Processing Taxation or Exemption of Fellowship Payments to U.S. Citizens, Permanent Residents, or Resident Aliens

Purpose

This document provides step-by-step instruction on how to process taxation of fellowship payments for U.S. citizens, permanent residents (Green Card holders), or resident aliens (those who meet the criteria of the IRS's Substantial Presence Test) in the payroll module of the RF business system. This document provides guidance on the information that must be entered to ensure taxation and reporting is processed correctly.

Background

The Tax Reform Act of 1986 relieves the RF from the obligation of income tax withholding or reporting on a 1099-MISC tax statement for fellowship payments to U.S. citizens, permanent residents, or resident aliens. The payroll module of the RF business system was designed to bypass fellow assignments and exclude these payments from any standard graduated rate table withholdings within the payroll system.

For more information on taxation of fellowships payments to U.S. citizens, permanent residents, or resident aliens, refer to the process diagram US Citizen, Permanent Resident, Resident Alien Fellow Taxation Process Diagram.

Required Forms

Before processing a payment to a U.S. citizen, permanent resident, or resident alien fellowship recipient, ensure that the following paperwork is on file to document that the fellow can be set up in the RF business system and that he or she is a U.S. citizen, permanent residents, or resident alien.

The following forms are required:

Processing Taxation or Exemption of Fellowship Payments in the RF Business System

The following table describes the procedure for processing taxation of fellowship payments to U.S. citizens, permanent residents, or resident aliens. For detailed step-by-step instructions on processing fellowship payments in the RF business system, review the process help Enter a Fellow Record.

Step

Action

1

Review Residency Status:
Review fellow residency to ensure that the individual is still classified as U.S. citizen, permanent resident, or resident alien.


If there is no change, continue to Step 2


If there is a change, review the section of this document titled "Residency Changes."

2

Enter/Review Earnings Element:
Enter or ensure the earnings element Stip Fel NQual has been assigned.


Note: Ensure the FIT NRA Nqual element is NOT assigned to the fellowship assignment.

Residency Changes

During a calendar year a non U.S. citizen's residency for "tax purposes" may change. The majority of situations will be from a nonresident alien to a resident alien (meeting the Substantial Presence Test - SPT) or even possibly to a permanent resident. Tax withholding and reporting requirements are very different for nonresident aliens and resident aliens, so it is important to regularly monitor residency status and make changes in the system promptly when a residency status changes. Refer to Processing Taxation or Exemption of Fellowship Payments to Nonresident Aliens for more information on residency changes.

Reviewing Tax Status

The tax status must be reviewed to ensure that the residency status is unchanged.

In addition, all Non Citizen Special Info Type (SIT) information entered must be reviewed to ensure proper taxation and reporting. For more information, refer to the procedure 1042-S Noncitizen Special Info Type (SIT) Monitoring.

Change History

 

 

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