It is the policy of the University to comply with the immigration and tax laws and regulations published by the United States Citizenship and Immigration Services (USCIS) and the Internal Revenue Service (IRS), respectively, in making payments to its nonresident alien students, employees, visiting scholars, and other foreign individuals. In order to comply with these laws and regulations, the University must correctly classify payments made to its nonresident alien visitors and apply the appropriate tax treatment.
Departments are not authorized to deviate from the procedures set forth in this Policy. See Authorization
REASON FOR POLICY
This Policy summarizes the tax withholding and reporting requirements for payments made to nonresident alien individuals through the University’s accounts payable, payroll, and student systems, in accordance with regulations published by the IRS.
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WHO SHOULD READ THIS POLICY
Any employee responsible for approving payments to a nonresident alien; the members of the Leadership Team, as well as supervisors and Business Managers who supervise an employee with such responsibilities.
A nonresident alien is generally subject to federal income tax on his or her U.S. source income. The tax treatment of payments made to nonresident aliens, however, is governed by separate reporting and withholding rules not applicable to U.S. citizens. In order to ensure that the tax on payments to nonresident aliens is paid, the Office of Accounting and Business Services (ABS) is required to withhold the appropriate amount of tax from the payment, remit the tax to the IRS, and report the payment and withholding on the correct information return. Even though this tax is imposed on the foreign individual, the University can be held liable for any amount of tax not properly remitted to the IRS. In addition, a number of penalties can be imposed against the University if it does not meet its withholding and reporting obligations.
Tax Residency Status
In determining the appropriate tax treatment of a payment made to a foreign visitor, the University must first document the individual’s tax residency status. IRS regulations used to determine an individual’s residency status are related to, but are not the same as, the residency rules for immigration purposes, which are administered by the USCIS. There are four categories of residency for tax purposes:
- U.S. citizen,
- Permanent resident alien (i.e., a green card holder),
- Resident alien (i.e., has met substantial presence test), and
- Nonresident alien.
Under IRS regulations, a foreign individual is presumed to be a nonresident alien unless he or she is a resident alien under the “green card test” or the “substantial presence test.” Resident aliens are taxed in the same manner as U.S. citizens, i.e., they are subject to the same withholding and reporting rules applicable to U.S. citizens.
While it is fairly straightforward to determine whether an alien has been granted a green card (and, therefore, meets the green card test), the substantial presence tests looks at the number of days the alien is physically present in the U.S. during the current calendar year and in the two preceding calendar years. Under this test, a foreign individual will be classified as a resident alien if he or she is present in the U.S. for at least 31 days in the current year and a total of 183 days in the current year and two preceding years, as determined by an IRS formula used for counting the days. See Definitions.
An important exception to the substantial presence test is available for teachers/trainees and students temporarily present in the U.S. who are in substantial compliance with their visa status. A teacher or trainee who is in the U.S. on a J or Q visa is exempt from counting his or her days of physical presence for two (2) calendar years. A student visiting the U.S. under an F, J, M, or Q visa is exempt from having to count days of presence for five (5) calendar years.
An alien in the U.S. in an undocumented status must count his or her days in accordance with the substantial presences test. If the alien meets this test, the individual will be treated as a resident alien for tax purposes. Accordingly, any payments made to the alien will be subject to the same withholding and reporting requirements that apply to U.S. citizens.
GLACIER Nonresident Alien Tax Compliance System
Because of the significant complexity inherent in the immigration and tax rules applicable to nonresident aliens, the University has implemented the GLACIER Nonresident Alien Tax Compliance System to determine the federal tax treatment of payments made to its foreign students, employees, and other visitors.
GLACIER is a secure, web-based system that foreign visitors should use to provide their immigrant and tax data to the University. GLACIER helps determine an individual’s tax residency status, including the calculation of the substantial presence test based on information provided by the alien about his or her prior visits to the U.S. GLACIER also determines an individual’s income tax treaty eligibility and the correct rate of withholding. In addition, GLACIER manages a nonresident alien’s paperwork, maintains his or her data, and prepares tax forms and required statements that the individual will need to file with the University. GLACIER also electronically generates the IRS Forms 1042-S in connection with any reportable payments received by the individuals during the calendar year.
Types of Payments
This Policy applies to all payments made by the University to or on behalf of a nonresident alien. Such University payments include, but are not limited to, the following:
- Salaries and wages,
- Independent contractor payments,
- Honoraria and guest speaker fees,
- Scholarships and fellowships, and
- Prizes and awards.
Payments made to a nonresident alien, or on his or her behalf, for travel expenses are not taxable if the payments are made in accordance with the Travel and Entertainment Policy. Payments for moving and relocation expenses are subject to the Moving Reimbursement Policy. Any taxable moving and relocation payments made to, or on behalf of, a nonresident alien would be subject to withholding based on the individual’s business relationship with the University and other factors. See U.S. Tax Withholding.
In order to ensure the correct tax withholding and reporting treatment, payments to nonresident alien payees must be processed through the appropriate University payment system, i.e., the accounts payable, payroll, or student systems. See Policy on Tax Treatment of Payments Made to Individuals.
||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 Contribution Act)
||A two-part employment tax consisting of social security and Medicare. Half of the payment is made by the employee and 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.
|Green Card Test
||A foreign individual is considered a resident alien under the green card test if he or she was a lawful permanent resident of the U.S. for any time during the calendar year. A lawful permanent resident is a foreign individual who has been granted a United States Permanent Resident Card (USCIS Form I-551). This card, which is commonly referred to as “green card,” authorizes the individual to reside permanently in the U.S.
|IIndividual Taxpayer Identification Number (ITIN)
||A nine-digit taxpayer identification number issued by the IRS to a foreign individual who is not eligible to receive a social security number (SSN). An ITIN is required by a nonresident alien to obtain treaty benefits in connection with non-employee income received from the University and for purposes of filing a U.S. tax return.
||A person who is not a U.S. citizen or a resident alien for tax purposes.
||A foreign individual who meets either the green card test or the substantial presence test for the calendar year.
|Social Security Number
||A nine-digit number issued by the Social Security Administration (SSA) to U.S. citizens and non-citizens authorized to work in the U.S. An SSN is required by a nonresident alien employed by the University in order to obtain treaty benefits and for purposes of filing a U.S. tax return.
|Substantial Presence Test
||Under this test, a foreign individual is considered a resident alien if he or she was physically present in the U.S. for at least:
- 31 days during the current calendar year, and
- 183 days during the current calendar year and 2 preceding years, counting all of the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
||Used by an employer to verify an employee’s identity and eligibility to work in the U.S.
||Used to apply for a social security card.
||Used to apply for an ITIN.
||Used by a nonresident alien to claim treaty benefits in connection with a scholarship, fellowship, or royalty payment.
||Used to report California withholding on non-wage payments made to nonresidents.
||Used by a nonresident alien to claim treaty benefits in connection with compensation received for employee or independent contractor services.
||Used to annually report income and applicable withholding in connection with income paid to a nonresident alien.
Accounting and Business Services
- Responsible for ensuring payments made to its foreign employees, students, and other individuals are made in accordance with this Policy and applicable University policies.
- Coordinates with Admin 1 in establishing GLACIER individual records for foreign visitors who will be paid through the accounts payable system. Informs visitor if his or her payment will be subject to federal and/or California withholding.
Internal Audit and Tax Compliance (Admin 1)
- Processes all accounts payable, payroll, and student payments made by the University in accordance with applicable federal, state, and local tax laws and regulations.
- Reviews any requests for an exception to this Policy in consultation with the Director of Internal Audit and Tax Compliance.
- Administers the GLACIER system and prepares Forms 1042-S for distribution to foreign payees and the IRS.
- Creates GLACIER individual records as requested for foreign individuals paid through accounts payable.
- Reviews GLACIER Tax Summary Reports and attachments for accuracy and completeness; assists foreign individuals in submitting follow-up information.
- Prepares Forms 592-B for distribution to California nonresident payees and the FTB.
- Reviews any requests for an exception to this Policy in consultation with the Associate Vice President for Accounting and Business Services.
President, Vice Presidents, Vice Provosts, and Deans
- Promptly notifies foreign individuals who are required to establish an individual record in the GLACIER system.
- Updates individual records in GLACIER, as necessary.
- Follows up with visitor to obtain information (e.g., an SSN) required for treaty benefits (Payroll Services Admin 2 only).
- Ensures that departments within his or her division are in compliance with this Policy and related University policies.
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FREQUENTLY ASKED QUESTIONS
- 07/14/2014 - First publication of Policy.