Table of Contents
Section 1: Key Terms
1.1 Candidate for a Degree
1.2 Employee Wages
1.3 Exempt Individual
1.5 FICA (Medicare Tax)
1.9 Immigrant (Resident for Immigration Purposes)
1.10 Income Tax Treaty
1.11 Independent Contractor Payments
1.12 Internal Revenue Service (IRS)
1.13 ITIN (Individual Taxpayer Identification Number)
1.14 Nonimmigrant (Nonresident for Immigration Purposes)
1.15 Nonresident Alien
1.16 "Primary Purpose"
1.17 Residency Start/Change Date
1.18 Resident (For Tax Purposes)
1.21 Substantial Presence Test
1.22 Taxable Income
1.24 Travel (Transportation, Meals and Lodging)
1.25 USCIS (United States Citizenship and Immigration Service)
1.28 Withholding Agent
Section 2: U.S. Tax Obligations of GHSU and Sponsoring Departments
2.1 Institution Responsibilities
2.2 Sponsoring Department Responsibilities
2.3 Classification of Payments for Withholding Purposes
2.4 Foreign Source Income Exclusion
2.5 Federal Income Tax
2.6 FICA Tax (Medicare)
2.7 Exemptions from Withholding Tax
2.8 Required Forms
2.9 Penalties and Sanctions
Section 3: U.S. Tax Obligations of Foreign Visitors
3.1 Tax Basics for Nonresidents
3.2 Social Security or Tax Identification Number
3.3 Nonresidents – Income Tax Return 1040-NR
3.4 Residents – Income Tax Return 1040
3.5 Certificate of Compliance – "Sailing Permit"
3.6 Penalties and Sanctions
Section 4: Resident Determination for Tax Purposes
4.1 Resident for Tax Purposes
4.2 Nonresident for Tax Purposes
4.3 Green Card Test
4.4 Substantial Presence Test
Section 5: Short Term Visitors
5.1 B-1 and B-2 Visa's
5.2 Visa Waiver for Business and Tourism
5.3 J-1 Visa's for Short Term Visitors
5.4 Income Tax Withholding
5.5 Payment Processing
Section 6: Students on F-1 and J-1 Visa's
6.1 General Provisions
6.3 Tax Implications
Section 7: J-1 Exchange Visitors (Scholars, Professors, Researchers, etc.)
7.1 Exchange Visitor Categories
7.2 General Provisions
7.4 Tax Implications
Section 8: H-1B, O, P, and TN Visa Status (Temporary Workers and Trainees)
8.1 General Provisions
8.3 Tax Implications
Section 9: Tax Treaties
9.1 Treaty Limitations
9.2 Forms 8233 and W-8BEN
9.3 Current Tax Treaties
As the world grows smaller and technology, research and ideas are shared daily through international and cultural interaction; the Medical College of Georgia (MCG) desires to promote and encourage an environment that gives limitless consideration to all who will support the mission of MCG.
Procuring such research and ideas exposes GHSU to numerous tax liability situations. Tax reporting
and withholding is almost certainly unique to a case-by-case basis.
The Internal Revenue Service (IRS), the U.S. government tax authority, has issued strict regulations regarding the taxation and reporting of payments made to non-U.S. citizens. As a result, GHSU may be required to withhold U.S. income tax and file reports with the IRS in connection with any payments made to its non U.S. Citizen employees, students, independent contractors and foreign nationals.
This guide is to serve as a tool in assisting with the most common tax scenarios for the aforementioned individuals. It provides basic information for use on a departmental level, continuing through campus and into our international community.
The primary objective in creating this guide is to provide information that will assist foreign visitors and GHSU personnel in making correct tax reporting and withholding decisions in regards to payments made on behalf of MCG.
Although this guide is meant to serve as a tool to assist in nonresident alien tax matters, it by no means implies to cover every tax situation. Furthermore, this guide does not act as a resource for tax advice. Please use this guide with the intent to further your understanding of nonresident tax issues, not advising individuals of their tax status.
This guide can also be found on the web at http://www.georgiahealth.edu/comptroller/NRATax.html.
1.1: Candidate for a Degree
A candidate for a degree is broadly defined to include any full-time or part-time student enrolled at GHSU in a course(s) which may lead to a degree, whether or not the student’s particular educational program leads to a degree.
1.2: Employee Wages
Employee wages are payments for services that an individual performs or carries out for the Institution as an employee. Services performed by an employee are subject to the direction and control of the Institution, its faculty or staff. Employee wages are not the same as payments made to a foreign visitor for independent contractor payments. See the discussion of independent contractor payments at Section 1.11 for the definition of non-employment related services. Employee wages can only be paid to foreign visitors who have been granted an appropriate employment authorization and visa status by the U. S. Citizenship and Immigration Service (USCIS) to allow them to be compensated for services in this country.
1.3: Exempt Individual
In terms of nonresident alien tax compliance, the term exempt individual refers to an individual who when taking the substantial presence test (Section 1.21), is not required to count certain periods of time present in the United States with respect to the calculation of the test.
An exempt individual is generally:
An amount paid to or on behalf of an individual for the purpose of aiding and supporting independent educational activity. A fellowship in academic terms may include compensation for services, tuition, books/supplies, room, board, travel, living allowance, etc. The portion that is paid for performance of services is calculated at “fair market value,” and is classified as “compensation” for tax purposes. The remaining “non-service” portion of the fellowship, if any may be divided into “qualified” and “non-qualified” and is taxable based on the rules set forth under section 117 of the Internal Revenue Code.
Qualified fellowships, per the IRS are to be excluded from taxable income (not taxable). A fellowship is not taxable if:
1. The fellowship is awarded to a candidate for a degree; and
2. The fellowship is used to pay for tuition and fees required for enrollment or attendance at GHSU and/or other mandatory fees, books, supplies, or equipment required by all students in a particular course of study.
Portions of fellowship payments that are used for any purpose other than tuition and specific course fees (qualified payments, above) must be included in taxable income. Any amount of a fellowship that is paid for services, including teaching and research, is also taxable. Tax treaties with some countries can reduce these taxable amounts (see Section 9). Post-doctoral fellowship awards are made to individuals to further their pursuit of a course of study or research beyond the doctoral level. The entire amount of a post-doctoral fellowship is taxable. Fellowships can only be paid to foreign visitors who have been granted the appropriate authorization and visa status by the USCIS (a valid I-94 authorization).
1.5: FICA (Medicare Tax)
FICA (Federal Insurance Contribution Act) is a tax that is assessed against the employee wages of individuals who are residents for income tax purposes. FICA is divided into two components: Social Security and Medicare. Nonresident aliens are exempt from this tax under specific conditions.
GHSU utilizes “GLACIER Online Tax Compliance System developed by Arctic International LLC.” GLACIER is an online tax compliance system designed to allow GHSU to efficiently and effectively collect information, make tax residency and income tax treaty determinations, manage paperwork, maintain data, and file reporting statements with the IRS.
Generally the same as a fellowship (see Section 1.4), with the exception that grants may not include portions paid for the performance of a service. However, to the extent that services are required as a condition of receiving the grant, that portion, based on “fair market value,” must be treated as compensation for services performed. Foreign source income exclusion applies to honorariums (see section 2.4).
Also, a grant may or may not include amounts for tuition. To the extent tuition is paid as a portion of the grant, if services are required, the portion attributed to “fair market value” must be carved out and treated as compensation. The remaining portion of the tuition that is not attributable to the performance of services potentially may be excluded from tax as a “qualified scholarship” (see Section 1.19).
An honorarium is an amount of money paid to an individual (not GHSU employee) for services performed. This is a one-time payment for services including, but not limited to: visitor lectures, instructors, speakers, translators, foreigners assisting with foreign meeting plans, or editing and other contributions to publications. Foreign source income exclusion applies to honorariums (see section 2.4).
1.9: Immigrant (Resident for Immigration Purposes)
An individual who has made an application or request to reside in the United States indefinitely. An immigrant, or resident alien for immigration purposes is a “green card” holder and is often referred to as a permanent resident. An immigrant, or resident alien, is a non-U.S. citizen who has been authorized to live and work in the United States. Immigrants are taxed on their worldwide income and in the same manner as a U.S. citizen.
1.10: Income Tax Treaty
A bilateral agreement entered by the government of two countries under which each country agrees to limit or modify the application of its domestic tax laws in an attempt to avoid “double taxation” of income; which is having the same income taxed by both countries.
1.11: Independent Contractor Payments
Independent contractor payments are for services performed by foreign visitors who are not considered employees for tax purposes. Services as independent contractor payments must have all of the following characteristics:
1. The foreign visitor must not be under the direction or control of the Institution, its faculty, or staff in regard to the means and methods used to perform services for the Institution.
2. The services or task being performed is of short duration and will not result in the foreign visitor entering a long-term working relationship with the Institution.
3. A written contract exists that identifies the services that are to be performed.
Independent contractor payments can only be made to foreign visitors who have been granted the appropriate authorization and visa status by the USCIS to allow them to be compensated for services in this country.
1.12: Internal Revenue Service (IRS)
The Internal Revenue Service is the U.S. government agency that collects federal taxes. To make this process easier, the IRS issues various forms, withholding allowance certificates, income tax returns, etc., which are used to help foreign visitors pay the taxes that apply to them. The IRS is also the agency that determines how much you owe in taxes and whether an organization is required to withhold specific amounts from your income (see Section 1.27).
1.13: ITIN - Individual Taxpayer Identification Number
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX. IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). ITINs are issued regardless of immigration status because both resident and nonresident aliens may have U.S. tax return and payment responsibilities under the Internal Revenue Code. Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN unless they meet an exception.
1.14: Nonimmigrant (Nonresident for Immigration Purposes)
A nonimmigrant for tax purposes, or nonresident for immigration purposes, is someone who is not a citizen of the U.S. and has been admitted to the U.S. for a temporary stay that will end when the purpose of that stay has been met.
1.15: Nonresident (For Tax Purposes)
A nonresident for tax purposes is someone who is not a citizen of the U.S., has been admitted to the U.S., and does not meet either the “green card” test or the “substantial presence” test described in (IRS) Publication 519, “U.S. Tax Guide for Aliens”. Both of these tests are addressed in Section 4 of this guide.
1.16: “Primary Purpose”
The “primary purpose” is essentially the primary reason for which an individual came to and remains present in the United States. The Primary Purpose is either set forth on the individual’s immigration or visa documentation or is implicit to the issuance of the particular visa.
1.17: Residency Start/Change Date
Residency start date is the date on which an individual’s tax status as a resident alien begins. For individuals who meet the substantial presence test, the residency starting date is the first day of presence in the United States during the calendar year in which the individual met the test. For individuals who meet the “green card” test, the residency starting date is the first day of the calendar year during which the individual is present in the United States as a lawful permanent resident alien.
Residency change date is the date on which the individual meets the substantial presence test or the “green card” test, thus becoming a resident alien for U.S. tax purposes.
1.18: Resident (For Tax Purposes)
A resident for tax purposes is someone who is either a U.S. citizen, or has been legally admitted to the U.S. and meets either the “green card” test or the “substantial presence” test because of the number of days physically present in the U.S. as described in (IRS) Publication 519, “U.S. Tax Guide for Aliens”. Both of these tests are described in Section 4 of this guide.
A scholarship is an amount given to or on behalf of a student for purposes of educational activity. A scholarship may include, but is not limited to: tuition, required fees, room, board, books/supplies, and compensation for services. For tax purposes, a scholarship must be divided into three components, based on the intent of payment:
A stipend is defined as a fixed sum of money paid periodically to an individual for purposes of living or maintenance, most commonly associated with the educational activities of a student or scholar. A stipend may or may not require the performance of services; however to the extent services are associated with and/or required.
1.21: Substantial Presence Test
A calculation of the number of days an individual is physically present in the United States over a period of three calendar years. Give consideration to the following:
The results of the calculation determine whether the individual will be treated as a resident alien for tax purposes or a nonresident alien for tax purposes. If the result of the substantial presence test equals 183 days or more, the individual will be treated as a resident alien for tax purposes; if the result is less than 183 days the individual will be treated as a nonresident alien for tax purposes. (See Section 1.3)
1.22: Taxable Income
Any money, goods or services paid to or on behalf of any person is income. All income is taxable unless there is a specific law, which excludes it from taxability. The amount of a scholarship, which is used to pay tuition, for example, is excluded by law and not subject to tax. The amount of income, which is not excluded, is called taxable income.
Taxes are the primary source of income of the U.S. government, states and cities of this country. Every individual earning money in the U.S. must pay taxes based on the amount of money earned. Taxes pay for the various functions and services provided by state, local and federal governments. These include police and fire protection, parks, highways, road signs, the space program, etc. Paying taxes is not optional. Failure to file and pay taxes is a criminal offense.
1.24: Travel (Transportation, Meals, and Lodging in Transit)
Payments can be made to foreign visitors for travel and certain travel-related expenses. If receipts are provided with a written explanation of the business purpose of the trip, GHSU is able to make direct payments or reimbursements on a tax-free basis. Expense payments or reimbursements excluded from taxable income in this fashion include:
All payments are subject to the restrictions of Medical College of Georgia Administrative Policies and Procedures: Office of Primary Responsibility; Controller's Division No. 1.2.03
1.25: United States Citizenship and Immigration Service (USCIS) (Formerly INS)
The Homeland Security Act eliminated the INS and replaced it with two related organizations. USCIS is the U.S. government agency that is responsible for overseeing foreign visitors. The Bureau of Customs and Border Protection (BCBP) is the organization that issues Forms I-94 to new arrivals in the United States. The USCIS sets the restrictions that apply to the various visa categories (the United States Information Agency sets the restrictions for J cultural exchange visa programs). Most of the requirements discussed in this guide will fall under the jurisdiction of the U.S. Citizenship and Immigration Service.
If you’re a citizen of a foreign country, in most cases you’ll need a visa to enter the United States. A visa doesn’t permit entry to the U.S., however. A visa simply indicates that a U.S. consular officer at an American embassy or consulate has reviewed your application, and that the officer has determined you’re eligible to enter the country for a specific purpose. Consular affairs are the responsibility of the U.S. Department of State. A visa allows you to travel to the United States as far as the port of entry (airport or land border crossing) and ask the immigration officer to allow you to enter the country. Only the immigration officer has the authority to permit you to enter the United States. He or she decides how long you can stay for any particular visit. Immigration matters are the responsibility of the U.S. Department of Homeland Security.
An individual who is obligated to pay taxes must have those taxes retained by the employer and paid to the government collecting the tax; this is called withholding. It means that most of the taxes owed by you are paid for you by the employer before you ever receive your paycheck. This way the taxes can be paid in small increments, each pay period, rather than all at once.
1.28: Withholding Agent
A withholding agent is any person or entity that is required to deduct or withhold tax from payments made to nonresident aliens or foreign organizations and pay that tax to the IRS. A withholding agent can be held liable for any tax that should have been deducted, withheld or otherwise collected.
2.1: Institution Responsibilities
GHSU is responsible for maintaining compliance with federal, state and local laws. The implication is that, in order for its departments, faculty and staff to host foreign visitors, GHSU must comply with federal, state and local laws as they pertain to foreign visitors. GHSU must be able to maintain compliance in both tax and immigration laws. GHSU has a responsibility to the foreign visitors who come to campus to pursue their education or other scholarly activities to ensure that payments made to them by the GHSU are properly reported to the appropriate federal and state agencies. Properly reporting payments to foreign visitors will greatly reduce the risk of future tax and immigration problems. The nonresident alien tax office exists to serve campus departments, faculty, and foreign visitors in gathering and coordinating the appropriate information needed to maintain compliance with the tax and immigration laws.
2.2: Sponsoring Department Responsibilities
Campus departments that host foreign visitors will generally be aware that the visitor will be coming, in many cases far in advance of the actual arrival. With that said, the department must notify the Tax Specialist upon their awareness of bringing in a foreign visitor. Accordingly, the hosting department or faculty member bears primary responsibility for ensuring that the visitor acquires the correct visa so that payments made to the foreign individual are in compliance with all requisite tax and immigration laws. Departments in coordination with the Nonresident Alien Tax Office must insure that no payments of any kind are made to foreign visitors unless they have been granted the appropriate authorization and visa status by the USCIS in advance of their arrival to MCG. This means that the foreigner must have received a valid I-94 authorization prior to the visit.
2.3: Classification of Payments for Withholding Purposes
Payments discussed in this guide fall into four broad categories:
It is likely that certain types of payments to a foreign visitor are taxable, while other payments to the same visitor are not. Also, certain payments that are taxable to one foreign visitor may not be taxable to a visitor from a different country because of a difference in their tax treaties. Accordingly, it is important that GHSU determine the taxability (or non-taxability) of each type of payment made to each foreign visitor in order to correctly determine whether withholding is required and, if so, the rate of tax withholding required.
2.4: Foreign Source Income Exclusion
- For Services Performed Outside the United States Payments made by GHSU to nonresident aliens for services performed in a country outside of the United States, are not subject to federal income tax or tax withholding, nor is there any U.S. reporting obligation. The exclusion applies only to individuals who are not U.S. residents or citizens. The services are considered to be “sourced” in the foreign country and, therefore, are not subject to U.S. tax laws.
- For Grants Funded from Outside the United States Fellowship and Scholarship grants paid with funds that have come from the visitor’s country of residence (or another country outside the U.S.) are not subject to federal income tax or tax withholding, nor is there any U.S. reporting obligation. The exclusion applies only to individuals who are not U.S. residents or citizens. Such grants are considered to be “sourced” in the foreign country and, therefore, are not subject to U.S. tax laws.
2.5: Federal Income Tax
All employee wages, independent contractor payments, scholarships and fellowships from a U.S. source that a foreign visitor receives are taxable unless specifically exempt from tax by a U.S. law or a treaty. In general, GHSU is required to withhold federal income tax on foreign visitor income as follows: - For Nonresidents
Employee Wages - generally, have income tax withheld at graduated rates plus an additional withholding unless specifically excluded from tax by a tax treaty between the U.S. and the foreign visitor’s country of residence. Exemption must be claimed on IRS Form 8233. In order to be eligible for a treaty benefit, the nonresident must enter their information into GLACIER and provide GHSU with passport, visa and I-94 for the Form 8233 to be prepared and treaty benefit applicability determined. Independent Contractor Payments - have income tax withheld at a flat rate of 30%, unless specifically excluded from tax by a tax treaty between the U.S. and the foreign visitor’s country of residence. The treaty exemption is claimed by the visitor on Form 8233. If eligible, Form 8233 is generated by GLACIER. Fellowship and Scholarship Payments - have income tax withheld at a flat rate of 14% on the taxable portions (amounts not used for tuition, fees and course-required supplies or materials), unless specifically excluded from tax by a tax treaty between the U.S. and the foreign visitor’s country of residence. Exemption must be claimed by the visitor on IRS Form W-8BEN. If eligible, Form W-8BEN is generated by GLACIER. Travel reimbursements - are excluded from income tax as long as they are paid in accordance with Medical College of Georgia Administrative Policies and Procedures: Office of Primary Responsibility; Controller's Division No. 1.2.03 - For Residents
Employee Wages - generally, have income tax withheld at the same graduated rates that are used for U.S. citizens.
Independent Contractor Payments - do not have income tax withheld, as the visitor is not considered an employee. The visitor is responsible for reporting and paying any taxes owed. Fellowship and Scholarship Payments - do not have income tax withheld, but are reportable by the recipient on the annual income tax return. Travel reimbursements - are excluded from income tax as long as they are paid in accordance with Medical College of Georgia Administrative Policies and Procedures: Office of Primary Responsibility; Controller's Division No. 1.2.03
2.6: FICA Tax (Medicare)
- Employee Wages Employee wages paid by GHSU are excluded from the Social Security portion (6.2%) of FICA; however, the Medicare portion of the FICA tax (1.45%) is withheld. A matching percentage of (1.45%) is paid by the GHSU on behalf of the individual. Special exemptions are available for Medicare withholding as follows:
- Independent Contractor Payments Payments for independent personal services do not have FICA taxes withheld. If applicable, FICA taxes are paid by the contractor.
- Fellowships and Scholarships
Payments for fellowships and scholarships do not have FICA taxes withheld.
- Travel Reimbursements Travel reimbursements do not have FICA taxes withheld.
2.7: State Tax All employee wages that a foreign visitor receives from GHSU are considered income for state and local income tax purposes. In general, GHSU is required to withhold state and local income taxes in the same manner as is outlined in the discussion of federal income taxes in Section 2.4, above. If some or all of the payments are exempt from federal tax under a tax treaty, the exemption applies to state taxes as well. Independent contractor payments a foreign visitor receives GHSU are considered taxable income for state and local purposes, unless specifically exempt from the state by a tax treaty.
2.8: Exemptions from Withholding Tax
A number of possible exemptions from tax withholding may apply to a foreign visitor. Several have been mentioned above, but a more complete listing follows:
2.9: Penalties and Sanctions The IRS has recently initiated a series of audits of institutions that focus, among other things, on compliance with tax laws as they relate to foreign visitors. In cases where tax should have been withheld from a foreign visitor’s payments, a charge can be assessed against the institution for the full amount of the tax, plus penalties and interest. This is true even if the foreign visitor paid the tax on a properly filed U.S. tax return.
3.1 Tax Basics for Nonresidents
3.2 Social Security or Tax Identification Number
3.3 Nonresidents – U.S. Nonresident Alien Income Tax Return (1040-NR)
3.6 Penalties and Sanctions
3.1: Tax Basics for Nonresidents
A nonresident alien’s tax responsibility is complex. The definition of what is included in taxable income can be confusing. This section is designed to assist nonresident aliens in the basic tax rules, therefore the following information is provided in some detail. Income received by a nonresident alien may be subject to income tax. However, a nonresident may be exempt from paying U.S. income tax because of a tax treaty between their country of residence and the U.S. We currently have tax treaties with 54 countries, which affect a total of 63; and each treaty is different. A payment must meet the strict requirements of the treaty in order to be exempt from tax. If the income is not exempt, the nonresident alien pays U.S. tax only on income paid from sources inside the U.S. All nonresidents must file Form 1040NR or 1040NR-EZ, even if all their income is exempt because of a treaty (see Section 3.2 below). Striking differences exist between the taxation of residents and nonresidents of the United States. The basic characteristics of nonresident taxation follow:
(a) Tax is generally levied on U.S. source income only.
(b) Tax treaty provisions may exempt some income from tax.
(c) Interest income from U.S. Banks may be tax-free.
(d) Nonresident aliens cannot file jointly with their spouse.
(e) Generally only one personal exemption is allowed regardless of family status.
(f) No standard deduction is permitted.
(g) Itemized deductions are limited to:
(h) Investment income is generally taxed at a flat 30%.
(i) No child or dependent care credit is permitted.
(j) No educational credits are available. A number of special rules regarding the standard deduction and spousal exemption are currently in effect for residents of India.
3.2: Social Security or Tax Identification Number
SPECIAL NOTE: Beginning January 2001, IRS regulations mandate that a nonresident alien visitor must have either a social security number or an individual taxpayer identification number (ITIN) in order to receive any amount of income (including, but not limited to, travel/business reimbursements, honoraria, scholarships/fellowships, wages, etc.).
A foreign visitor who will be receiving payments for dependent personal services (i.e., employee) in the U.S. must obtain a Social Security Number. In some countries, foreign visitors may apply for a Social Security Number at the U.S. Embassy prior to their arrival in the United States. Foreign visitors who wish to claim a tax treaty exemption for employee wages must have an SSN or proof of application prior to receiving any wages. SSNs are assigned only once. One number is given to each individual, and that number belongs to that individual for life.
The Individual Taxpayer Identification Number (ITIN) is available only to nonresident aliens who are ineligible for a Social Security Number. If a nonresident alien receives payments in the U.S. and is not eligible for a Social Security Number (i.e., a consultant who is to receive an honorarium), that person should apply for an ITIN. A $50.00 dollar penalty may be assessed to any payment made without an ITIN.
3.3: Nonresidents – U.S. Nonresident Alien Income Tax Return (1040-NR)
A nonresident files Form 1040NR or Form 1040NR-EZ - “U.S. Nonresident Alien Income Tax Return” each year with the IRS. GHSU will report earnings to nonresident aliens on a Form W-2 and/or Form 1042-S. Nonresidents must file an annual tax return if they earned any U.S. source income during the year.
The tax system uses the calendar year for determining income for individuals. The W-2 and Form 1042-S supplied by GHSU and other employers are based on earnings during the calendar year. Taxes withheld should cover most of the tax due. If too much tax is withheld, a refund can be claimed from the IRS.
If a nonresident earned wages subject to withholding in the U.S. during the year, then the tax return must be filed by April 15th of the following year. If the nonresident’s earnings were not subject to withholding, the tax return is due two months later, by June 15th.- Where to File
All nonresident returns are mailed to the same IRS office. Internal Revenue Service Center
Philadelphia, PA 19255
- Tax Return Record Keeping Every taxpayer should retain a photocopy of their completed return and any documentation submitted with it. Proper response to an IRS inquiry regarding a prior year’s tax return is virtually impossible without an exact copy of that return. Occasionally, circumstances require the taxpayer to submit a copy of a prior year’s tax return to the IRS, state or other taxing authority, also impossible without a copy. In addition, a nonimmigrant applying to the U.S. Citizenship and Immigration Service for permanent residency may be required to produce copies of three prior year’s tax returns to show compliance with U.S. tax laws.
3.4: Residents – U.S. Individual Income Tax Return (Form 1040)
A resident alien pays U.S. tax on the same basis as U.S. citizens. Tax is based on income from all sources worldwide and no tax treaties can be used to reduce taxable income. As a general rule, individuals who are resident aliens can claim exemptions for dependents, receive a standard deduction and file a joint return with a spouse. Determination of residency status is discussed at length in Section 4. Foreign visitors who are residents for tax purposes must report all wages or other compensation, interest, dividends, gains, rental income, royalties or any other type of income whether it comes from U.S. sources or abroad. This is called the individual’s “worldwide income”. Worldwide income is reported on Form 1040, 1040-A or 1040-EZ. Which form used is based on the complexity of the resident’s tax information. GHSU reports earnings to resident aliens on Form W-2 (employee wages) or Form 1099-MISC (independent contractor personal services). Multiple copies of these forms allow certain ones to be attached to the various tax returns before filing. An individual could qualify as both a resident and a nonresident at the same time. This occurs when a foreigner is a U.S. resident under the substantial presence test, or holds a “green card”, but also qualifies as a nonresident with tax treaty benefits under his country’s treaty. This could give the individual “dual status” residency. Virtually all tax treaties provide for status determination by the application of various “tie-breaker” rules. The individual’s permanent home, personal and economic relations can provide a “closer connection” with his home country than with the United States. This would allow a foreigner to remain a nonresident and take advantage of continued tax treaty benefits. The U.S. Regulations state that any resident alien, who also qualifies for tax treaty benefits, will be treated as a nonresident alien for purposes of computing the U.S. tax liability and withholding requirements. The dual status individual will be required to file a Form 1040 with a Form 1040NR attached. Chinese dual status aliens who are married can claim both resident tax rates and a treaty benefit by filing Form 1040 with a Form 8833 attached.
3.5: Certificate of Compliance – “Sailing Permit” (IRS Form 1040C or Form 2063) A Certificate of Compliance, or “Sailing Permit”, is a form that a nonresident must request from the IRS to demonstrate compliance with the tax law and verify that all required taxes have been paid before leaving the U.S. Holders of F-1, J-1, H-3 and H-4 visas are not required to obtain a Certificate of Compliance if they had no U.S. source income other than (a) allowances or payments to cover study expenses (including travel, maintenance and tuition), or (b) wages from authorized work, including practical training. Permanent residents (green card holders) and all nonresidents with a visa status other than those noted above, must obtain a Certificate of Compliance from the IRS before leaving the U.S. The following information will be useful to foreign visitors who must obtain a Certificate of Compliance:
3.6: Penalties and Sanctions Failure of a nonresident to comply with the U.S. tax law can lead to the imposition of fines and penalties to be assessed by the IRS against the foreign visitor. Failure to file the appropriate tax returns or making intentionally false statements on tax returns can lead to criminal penalties. The regulations provide that a nonresident alien’s tax return deductions will be allowed, “only if a true and accurate return for the taxable year is filed by the nonresident alien on a timely basis.” This means that unless a timely and accurate tax return is filed, tax is assessed against the nonresident alien’s gross income without regard for any deductions or credits that might otherwise be allowable. Tax compliance will be evaluated at the time the foreigner seeks to leave the country.
4.1 Resident for Tax Purposes
4.2 Nonresident for Tax Purposes
4.3 Green Card Test
4.4 Substantial Presence Test
4.1: Resident for Tax Purposes
A resident for tax purposes is a person who is not a U.S. citizen and who meets either the “substantial presence” test or the “green card” test described in IRS Publication 519, “U.S. Tax Guide for Aliens”. (See Appendix 2) With regard to residency determination for tax purposes:
4.2: Nonresident for Tax Purposes
A nonresident for tax purposes is a person who is not a U.S. citizen and who does not meet either the “green card” test or the “substantial presence” test described in Publication 519, “U.S. Tax Guide for Aliens” with regard to residency determination for tax purposes:
4.3: Green Card Test A person is a resident for tax purposes if s/he is a lawful permanent resident of the U.S. A person has this status if s/he has been issued an alien registration card, also known as a “green card”, by the U.S. Citizenship and Immigration Service (USCIS). A person need not be in possession of the “green card” itself. The right to lawful permanent residence is granted at the time of the final interview with USCIS officials and is evidenced by the USCIS stamp in the applicant’s passport. The applicant’s official “green card” may not arrive for several months after the interview. 4.4: Substantial Presence Test
A person is a resident for the tax year if s/he meets the “substantial presence” test for the calendar year. To meet this test, the person must be physically present in the U.S. on at least:
For example, if an individual were present in the U.S. for 84 days in 2004, 168 days in 2003, and 261 days in 2002, then the test would show residency, with 183.5 days of presence.
This is calculated as follows: (2002) 261*1/6 = 43.5; (2003) 168* 1/3 = 56; plus (2004) 84, which equals 43.5+56+84 = 183.5 days. (Note: we can also tell that the person in this example was a resident during 2003 because 168 + (261*1/3) = 255 days; and during 2002 because 261days > 183 days)
- Days Not Counted
A J non-student visa holder (professor, researcher, etc.), who is substantially complying with the requirements of the visa, does not count days present in the first two calendar years.
An F or J student visa holder, who substantially complies with the requirements of the visa, does not include days present in the first five calendar years of U.S. presence, and so can remain in school in the U.S. for 5 years without becoming a resident.
It is important to note that the counting rules are based on calendar years, not twelve-month periods. For example, a J-1, non-student, foreign visitor enters the U.S. on December 15, 2002. For purposes of the substantial presence test, 2002 is the “first calendar year”, even though the foreigner was only present for 16 days during 2002. 2003 is the “second calendar year”. This individual would begin counting days present in the U.S. on 1/1/04.
- Circumstances that Disqualify Foreigner from the Substantial Presence Test
A person will not meet the “substantial presence” test if (1) they are present in the U.S. on fewer than 183 days during the current year, and (2) if they establish that they have a tax home in a foreign country in the current year, and (3) that they have a “closer connection” to that foreign country than to the U.S. The “closer connection” exception is discussed in detail in IRS Publication 519, “U.S. Tax Guide for Aliens”. (See Appendix 2).
To retain non-resident status after five years, F-1 student visa holders must be present in the U.S. fewer than 183 days, and must establish that they have a closer connection with the foreign country than to the U.S.
5.1 B-1 and B-2 Visas
5.2 Visa Waiver for Business (VWB) and Tourism (VWT)
5.3 J-1 Visas for Short Term Visitors
5.4 Income Tax Withholding
5.5 Payment Processing
5.1: B-1 and B-2 Visas
- B-1 Visitor for Business
B-1 visas are generally granted for six months, time allowed will be noted on the I-94 by the Bureau of Customs and Border Protection. The department extending the invitation must provide a letter of invitation to the visitor that includes the beginning and ending dates of the visitor’s stay, a brief description of what the visitor will be doing, and the amount and type of payment. The visitor then obtains the B-1 visa stamp in their passport before traveling to the U.S.
Foreign Visitors present in the U.S. on a B-1 visa may be paid an honorarium; however, such individuals cannot be at GHSU for more than 9 days and must not accept payment or expenses from more than 6 institutions in the 6-month period of the visa’s duration. Other types of payments that a B-1 visa holder may receive while in the U.S. are as follows:
- Reimbursement for expenses including accommodations, meals and travel expenses. Payments may be made directly to the provider of the service or to the nonresident visitor (subject to GHSU Travel Policy restrictions). NOTE: The 9-day/six month institution rule does not apply to those who are only reimbursed for expenses and not receiving honoraria.
- Scholarship or fellowship grants where the visitor is enrolled in a course of study and renders no services for MCG.
- B-2 Visitor for Tourism
Foreign visitors in the U.S. on a B-2 visa are prohibited from receiving payments of any kind for any reason. Payments made on behalf of B-2 visa holders for such things as lodging or transportation are also prohibited.
5.2: Visa Waiver for Business (VWB) and Tourism (VWT)
The Visa Waiver Program allows citizens from 27 participating countries to travel to the United States for the purpose of business or tourism for a specified period without the need of obtaining a United States visa.
The immigration law status of visa waivers for business (VWB) and tourism (VWT) are identical to their B visa counterparts. In other words, VWB holders, or B-1 waiver, can receive honoraria, expense reimbursements, scholarships or fellowships; they must meet the same requirements as outlined in Section 5.1 VWT holders, or B-2 waiver, cannot receive payments of any kind.
5.3: J-1 Visas for Short Term Visitors
Allowable Payments J-1 non-student visas (professors and researchers) allow for employment of a foreign visitor on-campus exclusively. Permission to work off-campus is extremely difficult to obtain from the USCIS. Visitors on J-1 visas can receive wages, salaries, honoraria, or travel reimbursements from the host employer. Tax Implications Federal income tax, Medicare tax, state and local taxes may apply to the type of payments being made to the foreign visitor. Please see Sections 2.4 – 2.6 of this guide to determine whether some or all of these taxes apply.
5.4: Income Tax Withholding
In general, all income paid by GHSU to a foreign visitor is taxable, unless the income is exempt from tax under the Internal Revenue Code or the provisions of a Tax Treaty between the U.S. and the foreigner’s country of residence. GHSU is required by law to withhold taxes from these payments at the following rates, unless exempt by treaty or Revenue Code. Employee wages: Income tax at graduated rates
Fellowships and Scholarships: 14% income tax
Independent Contractor payments: 30% income tax
5.5: Payment Processing To be determined.
6.1 General Provisions
6.2 Possible Sources of U.S. Income
6.3 Tax Implications
6.1: General Provisions
F-1 and J-1 student visa holders are generally considered nonresidents aliens for their first five years in the U.S. F-1 and J-1 category students who have been in the U.S. for more than five (5) consecutive years are generally considered to be resident aliens. Students with F-1 or J-1 visas become eligible to use the substantial presence test after five years as nonresident aliens. For example, a student with a J-1 visa who arrived in the U.S. in September 1997 files as a nonresident alien (using IRS Form 1040NR) for tax years 1997 through 2001. It does not matter that the student was not present in the U.S. for all of each of these years, as long as he/she was present in the U.S. for some part of each consecutive year. In 2002, the student passes the substantial presence test (described in Section 4.4 of this guide). The student is considered a resident alien for purposes of filing 2002 tax returns (see Section 3.3).
All students who have been in the U.S. for more than five (5) years will be treated as residents for tax purposes. Individuals who wish to be treated as a nonresident for tax purposes must establish, to the satisfaction of the Internal Revenue Service, that they are complying with the terms of their student visa and do not intend to live permanently in the United States. The IRS must substantiate the connection between the foreigner and his home country and provide the student with a letter substantiating continued nonresident alien status. All J-1 students who are paid as GHSU employees or independent contractors must be prepared to provide verification that they have work authorization on an annual basis, i.e. every year that they are present and paid by MCG.
F-1 Student and J-1 Exchange Visitor visas allow for employment of a foreign visitor on-campus. IMPORTANT NOTE: Under USCIS regulations, F-1 and J-1 students may work only 20 hours per week during the academic year when school is in session; they are allowed to work up to 40 hours per week during institution break periods. Off-campus employment is allowed only under certain circumstances. Off-campus work that is curriculum related practical training is allowed. Post-graduate practical training is possible up to 12 months for F-1 students and up to 18 months for J-1 students. 6.3: Tax Implications
Student employees with F-1 or J-1 student visas are subject to Federal and State taxes on their earnings. Specific treaty benefits between the U.S. and their country of origin may reduce the taxable amount for Federal and State purposes. Refer to Sections 2.4 – 2.6 of this guide for further information.
7.1 J-1 Exchange Visitor Categories
7.2 General Provisions
7.3 Possible Sources of U.S. Income
7.4 Tax Implications
7.1: J-1 Exchange Visitor Categories
J-1 visa holders are referred to as Exchange Visitors. J-1 visa holders can enter the U.S. as exchange visitors in any one of five categories. They are:
Student (non degree) – International visitors coming to the U.S. to engage full-time in a prescribed course of study (includes research).
Professor – International visitors coming to the U.S. primarily to teach or lecture.
Research Scholar – International visitors coming to the U.S. primarily to conduct research, observe research, or consult in conjunction with a research project.
Short-Term Scholar – International visitors coming to the U.S. primarily to observe research or consult in conjunction with a research project for the purpose of lecturing, observing, consulting, training or demonstrating special skills for a period not to exceed six (6) months.
Specialist – An international visitor who is an expert in a field of specialized knowledge or skill coming to the U.S. to observe, consult or demonstrate.
7.2: General Provisions
J-1 non-student visa holders (professors, researchers, scholars and specialists) are generally considered to be nonresident aliens for the first two calendar years they are in the U.S. If the individual comes to the U.S. in December, that is still the first calendar year, even if he was only present for a few days.
J-1 non-student visa holders take the substantial presence test and do not count days present in their first two calendar years (See Section 4.4). For example, a teacher who arrives in the U.S. December 4, 2002, begins teaching January 5, 2003, is a nonresident alien for 2002 and 2003, two calendar years, but is subject to the substantial presence test starting in 2004. Days not counted are 2002 and 2003 days, so by July of 2004, the substantial presence test is met and the teacher becomes a resident alien. Please note that this does not have anything to do with the teaching schedule or the earning schedule. So even though 2003 and 2004 are the foreigner’s first two years of teaching and the foreigner’s first two years of wage earning, they are not the first two years of U.S. presence.
J-1 non-student visas allow for employment of a foreign visitor on-campus exclusively. Permission to work off-campus, even for another institution, is extremely difficult to obtain from the USCIS. If the visitor is planning a lecture series on a circuit of different colleges and universities, he/she should not enter the country on a J-1 visa.
7.4: Tax Implications
Payments made to a J-1 Foreign Exchange Visitor are subject to Federal and State income tax. The U.S. has tax treaties with various counties that may reduce the Federal and State taxable income, but treaty benefits must be applied for, they are not automatic. Refer to Sections 2.4 – 2.6 of this guide for more information.
8.1 General Provisions
8.2 Possible Sources of U.S. Income
8.3 Tax Implications
8.1: General Provisions
The H-1B visa classification is available to a foreign national who will occupy a “specialty occupation” (i.e., architecture, mathematics, physical sciences, etc.) in the United States for which they are qualified.
H-1B visa holders are generally considered nonresident unless they meet the “substantial presence” test discussed earlier in Section 4.4. For these visa holders, days of presence in the U.S. are counted from the first day they arrive, unlike J and F visa holders.
O and P visas are issued to artists, performers and aliens of extraordinary ability. Holders are subject to the substantial presence test upon entering the U.S. and are treated similarly to H-1B visa holders.
TN Visa Status (North American Free Trade Agreement)
The North American Free Trade Agreement (NAFTA) created a new nonimmigrant visa category for citizens of Canada and Mexico who will be engaged in “business activities at a professional level”. It is granted for up to one year at a time, with unlimited renewals. It can be for full-time or part-time employment.
IMPORTANT NOTES: The TN visa status is available only in certain specialty occupations. Contact the Office of International Programs for a list of recognized occupations or visit http://travel.state.gov./tn_visas.html. In addition, since this is a temporary visa status, it should not be used for an individual who is being hired by GHSU in a tenure-track position, nor is it an appropriate visa for coaching staff.
H-1B, O, P and TN visas allow for employment of a foreigner exclusively on the campus of the sponsoring institution. Off-campus or any other non-sponsor employment is possible only with the approval of an additional H petition from the INS. Dependents on H-4 visas are not permitted to be employed.
8.3: Tax Implications
H-1B visa holders are subject to the Medicare tax and consequent withholding. For other tax information or other visas, refer to Sections 2.4 – 2.6 of this guide to determine whether federal income tax, Medicare tax, and/or state and local taxes apply to the type of payments being made to the foreign visitor.
9.1: Forms 8233 and W-8BEN
Notification that the visitor qualifies for a reduced rate of income tax withholding, or an exemption from income tax withholding must be received and verified before the exemption can be granted. The visitor will also need to submit certain IRS forms that authorize GHSU to grant treaty benefits. Form W-8BEN or Form 8233 (depending on the type of payment the visitor receives) allows GHSU to grant treaty benefits to an individual. It is important to note that simply because a treaty between the U.S. and the visitor’s country exists, does not mean that the types of payments made by GHSU to the visitor are tax exempt. Benefits of tax treaties vary widely, depending on the particular country involved.
9.3: Current Tax Treaties
There are presently 54 tax treaties in force that impact individuals:
Korea, Republic of (South)
Egypt (Arab Republic)
Trinidad and Tobago
Netherlands (includes Netherlands
IRS Publication 515 and 901 summarize the benefits available to these nonresident aliens by virtue of their tax treaties.
Appendix 1: IRS Forms and Publications
Copies of Internal Revenue Service Forms and Publications can be found on the Internet through the GHSU Nonresident Alien Tax Compliance website.
1. Visitors from Canada or Mexico can visit the United States without a visa. Can they be paid without a visa? NO. While it is true that Canadian or Mexican visitors can travel in the U.S. without a passport or visa, they cannot be compensated unless they have a valid, eligible visa. The same rules apply to compensation payments to Canadians and Mexicans as apply to foreigners from other countries.
2. An individual from Leningrad University will be visiting the United States this summer on a B-2 Visa and has agreed to visit GHSU if we pay the airline ticket. Is this allowed?
NO. A visitor on a B-2 Visa is prohibited from receiving compensation of any kind, including travel reimbursement.
3. The department has a foreign visitor who says she has a J-1 Visa. Can the Dept. take her word for it? NO. Information on a foreign visitor’s non-immigration status must be validated by inspecting and photocopying the USCIS Form I-94 which shows the current visa type and expiration date of the permission to stay. A number of visitors enter the U.S. on one type of visa and later change their status. When a change of status is granted by the USCIS, the new status will be noted on Form I-94.
4. What if the current visa that appears in the visitor’s passport has expired? Can they still be paid?
The visa expiration date located on the Visa Stamp in the passport is the date by which the visitor must enter, not exit, the country. The true date by which a visitor must exit appears on the Form I-94 card (USCIS Arrival/Departure Record) or equivalent USCIS document.
5. A student with an F-1 visa wants to work 30 hours a week during the academic year. Is this permissible?
NO. The F-1 visa specifically limits the numbers of hours a student may work. During the academic year F-1 students may work only 20 hours per week while school is in session; they can work up to 40 hours per week during break periods. Any exceptions made due to home country economic distresses are issued only by the USCIS and/or the IRS.
6. May a F-2 visa holder (dependent of F-1 visa holder) work?
NO. The primary reason for the individual’s stay in the U.S. is as a dependent; they cannot work. If they need to seek employment, they must first change their visa status to one that authorizes them to work. Eligibility of dependents varies from visa to visa.
Claude (Eddie) Yates, Tax Specialist, Controller’s Division Medical College of Georgia Annex I Building, Rm HS B173 Desk: 706.721.4364 Fax: 706.721.1948 Email: email@example.com
*** Special Thanks to Miami University of Ohio and their Payroll Office***
*** Special Thanks to Mollie Hansel, Payroll Manager of Miami University of Ohio ***