TSS - Payments Made to Nonresident Aliens through Accounts Payable

Payments Made to Nonresident Aliens through Accounts Payable

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First Published  :Wed Nov 05 16:50:55 GMT 2014
Last Modified  :Thu Sep 21 19:57:24 GMT 2017
Last Published  :Thu Sep 21 19:57:24 GMT 2017
Summary :  How to make payments to nonresident aliens in the United States.

Response

Primary Information

    Definitions
    A “non-resident alien or NRA” is a citizen of another country who has not been granted permanent residency in the United States.  These individuals are temporarily present in the U.S. and their ability to receive payment is often predicated by their visa status.  Various forms are required before payment can be made.  As a general rule, payments made to an NRA through the Accounts Payable system, are subject to a 30% withholding rate unless the tax rate is reduced or eliminated by the presence of a tax treaty. These payments will be reported to the individual and the IRS on form 1042-S at year end.

    In contrast, a ”resident alien” is an individual that has been granted legal residency within the U.S. and has been issued a “green card.”  Resident aliens are treated as U.S. citizens for tax purposes and must complete the same forms required of U.S. citizens.  Payments made to resident aliens (Green Card holders) are typically not taxed at the point of payment but are reported to the individual and the IRS on form 1099 at year end.

    Commonly Encountered Visa Classifications
    In order for an NRA to receive payment through the Accounts Payable system, they must be present in the U.S. on one of a limited number of visa classifications or must be qualified under the Visa Waiver Program.  Those most commonly encountered at Tufts include the following, although there are others described on the International Center website.

     
    A1/A2Foreign Diplomatic PersonnelScholarship/Fellowship
    B1Visitor for BusinessHonorariums*
    F1StudentScholarship/Fellowship
    H1-BTemporary Worker as a Specialty OccupationScholarship/Fellowship
    J-1Exchange Visitor (student)Scholarship/Fellowship
    J-1Exchange Visitor (scholar)Scholarship/Fellowship or Honorarium**
    TNTrade NAFTA (citizens of Mexico and Canada)Scholarship/Fellowship
    * B1 visa holders must also complete the Alien Payment form at B1 Attestation Form
    ** J-1 visa holders are required to obtain a “release letter” from the sponsoring agency before payment can be made by Tufts 

    The Visa Waiver Program (VWP) allows citizens of participating countries to travel to the United States without a visa for stays of 90 days or less, when they meet certain requirements.  Travelers must be eligible to use the VWP and have a valid Electronic System for Travel Authorization (ESTA) approval prior to travel.  Individuals present under the VWP are eligible to receive honorarium payments.  They are treated as if they have a B1 Visa and therefore, must complete the same requirements (Alien Payment and B1 form).  Please click the link below for more information.
    http://travel.state.gov/content/visas/english/visit/visa-waiver-program.html

    Tax Identification Numbers
    Although Tufts strongly recommends non-residents obtain a U.S. tax identification number, payment can be made without one.  Such payments are fully taxed at a 30% rate.  Reduced rates and/or exemption under a tax treaty are not allowed.  An Individual Tax Identification Number (ITIN) is obtained by completing IRS Form W-7.  By having the ITIN you may be taxed at a lower rate and/or can file a tax return and potentially get the money back. See also What is an ITIN?

    Tax Rate and 1042-S forms
    As a general rule, payments made to an NRA through the Accounts Payable system that are classified as “U.S. source income” are subject to a 30% withholding rate unless the tax rate is reduced or eliminated by the presence of a tax treaty.  For information on Tax Treaties please see IRS Publication 901.  http://www.irs.gov/pub/irs-pdf/p901.pdf  Services performed by non-resident aliens outside of the U.S. are not classified as U.S. source income and therefore not subject to tax. 

    Individuals present in the U.S. on an F-1 or J-1 visa and are receiving a scholarship or fellowship payment will be taxed at a reduced rate of 14% provided they supply Tufts with a valid U.S. Tax Identification Number (ITIN or SS#).  Scholarship/fellowship payments that are used entirely for research outside of the U.S. are not taxable.   

    Each year, Tufts is required to report certain payments made to non-resident aliens to the IRS on form 1042-S.  Forms are typically mailed by January 31st for reportable payments made in the previous year. 1042-S forms are mailed to the permanent address listed on the Alien Payment form.  If a copy of the 1042-S form is needed, please contact tss@tufts.edu.

     
     

     

     


     

Related Information

    Forms as follows:
    To add an individual that is not a US Citizen, US Company, or Resident Alien, whether the work is being done in the U.S. or abroad, most often you would fill out the W8BEN (but it may also be the W-8BEN-E if you happen to be an individual who is considered a Company/Incorporated. Also with the W8BEN you must submit the ALIEN PAYMENT FORM (but not the W8BEN-E).

    IRS FORM W-8

    1099 TAX FORMS ARTICLE

    IRS FORM W-7 (to obtain ITIN). See also What is an ITIN?

Information

Keywords

    Non-resident, international, visa, alien, payment, tax treaty, L-1, H-1B, F-1, J-1, TN, O-1, contractor, ITIN, Individual Taxpayer Identification Number, W-7, reduced tax rate