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 complies with the withholding and reporting requirements established by other states and localities 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.
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 (i.e., social security and Medicare) tax withholding and reporting requirements associated with 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 the Office of Accounting and Business Services (ABS) for additional information.
||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.
|Out-of-State Income Tax Withholding Form
||Used by employees to request withholding in another state
||Used to report California withholding on nonwage payments made to nonresidents
||Used to report gift aid and expenses to assist taxpayers in claiming educational credits and deductions
||Used to report certain income payments of $600 or more made to non-employees
||Used to report wage payments made to employees
- Responsible for ensuring payments made to its employees, students, and other individuals are made in accordance with this Policy and related University policies.
Office of Internal Audit and Tax Compliance
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.
- 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
- 05/12/2015 - Updated to include hyperlinks and references to the Independent Contractor Policy, Nonresident Alien Policy, and Student Employment Policy.
- 10/01/2013 - First publication of Policy.
Appendix A - Tax Treatment of Payments Made to Individuals
Appendix B - Scholarship and Fellowship Recipients, General Tax Information