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Policy On Tax Treatment Of Payments Made To Individuals


Effective Date: October 1
, 2013

Last Updated:  October 1, 2013  

Responsible University Officer:
  • President
  • Vice President for Business and Finance
Policy Owner:
  • Associate Vice President for Accounting and Business Services
  • Director of Internal Audit and Tax Compliance
Policy Contact:
Policy Contents

  Policy Statement
   Reason for Policy
   Who Should Read this Policy
   Policy Text
   Procedures
   Related Information
   Definitions
   Additional Contacts
   Forms
   Responsibilities
   FAQ
   Revision History
   Appendices

POLICY STATEMENT

It is the policy of the University to comply with the income tax withholding and reporting requirements established by the Internal Revenue Service (IRS), the California Franchise Tax Board (FTB), and local tax authorities. The University also withholds FICA taxes (i.e., Social Security and Medicare taxes) on wages paid to its employees. In addition, the University complies with the withholding and reporting requirements established by other states in connection with employees who are hired or assigned to work outside of California.  

REASON FOR POLICY

This Policy summarizes the withholding and reporting requirements for payments made to individuals who are U.S citizens or resident aliens. Such payments are made through the University’s accounts payable (AP), payroll, and student systems, in accordance with regulations published by the IRS and the FTB.

Further information is included in the individual policies covering the specific payment type. See Related Information. For information regarding payments made to foreign individuals, see Nonresident Aliens Payment Policy.

WHO SHOULD READ THIS POLICY

Any employee who is responsible for approving payments to individuals on behalf of the University; the members of the Leadership Team, as well as supervisors and Business Managers who supervise an employee with such responsibilities.


POLICY TEXT

This Policy provides general information on the federal and state tax reporting and withholding requirements governing payments made to U.S. citizens and resident aliens through the University’s payroll and AP systems. The Policy also covers scholarship and fellowship payments made to students through the student system. Regardless of the payment system, all amounts disbursed by the University are subject to withholding and reporting in accordance with the requirements established by the IRS, the FTB, and other tax authorities that have jurisdiction over the University. As the withholding agent, the University is responsible for withholding the correct amount of tax associated with its payment activities and promptly depositing those taxes with the appropriate government agencies.

Appendix A includes a table summarizing the income and FICA tax reporting and withholding requirements for numerous types of payments commonly made by the University. Because it would not be possible to include all payments in the table, Business Managers should consult the related University policies referenced below or contact Accounting and Business Services for additional information.


PROCEDURES


RELATED INFORMATION

Type

Department

USF  Department Payroll Controls Policy -  Under Construction
USF  Electronic Communication Policy
USF  Honorarium Payments Policy
USF  Independent Contractor Policy -  Under Construction
USF  Moving Reimbursement Policy
USF  Non-Cash Gifts, Awards and Incentives Policy
USF  Nonresident Alien Payments Policy -  Under Construction
USF  Travel and Entertainment Policy
External  IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits
External  IRS Publication 505, Tax Witholding and Estimated Tax
External  IRS Publication 970, Tax Benefits for Education
External  FTB Publication 1017, Resident and Nonresident Withholding Guidelines

DEFINITIONS

Term

Definition

Business Manager A University employee, designated by the President, Vice President, Vice Provost, or Dean who is the financial manager for the University account(s) being used for the expense. This may include the President, Vice Presidents, Vice Provosts, or Deans.
FICA (Federal Insurance Contributions Act) FICA is a two-part employment tax consisting of social security and Medicare. Half of the payment is made by the employee and the other half by the University. Employees normally pay 6.2% of their wages for social security, up to the wage limit, and 1.45% of their total covered wages for Medicare. The University also pays 6.2% and 1.45% for social security and Medicare, respectively. An additional .09% in Medicare tax is withheld from an employee’s wages in excess of $200,000. The additional .09%, however, applies only to employees, not the University.
Scholarship or Fellowship An amount paid to, or on behalf of, an individual for the primary purpose of assisting the person in the pursuit of his or her studies or research. Such amounts include grants, waivers, and other forms of gift aid that typically do not have to be repaid by the recipient.

ADDITIONAL CONTACTS

Subject

Contact

Phone

Email/URL

Business Services Cyndy Johnson   415.422.2374  cljohnson3@usfca.edu
Tax Compliance Dominic Daher 415.422.5124   dldaher@usfca.edu

FORMS

Form

Use

Location

Out-of-State Income Tax Withholding Form Used by employees to request withholding in another state Human Resources
Form 592-B Used to report California withholding on nonwage payments made to nonresidents FTB
Form 1098-T Used to report gift aid and expenses to assist taxpayers in claiming educational credits and deductions IRS
Form 1099-MISC Used to report certain income payments of $600 or more made to non-employees IRS
Form W-2 Used to report wage payments made to employees IRS

RESPONSIBILITIES

Department/Business Manager

  • Responsible for ensuring payments made to its employees, students, and other individuals are made in accordance with this Policy and related University policies.

Accounting and Business Services

  • Processes all AP, payroll, and student payments made by the University in accordance with applicable federal, state, and local tax laws and regulations.
  • Prepares Forms W-2 and 1099-MISC for distribution to payees and the IRS. 
  • Reviews any requests for an exception to this Policy in consultation with the Director of Internal Audit and Tax Compliance.
Office of Internal Audit and Tax Compliance
  • Prepares Forms 592-B for distribution to California nonresident payees and the FTB.
  • Administers the GLACIER Nonresident Alien Tax Compliance System and prepares Forms 1042-S for distribution to payees and the IRS.
  • Determines whether an employee working in a state outside of California is subject to income tax withholding in that state.
  • Reviews any requests for an exception to this Policy in consultation with the Associate Vice President for Accounting and Business Services.
  • Determines whether a worker should be classified as an employee or an independent contractor.

One Stop Enrollment and Financial Services

  • Prepares Forms 1098-T for distribution to students and the IRS.
President, Vice Presidents, Vice Provosts, and Deans
  • Ensures that departments within his or her division are in compliance with this Policy and related University policies.

FREQUENTLY ASKED QUESTIONS

(None)

REVISION HISTORY

  • 10/01/2013  - First publication of Policy.

APPENDICES

Appendix A - Tax Treatment of Payments Made to Individuals

Appendix B - Scholarship and Fellowship Recipients, General Tax Information