Nonresident Aliens: Taxation of Participant Stipend Payments

Applicability

This document does not include information on taxation of nonresident aliens who are employees or independent contractors. Information on employment of nonresident aliens is provided in the EPSS under Employees: Personnel Administration, Noncitizens.

Background

A resident alien is subject to U.S. tax on his or her worldwide income. A nonresident alien is subject to tax only on his or her income from U.S. sources unless the funds are from a foreign source.

See "Classification of Aliens as Residents or Nonresidents for Tax Purposes" for more information.

Tax Rates

Federal Income Tax

Under Section 144(b) of the Internal Revenue Code (IRC), payments to nonresident aliens are subject to tax withholding at a rate of 30 percent.

The 30 percent withholding rate is applied to vocational training, secondary school training, and other participant stipend payments.

Social Security Tax (FICA and FICA Medicare)

Participant stipend payments are not subject to Social Security taxes (FICA and Medicare).

Providing Forms

Required Forms

Operating locations should give nonresident aliens who will be receiving participant stipend payments the "Nonresident Alien Participant Stipend Tax Exemption Certificate."

Provided Upon Request

Operating locations may elect to provide this document at the same time the "Nonresident Alien Participant Stipend Tax Exemption Certificate" is provided.

Where to Find Forms

The "Nonresident Alien Participant Stipend Tax Exemption Certificate" and "Reporting Nonresident Alien Participant Stipend Payment" forms can be found in the EPSS under Accounts Payable, Forms.

Assisting Stipend Recipents

Operating locations should, if necessary, assist nonresident aliens in the preparation of forms and other documentation for exemption claims (to the extent possible). However, operating locations should not give tax advice.

In cases where the "Reporting Nonresident Participant Stipend Payment" form is used, operating locations should determine whether the nonresident alien or the operating location will submit the form.

Entering Information into the Supplier File

The participant must be on the Supplier file with a "NRA Participant Stipend" supplier type. Withholding groups are used to process tax withholdings for a nonresident alien. The withholding group is attached to the supplier record and flows to the invoice. Taxes are automatically calculated in the Accounts Payable module. Refer to the following documents for more information:

Monitoring Stipend Payments

If the stipend payment amount changes, the tax deduction amount will change to meet the proper federal withholding requirement based on the withholding group selected in the Supplier File. This should be periodically checked for accuracy. This is done in the Supplier File tax reporting region. Refer to work instruction, "Review a Supplier Record" for more information.

What to Do if Exemption is Claimed

Operating locations should follow the Nonresident Aliens: Processing Tax Exemptions for Foreign-Source Participant Stipend Payments procedure when a person claims an exemption for the reason "source of funds" by submitting a properly completed "Nonresident Alien Participant Stipend Tax Exemption Certificate" and any necessary supporting documentation.

Note: For more information on tax exemptions, see "Nonresident Alien: Types of Tax Exemptions for Participant Stipend Payments" in the EPSS under the Payroll business area.

Monitoring Withholding

The withholding status of nonresident alien participant stipend recipients should be monitored by operating locations. Use the custom report in Oracle named "RF CUST: 1042 Payment Report by Location" to review nonresident alien information in to the Suppler File. Compare the liability to the actual amount withheld. The difference between these two amounts is the Research Foundation's tax exposure.

If incorrect withholding or no withholding is coded when taxes are applicable, tax penalties will be imposed by the IRS.

Important Note: Tax penalties are the responsibility of the operating location.

Document Retention

Operating locations must retain the "Nonresident Alien Participant Stipend Tax Exemption Certificate" and all supporting documentation for four years after the end of the last year to which they apply.

Note: A new "Nonresident Alien Participant Stipend Tax Exemption Certificate" and supporting documentation must be filed for each participant stipend and for any change. New forms must also be completed each calendar year.

 

 

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