Miscellaneous Income Payments: Overview

RF Compliance

The Research Foundation (RF) must comply with U.S. immigration laws and IRS taxation and reporting requirements when making miscellaneous income payments to U.S. citizens, resident aliens, and nonresident aliens.

IRS Reporting

The Research Foundation must comply with IRS requirements for reporting miscellaneous income to U.S. citizens and resident aliens and for withholding taxes and reporting income for nonresident aliens.

Requirements for reporting miscellaneous income payments differ depending on the type of individual or entity to which payments are made and the source of the income.

Type of Individual or Entity

Miscellaneous income payments to persons, sole proprietors, and partnerships must be reported to the IRS. Generally, miscellaneous income payments to U.S. corporations (unless they are for medical and health care services) and organizations exempt from taxation under IRS section 501(a) are not reportable. Examples of exempt organizations are associations; clubs; religious, charitable, or educational organizations; and federal, state, or local government agencies.

Source of Income

For Nonresident Aliens, miscellaneous income payments considered "foreign source" are exempt from taxation and reporting. For information on determining the source of income, refer to "How to Determine Foreign Source Funding."

How Payments are Reported

Generally, miscellaneous income payments are either reported through IRS Forms 1099-MISC (for U.S. citizens and resident aliens) and 1042-S (for nonresident aliens).

The two exceptions, however, are miscellaneous income payments for personal use of a Research Foundation vehicle and moving expenses, which are reported on an employee’s W-2.

When Payments are Reported

At the end of each calendar year, central office submits 1099-MISC and 1042-S forms to the IRS for each Taxpayer Identification Number (TIN). 1099-MISC data are reported for the payment process in the Accounts Payable (AP) business system where the supplier is a 1099 supplier. 1042-S data are reported for the payment process in the AP business system where the supplier is a "NRA" supplier type.

Thresholds for reporting

The following are the annual (cumulative) threshold amounts for reporting income to the IRS:

Type of Payment

Thresholds for U.S. Citizens or Resident Aliens

Thresholds for Nonresident Aliens

Nonemployee Compensation (Box 7)

$600

ALL payments are reported; there are no minimum thresholds.

Rent (Box 1)

Participant Stipend (Box 3, Other Income)

Royalty (Box 2)

$10

Fellowship

NO Reporting Required.

IRS Taxation

Withholding Not Required

The RF is not required to withhold taxes on miscellaneous income payments to U.S. citizens, resident aliens, partnerships, and medical and health care corporations.

Foreign Persons

The federal government taxes foreign persons in different ways, depending on whether an individual is considered to be a resident or nonresident alien for tax purposes. For foreign persons who are resident aliens, the RF does not withhold taxes, but must report their worldwide income to the IRS in the same manner as for U.S. citizens. For foreign persons who are nonresident aliens, the RF is required to withhold the appropriate taxes and report payments and exemptions to the IRS.

Classifying Persons for Reportable Payments

Reportable miscellaneous income payments to persons are taxed based on U.S. tax residency status. U.S. tax residency determines whether and to what extent payments to persons are subject to U.S. income tax withholding and reporting. A person’s U.S. tax residency status must be determined before payment is made.

For U.S. tax purposes, there are three categories of people:

Supplier File

Any person being paid through the Accounts Payable module must be loaded to the Supplier File. Payments that are subject to 1099-MISC and 1042-S reporting are identified based on coding assigned to the supplier in the Supplier File and invoice coding.

The supplier classifications include nonresident alien classification. If classified as a nonresident alien a withholding tax group may be required which automatically withholds the appropriate rate of taxation.

Taxpayer Identification Number (TIN)

A TIN is required before a miscellaneous income payment can be processed.

A TIN is:

Invalid TINs

Subsequent to the annual filing, the IRS notifies central office, and central office notifies operating locations, if an invalid TIN has been submitted on a 1099-MISC or 1042-S form. The vendors must then be notified and correct information obtained. Refer to "Notification of Invalid Taxpayer Identification Numbers Process" for more information. If the appropriate ITIN is not provided by the nonresident alien, a hold can be placed at the supplier site level, which prevents any invoices generated for payment to be approved. Therefore, a vendor check will not be issued.

Monitoring

Payments for miscellaneous income coded for 1099-MISC or 1042-S reporting must be monitored to ensure that the data is correct and that any necessary adjustments are made in a timely manner. Refer to "Monitoring Controls Over Accounts Payable/Purchase Order Key Processes".

Revising 1099-MISC or 1042-S Forms

If the information on a 1099-MISC or 1042-S form is incorrect or a form has not been submitted when required, a new or corrected form must be issued. In addition, it must be determined that the error has not affected other 1099-MISC or 1042-S forms. Refer to "How to Request New, Corrected, or Duplicate 1099-MISC or 1042-S Form" for more information.

Where Questions Should Be Directed

Questions on IRS rules and/or tax treaties should be directed to the Office of Human Resources. Appropriate staff will conduct research and seek external advice if necessary.

The following information should be readily available when the Office of Human Resources is contacted for help with questions or concerns:

 

 

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