Monitor Residency Determination for Tax Purposes

Purpose

Separate and distinct tax withholding rules exist and must be applied based on the individual's residency status for tax purposes. Refer to Classification of Aliens as Residents or Nonresident Aliens for Tax Purposes for more information on properly classifying these individuals.

During the calendar year the residency status for tax purposes could change due to citizenship or immigration changes as well as situations where the Substantial Presence Test (SPT) is applicable. Once the status changes, new tax withholding rules apply and must be applied as well as different IRS or NYS tax status forms may need to be completed. Therefore, it is important to continuously monitor residency status for non-US citizens. The following monitoring steps are provided with the assumption that the initial evaluation of the residency status has already been completed and payments have been processed.

Accounts Payable Monitoring

Typically nonresident alien suppliers are paid for short term events and further monitoring of residency status for tax purposes is not required. But, if a non US Citizen supplier is going to be paid in a continuing pattern, or you know that residency status changes will exist based on the original evaluation, you need to conduct the evaluation periodically depending on the circumstances. You should be able to project a date the NRA will become a Resident Alien for tax purposes based on the original evaluation. When a re-evaluation needs to be conducted:

Step

Action

1

Provide the non resident alien with the Request for Alien Information for Miscellaneous Income Payments form (pdf) (excel) to complete the SPT OR use PAGE 2 of the form and calculate the test based on the information available

2

  • If the status of the individual does not change, STOP
  • If the status changes to a resident alien for tax purposes, - The individual falls under different tax and reporting rules that are the same as the treatment of US Citizens. Miscellaneous income payments to US Citizens or Resident aliens do not require RF withholding and the income is reportable on a 1099-MISC. Go to step 3

3

Document the time period and payment amounts paid as a nonresident alien and notify central office payroll department - Corporate Payment Compliance Manager to assist with correct year end reporting.

4

"Change supplier type from a "NRA supplier type" to a "1099" supplier to process future payments for 1099-MISC reporting. Refer to Job Aid - Quick Table - AP System Entry.

These payments will require split reporting. Part of the income reported on the 1099-MISC while a Resident Alien for tax purposes and part of the income reported on the 1042-S as a Nonresident Alien for tax purposes.

5

At year end central office processing, the central office will account for a 1042-S for the income paid previously as a nonresident alien while system 1099-MISC processing will produce a 1099-MISC for the resident alien status.

Payroll Monitoring

Payroll activity with employees and fellows are usually more long term. The payroll system has fields to enter data to support residency information. Key fields for residency determination and used for system projection reports are:

Field

Location in Payroll System

Purpose

Nationality

People form

Record citizenship status. (Key values of US, Citizen, Permanent Resident and Non Citizen in US on Visa)

Visa Type

Non Citizen Visa and Residency Special Info Type (SIT)

Visa Type (Select from lengthy list of values)

Res. Alien for tax - meets SPT

Non Citizen Visa and Residency Special Info Type (SIT)

Record resident alien status when Substantial Presence Test is applied (value of "Y" or "N")

Date First Entered US

Non Citizen Visa and Residency Special Info Type (SIT)

Key data in calculating the SPT.

Monitoring should be conducted monthly AND as a reevaluation at year end. The two sections below outline the steps to follow to perform these monitoring tasks.

Monitor Non US Citizens - Residency Status for Tax Purposes

Monthly

Step

Action

1

Run the RF report RF Non-Citizen - Projected Resident Alien Status report. You enter the evaluation date you want in the parameters when running the report. See Report help.

Recommended Evaluation Dates

  • Run the report monthly with the current date parameter to evaluate current circumstances. Go to Step 2
  • Run the report monthly with calendar year end December 31 date parameter to review records and potential retroactive SS and Medicare withholding. Go to Step 9.


    Report Output - There are three sub-reports contained within this report

  • Non Citizens Projected to Meet Substantial Presence Test.
  • Non Citizens with Missing Visa Type or Date First Entered US
  • Non Citizens - People with Missing Nationality


    NOTE: You have the flexibility of using any projected evaluation date as well as the flexibility of running the report when ever you like. But the report is a projection report only and evaluates residency change under the assumption that the non US Citizen has been in the US on a continuous basis.

2

Review "Non Citizens with Missing Visa Type or Date First Entered US" and "Non -Citizens -People with Missing Nationality" sub sections of the report. To correct system data.

If these sub reports have data:

  • Key data is missing - review individual's records and update system data
  • Re-run the RF report "RF Non-Citizen - Projected Resident Alien Status" report until you only have output for the Non Citizens Projected to Meet Substantial Presence Test report

3

Review output on the "RF Non-Citizen - Projected Resident Alien Status" report and determine if you need to send the Request for Alien Information for Employees and Fellows (pdf) (excel) form to the individual.

  • If re-evaluation is required, go to step 4.
  • If re-evaluation is not required , STOP

     

    NOTE: This report is a projected report based on system data. Each operating location is office of records and may have supplemental information that must be considered in evaluating the residency status for tax purposes.

4

Gather:

5

Deliver or mail the Request for Alien Information for Employee and Fellow form (pdf) (excel) and memo to the individual.

6

  • If the individual returns form and information within 30 days, go to step 7.
  • If the individual does not return form and information within 30 days, go to step 8.

7

Update system if required. Refer to Job Aid - Quick Table - Payroll System Entry.

  • Nationality field
  • Non Citizen Visa and Residency SIT (If data already exists for the individual, end date the prior SIT and create a new one.)
  • Federal or State Tax Rules
  • Federal Tax Rules form - Residency Detail button - Residency Status field

    IMPORTANT NOTE: Fellow records - If residency changed to resident alien for tax purpose there is no tax withholding or reporting obligations. Therefore, you must review the fellow records to ensure no tax withholdings:

  • Ensure the FIT NRA Fel NQual element is not on the fellow record and;

    You must add a required data line to the Non Citizen Reporting SIT to indicate split reporting requirements. Refer to residency changes section of Processing Taxation or Exemption of Fellowship Payments to Nonresident Aliens.

    For more information on changes to tax rules reference:

  • Taxation Guidance on Employee Payments to US Citizens, Permanent Residents and Resident Aliens

     

    SS and Medicare impact also exists as an employee may now be subject to SS and Medicare withholding retroactive to the Residency Start Date. See Detail in step 9 instructions.

8

Update system as resident alien for tax purposes based on output of the report and no response from the individual. Refer to Job Aid - Quick Table - Payroll System Entry.

  • Select Non Citizen Visa and Residency SIT and select "Y" in Res Alien for tax - meets SPT" field - (If data already exists for the individual, end date the prior SIT and create a new one).
  • Select Federal Tax Rules form, select Residency Status button and select "R" in Residency Status field

     

    IMPORTANT NOTE: Fellow records - as a resident alien for tax purpose there is no tax withholding or reporting obligations. Therefore, you must review the fellow records to ensure no tax withholdings:

  • Ensure the FIT NRA Fel NQual element is not on the fellow record and;
  • You must add a required data line to the Non Citizen Reporting SIT to indicate split reporting requirements. Refer to residency changes section of Processing Taxation or Exemption of Fellowship Payments to Nonresident Aliens.

     

    For more information on changes to tax rules reference:

  • Taxation Guidance on Employee Payments to US Citizens, Permanent Residents and Resident Aliens

     

    SS and Medicare impact also exists as an employee may now be subject to SS and Medicare withholding retroactive to the Residency Start Date. See Detail in step 9 instructions.

9

Evaluate the records listed on the Non-Citizens Projected to Meet Substantial Presence Test report for potential SS and Medicare tax withholding impacts retroactive to the Residency Start Date.

Identify records that are employees and the Residency Start are within the current calendar year and they are coded exempt from SS and Medicare withholding. If residency has changed to resident alien for tax purposes, the non US Citizen exemption from SS and Medicare taxes has expired. The employee may still be exempt under student status exemption.

 

Refer to Social Security and Medicare Taxation

Year End December

Step

Action

1

Run the Discoverer query "HR_YE Tax Residency Info Solicit"

2

Gather:

3

Deliver or mail the form and letter to the individual

NOTE: The query can be exported to an Excel spreadsheet. Name and addresses are included to assist if campus wants to use Mail Merge functionality. Address line 2 and 3 have data containing the value of "NULL" for some records.


Before processing a mail merge, you will need to find all values of "NULL" in the Excel spreadsheet and replace them with a blank value before printing envelopes and or memos

4

  • If the individual returns form and information by the first payroll of the new year, go to step 5
  • If the individual does not return form and information by the first payroll or the new year, go to step 6

     

5

If information is received update system is required. Refer to Job Aid - Quick Table - Payroll System Entry.

  • Nationality field
  • Non Citizen Visa and Residency SIT (If data already exists for the individual, end date the prior SIT and create a new one.)
  • Federal or State Tax Rules
  • Federal Tax Rules form - Residency Detail button - Residency Status field

     

    IMPORTANT NOTE: Fellow records - If residency changed to resident alien for tax purpose there is no tax withholding or reporting obligations. Therefore, you must review the fellow records to ensure no tax withholdings:

  • Ensure the FIT NRA Fel NQual element is not on the fellow record and;
  • You must add a required data line to the Non Citizen Reporting SIT to indicate split reporting requirements. Refer to residency changes section of Processing Taxation or Exemption of Fellowship Payments to Nonresident Aliens

     

    For more information on changes to tax rules reference:

  • Taxation Guidance on Employee Payments to US Citizens, Permanent Residents and Resident Aliens

     

    SS and Medicare impact also exists as an employee may now be subject to SS and Medicare withholding retroactive to the Residency Start Date. See Detail to step 8 of monthly monitoring instructions.

6

If information is not received - execute the SPT based on data available and update system if required. Refer to Job Aid - Quick Table - Payroll System Entry.


Non Citizen Visa and Residency SIT ((If data already exists for the individual, end date the prior SIT and create a
new one.)


Residency Status field off Federal Tax Rules form

 

IMPORTANT NOTE: Fellow records - If residency changed to resident alien for tax purpose there is no tax withholding or reporting obligations. Therefore, you must review the fellow records to ensure no tax withholdings:

 

Ensure the FIT NRA Fel NQual element is not on the fellow record and;

You must add a required data line to the Non Citizen Reporting SIT to indicate split reporting requirements.
Refer to residency changes section of Processing Taxation or Exemption of Fellowship Payments to
Nonresident Aliens.

 

For more information on changes to tax rules reference:

Change History

 

 

Feedback
Was this document clear and easy to follow? Please send your feedback to webfeedback@rfsuny.org.

Copyright © 2011 The Research Foundation of State University of New York