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Nonresident Alien Tax Compliance Tuesday, February 9, 2010 Mary Alice Boyd.

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Presentation on theme: "Nonresident Alien Tax Compliance Tuesday, February 9, 2010 Mary Alice Boyd."— Presentation transcript:

1 Nonresident Alien Tax Compliance Tuesday, February 9, 2010 Mary Alice Boyd

2 Agenda Overview of the Tax System Federal Income Taxes State Income Taxes Social Security/Medicare Taxes Types of Income Treaty Benefits Procedures Best Practices Resources Questions

3 Overview of the Tax System SystemResidency Status US Tax System US Citizens Lawful Permanent Residents Resident Alien for Tax Purposes Nonresident Alien Tax Nonresident Alien for Tax SystemPurposes

4 Federal Income Taxes All US payments to NRAs are subject to 30% withholding except for: Wages subject to wage withholding 14% for non-service scholarships/fellowships (qualifying F, M, J, or Q status only) Exceptions under the tax code or a treaty

5 State Income Taxes Non-wage compensation of more than $1,500 during the calendar year to a nonresident contractor for personal services performed in NC in connection with a performance, an entertainment or athletic event, a speech, or the creation of a film, radio, or television program, you must withhold NC income tax at the rate of 4% from this non-wage compensation

6 Social Security/Medicare Taxes Apply to compensation for employment services Exceptions for Social Security/Medicare taxes: Student FICA Exception –Students working on the campus of the institution where they are enrolled and regularly attending classes –Same rules for US citizens NRA FICA Exception –Nonresident aliens –In F-1, J-1, M-1, or Q-1/Q-2 status –Engaged in employment consistent with the purpose of the visit Totalization agreement exception with a certificate of coverage

7 Types of income and what income is taxable? Compensation Dependent –Wages / Salary / Stipend Taxable / Treaty Exempt –Travel Reimbursement / Payment“Accountable Plan” Independent –Ind Per Services / Consulting FeesTaxable / Treaty Exempt –Honorarium / Guest Speaker FeesTaxable / Treaty Exempt –Travel Reimbursement / Payment“Accountable Plan” Scholarships/Fellowships –Tuition / FeesExcluded under Section 117 –Room / BoardTaxable / Treaty Exempt –StipendTaxable / Treaty Exempt –Book AllowancesExcluded under Section 117 –Travel Reimbursement / PaymentTaxable / Treaty Exempt Prizes and AwardsTaxable RoyaltiesTaxable / Lower Treaty Rate

8 Compensation Dependent Wages –Subject to graduated withholding rates with restrictions –Unless exempt from withholding under a treaty Independent Wages –Subject to 30% withholding –Unless exempt from withholding under a treaty

9 Honorarium Payments Rule –Covered aliens may accept an honorarium payment for usual academic activity –lasting not longer than 9 days at any single institution, and –If the alien has not accepted such payment from more than 5 institutions –In the previous 6-month period –Covered aliens: B-1, B-2, VWB, VWT, aliens from Canada and aliens with valid border-crossing card

10 Are travel expenses taxable? The “Accountable Plan” rules only apply when there is a compensatory relationship –Employees and Independent Contractors who receive compensation The “Accountable Plan” rules do not apply if there is not a compensatory relationship –Students and scholars who receive non-service scholarships and fellowships

11 Other Payments Scholarships and Fellowships –Subject to14% withholding to F, J, M and Q status individuals –Unless exempt from withholding under a treaty or the Internal Revenue Code Prizes and Awards –Subject to 30% withholding

12 Treaty Benefit Eligibility The US has tax treaties with over 60 countries Treaties offer tax exemptions for foreign nationals who were or are tax residents (not citizens) of a treaty country and meet specific criteria as defined by the treaty Many foreign nationals understand and expect these benefits

13 Considerations When Granting Treaty Benefits US tax status: NRA or RA Social Security Number or ITIN Country of tax residency Primary purpose of visit as evidenced by –DS-2019 for J exchange visitors –I-129 petition and letters for H-1B, O-1, Q –I-20 for F and M visitors –Conducting research, teaching, training, other paid activities Status of the organization (educational, research, medical, etc.) Type of income paid

14 Procedures for Paying Nonresident Aliens Step 1 – Complete required forms Step 2 – Submit forms to Tax Office Step 3 – Submit DPR and required forms to A/P

15 Step 1 – Complete required forms Taxpayer Information Form (Vendor Information Form) Foreign National Information Form (FNIF) Visitor and Student version Copies may be necessary Form W-8BEN

16 Step 2 – Submit forms to Tax Office Tax Office will review FNIF for completeness and payment eligibility Copies of immigration documents may be necessary at this point Once reviewed, tax office will let you know if individual is eligible for payment, and if there will be tax withholdings, treaty benefits, etc.

17 Step 3 – Submit DPR and required forms to A/P A/P and any other necessary parties will review DPR and forms will be sent to Tax Office for sign off

18 Best Practices As soon as you know you will have a foreign visitor, start the paperwork –Don’t start paperwork after the visitor has performed services or you risk not being able to pay the visitor All payments to nonresident aliens should be processed on a DPR All travel guidelines and requirements apply to foreign visitors –Accountable plan (nontaxable) –Use this for travel portion of trip to make less of the payment taxable Keep the gross-up option in mind NRA rules and regulations are mandated by the IRS, NC Department of Revenue, US Immigration Services, and US Department of Homeland Security Let visitors know we have a tax office if they want to discuss the tax implications of their payment When in doubt, call or the Tax Office

19 Resources Tax Office Website –Tax Guide for NRAs: IRS Publications –15T, Employer’s Tax Guide –515, Withholding on Nonresident Aliens and Foreign Entities –519, US Tax Guide for Aliens

20 Questions Mary Alice Boyd Tax Manager (704) Rebecca Urquhart Tax Accountant (704)


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