for the performance of teaching, research, or other services by the student, required as a condition of receiving such a grant, is considered wages for employment tax purposes.

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants rules for nonresident aliens
Taxation of Scholarship / Fellowship GrantsRules for Nonresident Aliens
  • Treatment differs from U.S. residents
    • Qualified amounts are exempt same as U.S. residents
    • Nonqualified amounts are reportable on 1042-S
    • Nonqualified amounts subject to 14% withholding unless tax treaty provisions apply
    • Non-degree candidates subject to 30% withholding unless tax treaty provisions apply
  • Forms Required: W-8BEN (3 versions—all hyperlinked)
    • W-8BEN (UCSB-GS) – UCSB Graduate Student, F1, J1 visas
    • W-8BEN (UCSB-EV) – UCSB Exchange Visitor, F1, J1, M1, Q1 visas
    • UC W-8BEN – non-UCSB NRA’s on B1, B2, WB, WT and other visas

DAY TWO Taxable Payments Made through the Vendor System

taxation of scholarship fellowship grants employee educational assistance payments
Taxation of Scholarship / Fellowship GrantsEmployee Educational Assistance Payments
  • Excludable from income under certain IRS-compliant programs
    • IRC Section 117 – includes UC’s qualified Fee and Tuition Reduction programs
    • IRC Section 127 – use form to determine taxability and job relatedness of activity
  • Use form to calculate benefit

See page 43 (last page, Exhibit D) of this policy link:http://www.ucop.edu/ucophome/policies/acctman/t-182-77.pdf

DAY TWO Taxable Payments Made through the Vendor System

vendor payments with income tax implications questions
Vendor Payments with Income Tax ImplicationsQuestions

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues who is nonresident alien
Nonresident Alien Tax IssuesWho Is Nonresident Alien
  • Status certification process
    • If on IRS Form W-9 CANNOT affirm
      • I am a U.S. person (including a U.S. resident alien)
      • “Person” includes entities such as corporations
    • Then IRS Form W-8BEN is required

Form UC W-8BEN replaces the University’s old Statement of Citizenship form

http://www.ucop.edu/ucophome/cao/paycoord/w8ben.pdf

See AMC* T-182-27, Taxes: Federal Taxation of Aliens

http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf

*Accounting Manual Chapter

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues components of nonresident alien nra taxation
Nonresident Alien Tax IssuesComponents of Nonresident Alien (NRA) Taxation
  • Determining residency for tax purposes
  • Visas: what activities they allow / prohibit
  • Possible international tax treaty benefits
  • NRA Tax withholding and reporting rules
  • The ITIN—Individual Taxpayer Identification Number
  • Procedures and tools for paying NRA’s

See AMC* T-182-27, Taxes: Federal Taxation of Aliens

http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf

*Accounting Manual Chapter

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues alien classifications administration
Nonresident Alien Tax IssuesAlien classifications / administration
  • Certain alien classifications (visa types) may receive
    • Employment compensation
    • Independent Contractor Payments (Honoraria)
    • Scholarships/Fellowship grants
    • Reimbursement for travel/sustenance expenses (some may receive Honoraria)
  • Visa Classifications Relate to Employment Provisions
    • As a condition of admission
    • Only with special authorizations / permits
    • Prohibited
  • Under regulations issued by
    • U.S Immigration and Customs Enforcement (ICE – formerly INS) – immigration law and enforcement
    • Internal Revenue Service (IRS) – tax policy only

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues immigration ice status categories
Nonresident Alien Tax IssuesImmigration (ICE) Status Categories
  • U.S. Citizen— By birth or Naturalization
  • Permanent Resident — Immigrant with “Green Card”
  • Nonresident — Aliens temporarily present in the U.S for specific purposes as indicated by visa type
  • Refugee, asylee, etc.

U.S. Tax (IRS) Status Categories

  • U.S. Citizens and Resident Aliens are taxed under same regulations
  • Nonresident Aliens are subject to 30% withholding unless tax treaty provision or tax code regulation applies

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues determining federal tax status irs
Nonresident Alien Tax IssuesDetermining Federal Tax Status (IRS)
  • Factors Determining Alien Tax Status
    • “Green Card” test — permanent immigrant visa, resident alien
    • Substantial presence test — generally relevant for visas permitting employment
    • Visa categories exempt from substantial presence test — generally F-1, J-1 student/teacher visas
    • Brief visitors for business/tourism—B-1, B-2, WB, WT
  • All must use UC’s new form to determine Alien Tax Status (formerly Statement of Citizenship):

University of California Certificate of Foreign Status for Federal Tax Withholding (UC W-8BEN)

http://www.ucop.edu/ucophome/cao/paycoord/w8ben.pdf

DAY TWO Taxable Payments Made through the Vendor System

slide47

RESIDENCY FLOW CHART

START

Yes

Resident Alien

Green Card?

No

Meet substantial presence test (that is, physically present in US for 183 days in 3-year period, counted as all days in current year, plus one-third of days in preceding year, plus one-sixth of days in second preceding year)?

Present in US for at least 31 days in current year?

Yes

No

No

Yes

Yes

Nonresident Alien

Still meet substantial presence test if disregard days as exempt individual

No

Resident Alien

Yes

Yes

No

No

Present in US for at least 183 days in current year?

Closer connection to foreign country than to US?

Tax home in foreign country?

Yes

No

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues immigration expenses
Nonresident Alien Tax IssuesImmigration Expenses
  • Allowable as University Expense, not taxable to the alien employee, employment related
    • Visa application, renewal fees
    • Costs of obtaining status as a permanent resident
    • Related legal fees and travel must be properly substantiated
  • Immigration–related fees associated with scholarship / fellowship grants
    • Considered part of fellowship grant
    • Must be included by student in gross income

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues the itin
Nonresident Alien Tax IssuesThe ITIN
  • The Individual Taxpayer Identification Number (ITIN)
    • For aliens not eligible for Social Security Number (SSN)
    • For tax reporting purposes only - implies no legal immigration status
  • Without SSN or ITIN
    • Alien is not eligible to receive certain payments
    • May not receive benefit of applicable tax treaty (Up to 37% withholding)
    • May not file tax return to claim refund of withheld income taxes

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues miscellaneous visa issues
Nonresident Alien Tax IssuesMiscellaneous Visa Issues
  • VISA Provisions
    • An alien’s activities may not violate provisions of his/her Visa
    • See alien policy link for discussion of various visa classifications (p.14, or summarized in Appendix C, p.69)

http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf

  • B-1, B-2 visas and WB, WT visa waiver
    • For short term visitors for business, pleasure, tourism
    • With limitations may be paid honoraria, related expenses

See our fill-in form Nonresident Alien (NRA) Guide, Questionnaire & Forms,

http://www.accounting.ucsb.edu/pdf/ap_NRA.pdf

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues responsibilities
Nonresident Alien Tax IssuesResponsibilities
  • Host department must obtain form UC W-8BEN and work with visitor to complete documents
  • Ideally, all tax issues and any withholding amounts should be disclosed in contracts, engagement letters
  • Alien must correctly complete all required documentation or be subject to NRA income tax withholding (up to 37%, or “gross-up”) — see “Gross-Up” table in training materials
  • Accounting must ensure alien payments are properly reported and applicable taxes withheld

DAY TWO Taxable Payments Made through the Vendor System

nonresident alien tax issues scenarios questions
Nonresident Alien Tax IssuesScenarios & Questions

See class handouts:

NRA DOCUMENTATION & INCOME TAX WITHHOLDING SCENARIOS

DAY TWO Taxable Payments Made through the Vendor System