UCR

UCR Policies and Procedures

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Campus Policy Number: 200-62

Payments to Aliens

Policy Owner: Accounting Office
Effective Date:08/25/99

INTRODUCTION:

It is essential to determine the immigration status of any alien receiving payment from the University to ensure that the rules and regulations of both the Immigration and Naturalization Service (INS), and the Internal Revenue Service (IRS) are met. The International Service Office, along with the Payroll Office, can provide assistance regarding the terms and conditions of visa classifications, and ensure compliance with campus procedures governing payments to foreign students and scholars.

     

  1. DETERMINING RESIDENCY STATUS
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      For Federal income tax purposes, non-U.S. citizens are classified by the IRS as either resident or nonresident aliens. Since the tax withholding requirements are different for resident and nonresident aliens, it is essential to establish the residency status of any non-U.S. citizen who will be receiving payments from the University.

      To determine residency status, all non-U.S. citizens must complete a UPAY 1 Statement of Citizenship form and forward it to the Payroll Office for review. Residency status is reviewed on an annual basis.

      There are two tests used to determine whether a non-U.S. citizen should be classified for tax purposes as a U.S. resident or as a nonresident alien: the "green card" test and the substantial presence test. An alien who does not qualify under either test is defined for income tax purposes as a nonresident alien.

       

    1. Green Card Test – Resident Aliens (Permanent Residents)
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      An alien is considered to be a U.S. resident for income tax purposes if the individual was a lawful permanent resident of the U.S. at any time during the calendar year. This is known as the "green card" test because the individual will hold an immigration visa known as the "green card."

       

    3. Substantial Presence Test
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      An alien will be considered a U.S. resident for tax purposes if he or she meets the substantial presence test under the conditions listed below. The test must be applied each year on a prospective basis, always taking into account the current year and the two preceding years.

      An alien will meet the substantial presence test with respect to any current calendar year if:

      1. was present in the United States for at least 31 days during the current calendar year; and
      2. the sum of the number of days present in the United States during the current year and the two preceding calendar years equals or exceeds 183 days as computed using the following formula:

           

        1. Current year days in U.S. x 1 =____days
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        3. 1st preceding year days in U.S.x 1/3 =____days
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        5. 2nd preceding year days in U.S.x 1/6 =____days
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        7. Total Days in U.S. =____days
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    5. Special Exempt Periods for Students Holding F and J Visa
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      Students who are in substantial compliance with their visa requirements are allowed to exclude five calendar years of their presence in the U.S., consecutively or non-consecutively, for the purposes of the substantial presence test. The five-year exemption is available, in total, over an individual’s lifetime.

       

    7. Special Exempt Periods for Teachers and Trainees Holding Non-student J Visas
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      Teachers and trainees who are in substantial compliance with their visa requirements are allowed to exclude two of the last six calendar years of their presence in the U.S. for purposes of the substantial presence test. Any period during which these individuals held student visas would count towards the two-year exemption.

       

    9. Disclosure Requirements
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      Foreign individuals who exclude days of presence in the U.S. because of the special exemption must file a Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, with the IRS. The nonresident alien must attach the Form 8843 to his or her tax return and file by the due date of the return, or file directly with the IRS.

     

  3. ELIGIBILITY FOR EMPLOYMENT
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    Procedures for hiring a foreign student or scholar follow the standard procedures of initial employment for an employee, plus additional documentation. Before a department makes a commitment to hire a foreign students or scholars, the department should verify that the visa classification does not prohibit employment. The international service office can provide assistance to ensure compliance with campus procedures.

    Foreign students and scholars are subject to the following requirements:

    1. Must obtain a social security number. To obtain a Social Security number, a Form SS-5 Application for Social Security Card must be completed and presented in person at the nearest Social Security Administration (SSA) Office.
    2. To determine residency status and to ensure proper citizenship coding, non-U.S. citizen employees must complete a UPAY 1 Statement of Citizenship form and forward it to the Payroll Office for review. Residency status is reviewed on an annual basis. Each November departments will receive a list of "Employee Nonresident and Residents for Tax Purposes Only" for the next taxable year (January 1) along with a letter of instruction. Each employee on this list is required to complete a new UPAY 1 Statement of Citizenship.
    3. Nonresident alien employees are required by the University to have medical insurance coverage as a condition of employment. Non-student employees who do not qualify for University health coverage are required to obtain medical insurance through some other means and to provide proof of such coverage at the time of employment. Registered students may fulfill this requirement through participation in student health services or insurance plans offered to students.

     

  5. WITHHOLDING REQUIREMENTS (Employees)
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    Federal income tax withholding will be determined by the residency status of the foreign student or scholar.

    Resident aliens "Green Card/Permanent Residents" are subject to the same rules that apply to a U.S. citizen. Thus, they are subject to graduated income tax rates, and allowed the same deductions for exemptions as a citizen.

    Nonresident aliens are subject to regular graduated tax withholding at the "single" filing status regardless of their marital status and can only claim one single personal exemption regardless of the actual number of dependents. Further, there is an additional nonresident alien tax withheld (currently $17.33). The exceptions to this rule are:

    1. A resident of Canada or Mexico must claim single marital status, but may claim the same personal exemptions as a U.S. citizen. The alien may claim a personal exemption for a spouse only if the spouse has no income subject to U.S. tax for the tax year. A resident of Japan or South Korea also must claim single marital status but, under certain conditions, may claim additional exemptions for a spouse and dependent children. IRS Publication 519 provides further information concerning tax withholding for residents of Canada, Mexico, Japan, and South Korea. Additional allowances can be claimed on Form W-4.
    2. Nonresident aliens who qualify for federal tax exemption under a tax treaty may be eligible for reduced tax rates or for exemption from Federal tax withholding, provided they meet the requirements of the particular treaty.
    3. If it has been determined, based on the UPAY 1 Statement of Citizenship form that a nonresident alien qualifies for a tax treaty, the employee must complete IRS Form 8233, Exemption from Withholding on Compensation for Independent Personal Services of a Non-resident Individual, and a tax treaty statement. These forms are valid for one calendar year and can be retrieved from Payroll web site http://www.accounting.ucr.edu/payroll.htm. New forms must be submitted every calendar year (January 1) that the treaty is in effect. The original forms should be forwarded to the Payroll Office for review and submission to the IRS.

    FICA Tax – An alien who is in one of the following categories is exempt from OASDI and Medicare taxes:

    A nonresident alien holding an F-1, J-1 or M-1 visa is exempt from OASDI and Medicare taxes on University earnings, provided that such earnings are in payment for services performed to carry out the purpose for which the alien was admitted to the United States.

    In addition, an alien employee with a F-1 or J-1 visa who is considered a resident alien under the substantial presence test, for tax purposes, is subject to OASDI and Medicare withholding.

    STATE  - The California Franchise Tax Board does not make a distinction between foreign individuals and U.S. citizens when it comes to withholding. Non U.S. citizens are subject to the same state tax withholding rules as a citizen.

     

  7. YEAR END TAX REPORTING
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    All foreign students and scholars receiving U.S. source income are required to file income tax returns. Income type and residency status will determine which type of income statement the individual will receive. It also determines what type of income tax return the employee will need to file. It is recommended that the employee consult a licensed tax preparer or the IRS for assistance.

    Federal income tax withheld from salaries and wages paid to resident or nonresident alien employees is reported on IRS Form W-2 in accordance with the same rules that apply to tax withheld from citizens. If payment was exempt from Federal tax withholding under a tax treaty, the exempt portion will be reported on IRS Form 1042S.

     

  9. COMPENSATION PAID THROUGH THE VENDOR SYSTEM (Non-Employee)
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    It is essential that the inviting department advise all prospective foreign visitors regarding the importance of obtaining the proper visa classification prior to a visitor’s arrival.

       

    1. Payments for Services
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      Provisions regarding payments made through the vendor system to non-employee aliens for personal services, such as honoraria, consulting fees, and performance fees, are paid on a UC Form 5 "Check Request" (non-payroll), and are subject to the following requirements:

         

      1. Must obtain proper visa classification for payment. (Copy of the visa or passport may be attached to the UC Form 5).
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      3. Must have a social security or individual tax identification number.
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      5. Residency Status will be determined by completing UPAY 1 Statement of Citizenship form.
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      7. Must complete IRS Form 8233, Exemption from Withholding on Compensation for Independent Personal Services of a Non-resident Individual.
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      9. Foreign visitors who hold a B-1, B-2, WB, and WT visa, must complete UC Form "Certification of Academic of Academic Activity." Such visitors cannot accept honoraria from more than five such institutions or organizations in the previous six-month period.
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      11. All payments are subject to 30% federal tax withholding. If the foreign visitor is from a tax treaty country and meets the requirements of the applicable treaty, no federal tax withholding is required. The exemption from withholding becomes effective for payments made at least 10 days after IRS Form 8233 has been mailed to the IRS Office of Compliance.
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      13. All payments are subject to annual reporting on an IRS Form 1042s.
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        All original forms should be completed and forward to the Payroll Office for review and processing.

       

    3. Reimbursement for Incidental Expenses:
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      Payments made to short-term foreign visitors who are eligible for reimbursement of expenses are processed through the vendor system on a UC Form 85 "Travel Expense Voucher." These payments are not subject to income tax reporting or withholding, provided the visitor accounts for the reimbursement in accordance with the University’s travel policy.

      Foreign visitors who hold a B-1, B-2, WB and WT visa and are eligible for reimbursement of expenses must complete UC Form "Certification of Academic Activity."Such visitors cannot receive reimbursement for incidental expenses from more than five such institutions or organizations in the previous six-month period.

      All original forms must be forwarded to vouchers payable for review and processing.

     

  11. WHERE TO FIND INFORMATION
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    Payroll web site: http://www.accounting.ucr.edu/payroll.htm.

    IRS publication 515, Withholding of Tax on Nonresident Aliens and Foreign Corporations.

    IRS publications 519, U.S. Tax Guide for Aliens.