Handbook
For Medical School Accountants
Foreign Payments
Date: 12/12/17
General
Eligibility for a nonresident alien (Foreign National) to receive compensation from a U.S. source depends on the person's visa status. Compensation for independent personal services paid to Foreign Nationals is subject to 30% federal tax withholding, unless a tax treaty covers the amount.
· Eligibility for a Foreign National to use a tax treaty depends on the specific treaty between the U.S. and the home country, and the individual securing a social security number or Individual Taxpayer Identification Number (ITIN)
Visa Restrictions
Honoraria - Scholars with B-1, WB, B-2 or WT visa may receive an honorarium payment and documented expense reimbursement so long as the following criteria are satisfied:
o The academic activities last no longer than 9 days.
o The person has been paid by no more than 5 other institutions within the previous 6-month period.
Expense Reimbursements - Reimbursement of documented business or travel expenses for any period in excess of 9 days must be unrelated to the honoraria-generating activity.
o Certification - All B visa and visa waiver holders receiving honoraria and expense reimbursement payments must complete the Reimbursement of Expense and Payment of Honoraria to Visitors with 'B', 'WB' and 'WT' Legal Status form and forward it to Payroll Services.
Tax Treaty Eligibility
A Foreign National must meet the following requirements in order to be exempt from 30% withholding on the above payments:
· Independent Personal Services tax treaty must exist between the U.S. and the person's home country, and must meet the eligibility requirements of that treaty.
· The Foreign National must have a social security number, or apply for one through University of Minnesota Payroll Services. If not eligible to receive a social security number, the visitor must apply for an Individual Taxpayer Identification Number (ITIN).
· The eligible Foreign National must complete IRS Form 8233 and the Tax Treaty Affidavit. You can find these forms on the web in theUWide Forms Libraryor on thePay & Job Classificationweb site under "Nonresident Alien Taxes & Information."
More information can be found here: http://humanresources.umn.edu/payroll-administration/international-students-scholars-visitors
· After Payroll Services processes the treaty documents, the tax treaty exemptions become effective for payments.
· Tax Treaty forms are effective for current calendar years only.
Preparing Contract or Payment Documentation
In addition to the general information needed to complete the contract and payment documentation, the following information must be included:
· Visa status and country of residence of the contractor
· Tax ID, ITIN, or social security number, if available, or if eligible for a tax treaty
· Documentation supporting reimbursed expenses
· If the nonresident alien did not perform services in U.S., provide statement to that effect
· If the contractor is eligible for a tax treaty exemption, submit the tax treaty forms to Payroll Services prior to processing the payment
· If paying a B or visa waiver holder, submit the completed Reimbursement of Expense and Payment of Honoraria to Visitors with 'B', 'WB' and 'WT' Legal Status form to Payroll Services
·
Instructions to Contractors
Year-end IRS Tax/Reporting concerns:
· The University will send form 1042-S to the Foreign National independent contractor at year-end, as well as to the IRS.
· The contractor should complete tax return form1040NR and submit it to the IRS.
· The contractor may wish to read the following IRS publications to determine whether the payment is subject to 30% withholding or exemption through a tax treaty:
o Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
o Publication 519, U.S. Tax Guide for Aliens
o Publication 901, U.S. Tax Treaties
· IRS tax publications, forms, and instructions are available on the IRS web site atwww.irs.govunder Forms and Publications, or you can order items by calling 1-800-TAX-FORM (1-800-829-3676).
See SOP Supplemental – Foreign Payment Grid for information on International Non-Employee speaker reimbursements and honorariums.