This document describes an overview of tax withholding and responsibilities.
Two types of tax withholdings are processed by the Research Foundation:
Some exemptions to these withholding taxes may exist for each individual based on certain individual status or exemption claims.
Two determinations must occur before any tax withholding rules are applied:
If either of these determinations is incorrect, then the tax withheld from payroll and year-end reporting will be inaccurate. Withholding and reporting compliance is the responsibility of the operating locations. Penalties or interest assessed by the federal or state government will be the operating locations responsibility.
Once the appropriate taxes are withheld, the RF must remit the taxes each payment period to the appropriate agency (IRS or NYS Department of Taxation and Finance) by a specific deadline enforced by the IRS and NYS. Furthermore, the RF must remit a matching amount of Social Security and Medicare expense equal to the amount of Social Security and Medicare tax that was withheld. Operating locations are responsible for proper tax withholding determinations and set-up in the RF Oracle business application, for compliance in tax withholding and reporting.
When the RF pays miscellaneous income payments to independent contractors, rent recipients, royalty recipients, or participant stipend recipients, we are required to solicit and obtain a valid taxpayer identification number (TIN) from the individual. IRS rules state that if we pay the individual and have not obtained the TIN, we must withhold and remit Backup Withholding tax (see Current Backup Withholding Tax Rates). Therefore, RF policy states that payment must not be processed and a supplier hold must be applied until the proper documentation has been obtained. For more information, see Taxpayer Identification Number Rules for Miscellaneous Income Payments.
Residency status determination is for tax purposes only and is not related to an individual’s immigration status. Once the residency status is determined, the status must be entered into The RF business application. This determination and monitoring guidelines are detailed in the procedures Classifying Aliens as Residents or Nonresidents for Tax Purposes and Monitor Residency Determination for Tax Purposes.
Social Security and Medicare tax withholdings are based on the employees' student status or residency status for tax purposes and visa status for non-U.S. citizens.
Social Security and Medicare taxation is a government tax on employees only, and the tax is withheld as designated by tax law each calendar year. (See Social Security and Medicare Tax Rates and Wage Bases.)
The taxation and exemption rules for Social Security and Medicare are separate and distinct from income tax rules. Once the employee’s Social Security taxation or exemption is determined, the status must be entered into the RF Oracle business application. Review for any status changes may also be required based on the individual’s circumstances. See Social Security and Medicare Taxation for more information on Social Security and Medicare taxes and exemptions, and see Enter an Employee Record for instructions on entering tax or exemptions information into the RF Oracle business application.
Important: In connection with the residency determination for tax purposes, the IRS may require retroactive Social Security and Medicare tax withholdings if an individual’s status changes from a Nonresident Alien to a Resident Alien during the calendar year. See Classifying Aliens as Residents or Nonresident Aliens for Tax Purposes and Social Security and Medicare Taxation for further details.
Income tax withholdings are calculated based on the following information about the individual:
Once an individual’s taxation or exemption is determined, the status must be entered into the RF Oracle business application. Income taxes (if applicable) must be processed each payment or pay period based on the individual’s tax status. If an individual's tax status changes or he/she submits a change in an updated withholding certificate, the tax change must be entered in the RF Oracle business application to ensure the proper taxes are withheld each time the individual is paid.
The rules for income tax withholding are different for different payment classifications. For information about each payment classification, see Income Taxation Overview.
Operating locations must be aware that a separate income tax system is carved out under the Internal Revenue Code (IRC) Section 1441 with an entirely different set of income tax rules and regulations for persons deemed to be “nonresident aliens for tax purposes.” Payments to nonresident aliens are subject to different tax withholding, income reporting and liability requirements. Various factors determine if payments are reportable and taxed, depending on the specific circumstances of each nonresident alien individual’s payment classification and their country of residence.
Permanent residents ("Green Card" holders) and resident aliens (those who meet the IRS's Substantial Presence Test criteria) are generally subject to taxation on their worldwide income, the same as U.S. citizens. Nonresident aliens are generally only subject to taxation on their income from sources within the U.S.
Residency Status for Tax Purposes has no bearing on an individual’s immigration status. (See Classifying Aliens as Residents or Nonresidents for Tax Purposes.)
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