NRA Tax & PeopleSoft Mary Fortier, NRA Tax Manager

1. NRA Tax & PeopleSoftMary Fortier, NRA Tax Manager

2. Did You Know . . . • Maryland is ranked 11th state with most foreign students (Open Doors Report, 2006 Fast Facts, Institute of International Education, retrieved 10/22/07 from http://opendoors.iienetwork.org/file_depot/0-10000000/0-10000/3390/folder/50084/Open+Doors+2006_FastFacts_FINAL.pdf)

3. NRA Myths • A one-time process • Identify person & everything is done • It’s between the individual & IRS • Underwithholding reconciled through tax return • Some people are too “important” • Can’t subject them to the process • We have few foreign students & scholars • Few NRAs means will never be audited • NRA Office likes to be referred to as “N-Rat”

4. NRA Facts • NRA population is an ever-changing group • Requires constant management • Withholding agent responsible for NRA tax withholding & reporting (not individual) • Agent incurs back tax withholding fees plus penalties & fines • IRS monitors the following: • Inconsistent tax reporting • Website information (events, speakers) • Omission of Taxpayer ID # • NRA* does not like others using this acronym • Might want to say Nonresident Alien Tax *National Rifle Association

5. NRA Scope IMMIGRATION (Dept. of Homeland Security & ICE) Legal Work Authorization AUDITS (Federal & State) Risk management NRA TAX I-9 PROCESS (Department of Labor) Within three days of hire TAX ANALYSIS/MONITOR (Internal Revenue Service) All payments TAX WITHHOLDING/REPORTING Federal, FICA, State Laws FAIR LABOR STANDARDS ACT Pay for work performed TAXPAYER ID # (Social Security Agency/ITIN Unit) SSN or ITIN TAX TREATIES Monitor limits & Annual renewal

6. IRS Tax Categories* • Individual’s choice • Worldwide income taxed • NRA withholding formula • Not individual choice • Only US income taxed *Terms are all IRS categories and not immigration definitions

7. IRS Income Types & Codes • Dependent Compensation – Employee (17, 18, 19) • Service/work required • Includes wages, salary, travel payments • Independent Compensation - Non-employee (16) • Service/work required • Includes consulting fees, guest speaker fees, honoraria, travel payments • Scholarships – Students (15) • No service or work required and may include independent educational activity • Includes tuition, room and board, stipend or living allowance, travel payment, books/supplies • Royalties (12) • Passive income • Miscellaneous (50) • No service required • Includes prizes and awards

8. IRS Required NRA Withholding • Employee - Single, 1, NRA* • NRA means that agents add a “non-cash” amount to total of wages paid • Total wages earned = $200 (Bi-weekly period) • Add $102 (IRS Publication 15, p. 14) • Withhold tax at $302 amount • Amounts differ based on type of payroll period • Independent Compensation – 30%* • Scholarships – 14%* *Unless exempt by tax treaty

9. TU NRA Tax Systems • Glacier Software (NRA Tax Office) • Tax analysis, NRA monitoring, tax treaty limits • PeopleSoft (Payroll & Bursar’s Office) • Tax status, tax withholding, payroll earnings • Central Payroll Bureau • POSC/payroll reports, tax reporting, SSN verification

10. How to Identify Tax Category *Must ask question consistently to everyone Individual Responsible Question Are you a US Citizen or Permanent Resident Alien?* Yes Resident Alien for Tax Purposes No Immigration Status Nonresident Alien for Tax Purposes (NRA) Tax Analysis NRA or RA Withholding Agent Responsible

11. When to Identify Tax Category • Employees • Question part of I-9 process (Human Resources) • Complete Tax Residency Status Form • US Citizen • Permanent Resident Alien • N = Not indicated (Other) • If N, go to NRA Tax Office for tax analysis • Non-employees • Question on all payment forms (Accounts Payable) • If answered no, then paperwork sent to NRA Tax Office • Non-qualified Scholarships • Report 2x year (Bursar’s Office) requested by NRA Office

12. PeopleSoft – Coding Tax Status • Tax Status Codes • 1US Citizen • 3Permanent Resident Alien • 5Nonresident Alien for Tax Purposes • 6Resident Alien for Tax Purposes • N Not indicated • Blank • Enter in Citizenship Status Field Path = Home > Build Community > Identification Data > Use > Citizenship/Passport Data

13. PeopleSoft – Reports • Run bi-weekly Payroll report • Monitor employees • Tax status of N, 5, 6 • Tax Treaty Limits • FICA • Other taxes/issues • Social Security Number reports • SSN vs. ITINS • No number • Identify scholarship recipients • N, 5, & 6 • Tuition, fees, scholarships, book grants

14. University Internal Audits Maureen Higgins, CPA, MS Taxation Internal Audit University System of Maryland

15. Internal Audit Office • Conducts financial, operational, compliance, investigative, information systems, and follow-up reviews of the USM's institutions to ensure they are operating effectively, efficiently, and in accordance with applicable policies, standards, regulations, and laws. • Provides services to the Regents, the Chancellor and management to assist them in meeting their legal, fiduciary, and management responsibilities.

16. Internal Audit Function Audit Process: • Assessing Risk • Selecting the Area to Audit • Conducting a Preliminary Survey • Evaluating the Control Environment • Performing the Audit Field Work • Issuing an Audit Report addressing Audit Issues and Recommendations

17. Common NRA Audit Areas Nonresident Alien: • Employees • Student Workers • Independent Contractors • Grants, Scholarships & Fellowships

18. Common NRA Audit Areas • Determination of Tax Status “NRA” • Accuracy of NRA Withholding Tax • Timeliness of Tax Deposits • Documentation of Income Tax Treaty Benefits • FICA Withholding

19. Internal Controls • Documentation & Records Retention • Policies & Procedures • Software Assistance or Manual Processes • Determining Tax Residency • Monitoring Treaty Benefits • Current Laws • Reporting necessary IRS Forms • Monitoring Immigration Changes • Reconciliations & Reviews • Training Personnel • Communication between Departments

20. Anticipate IRS Audits • Statute of Limitations & Records Retention • Immigration and Tax Residency Documentation • Accuracy of Form W-4 • Form 1042-S Supporting Documentation • Search for Unreported Transactions • Treaty Eligibility Support • Form W-8BEN • Form 8233

21. IRS Audits for NRA Tax Dave Foreman, Tax Manager Office of the Comptroller University System of Maryland

22. Comptroller’s Office • Prepare financial statements & tax returns • Coordinate audit process of financials/grants • Facilitate IRS audits within USM system • Assess tax liability • Negotiate agreements with IRS • Assist in system-wide policy setting in financial matters

23. IRS Audit – CY 2001 • The following payment types were reviewed: • Employees • Independent contractors • Scholarships/fellowships/grants

24. IRS Audits – Information Collection • CY 2001 following requested for respective payment type: • Immigration status • Copies of Form IAP-66/DS-2019 • Date of entry into US • Service contracts • Copies of Forms 1042-S and W-2 issued • Copies of Tax Treaty Forms • Copies of Form W-4 • Copies of Form W-9 • Date of payment, check or voucher numbers & payment amount • Scholarship analysis documentation

25. IRS Findings – CY 2001 • Rules lacking full compliance, especially employees • Need to: • Identify all aliens on Payroll • Document foreign origin & work authorization • Determine NRA vs. RA

26. IRS Findings – CY 2001 continued • Follow withholding rules for NRAs • NRA cannot write “Exempt” on W-4 (federal part) • “Single” filing status only allowed • May claim only 1 person exemption on W-4 (unless treaty exempt) • Need to back out standard deduction benefit (NRA) • Treaty benefit requires Form 8233 sent to IRS/5 days • If cannot secure W-4 as above, must withhold as “Single”, zero exemptions • Report treaty exempt wages on 1042-S; also on W-2

27. USM Future Objectives • Assess needs of USM institutions for NRA Tax support • Develop policies & procedures on USM level & for Internal Audit purposes • Create training tools & reference materials (manual) for institutions to use

28. QUESTIONS?