Policies and Procedures
Policy 1116 – General Overview of Tax Issues for Foreign National Students and Scholars
July 1, 2004
September 3, 2009
Director of Payroll Services
All foreign nationals who are to receive payments from the University, including salary and other compensation for services rendered, scholarships, stipends, and other financial aid, are required to register with International Student & Scholar Services (ISSS) upon arrival to campus. ISSS will collect the personal and immigration information required to classify foreign nationals as resident or nonresident aliens for tax purposes. ISSS will also document and maintain copies of required forms and of passport and visa information to substantiate these classifications.
Payroll Services will review utilizing the Windstar System to process all payments to foreign nationals to monitor compliance with tax regulations, to ensure proper tax withholding, and to provide appropriate tax reporting. All required forms must be submitted to Payroll Services in order to process payments.
Such payments made by the University to foreign nationals, (Non-Resident Aliens (NRAs) and Resident Aliens) are subject to special tax withholding and reporting regulations, may be for any of the following:
- Personal services of employees
- Personal services of independent contractors
- Scholarships and fellowships awarded to students
- Other purposes
For tax purposes, the University classifies foreign nationals as either "resident aliens" or "non-resident aliens." As a general rule, resident aliens are taxed in the same manner as U.S. citizens, while nonresident aliens are subject to special taxation procedures regulated by the Internal Revenue Code. These special tax codes not only affect the manner in which non-resident aliens are taxed but also imposes different rules on how the University is required to withhold tax and file reports with respect to payments made to non-resident aliens.
Reason for Policy
This policy allows the University to provide vital education and research services to students, researchers, and professionals from other countries while simultaneously adhering to mandatory tax regulations and visa restrictions. Information about the rules, procedures, and use of forms to authorize and process payments to foreign nationals, including resident and nonresident aliens, are addressed in this and subsequent policies regarding foreign nationals.
If the foreign national grantee is classified as a resident alien, no amount of the scholarship/fellowship grant is required to be reported to the IRS or the grantee on Form 1042-S. Such grantees should realize, however, that the taxable portions of these grants (generally room, board, and travel) may be treated as taxable income to them.
With respect to scholarship/fellowship grants made to nonresident aliens, the nontaxable portions of any such grants (generally, tuition, fees, and books, and grants treated as foreign-source) are not required to be reported to the IRS or the grantee on Form 1042-S. The University, however, is required to report the amount of any scholarship/fellowship grant excluded under a tax treaty and the taxable portion of any U.S.-source scholarship/fellowship grants to both the IRS as well as the grantee on Form 1042-S.
Compensation payments made to resident alien employees are reported in the same manner as such payments made to U.S. citizens; that is, wages are reported on Form W-2 and payments made to independent contractors are reported on Form 1099.
Taxable wage payments made to nonresident aliens are also reported on Form W-2; however, if the wages are exempt under a tax treaty between the U.S. and the person's country of residence, the exempt wages are reported on Form 1042-S. Payments made to nonresident alien independent contractors are reported on Form 1042-S whether or not exempt under a tax treaty.
- 1116.1 - Tax Reporting for University-affiliated Foreign Nationals
Frequently Asked Questions
This policy provides general information about tax issues for non-resident aliens. Accurate information in this policy and the related procedure, is not always accurate due to the complexity of the tax regulations and their changes. This policy is not a means of providing legal advice. For complex situations, individuals are advised to consult a tax attorney or other tax advisors with familiarity with the U.S. taxation of foreign nationals.
Please note that residency or nonresidency for tax purposes may vary from residency or nonresidency as an immigration status. This policy primarily addresses tax issues. ISSS can assist foreign nationals with all questions that they might face and provide necessary tax forms as well.
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