Oregon State University

413: Non-Resident Aliens (NRA)

Fiscal Operations Manual
Section 400: Expenditures
Effective: 03/30/2009
Revised: 10/15/2013

OSU must comply with Internal Revenue Service (IRS) Regulations in connection with withholding and reporting of tax on non-resident aliens (NRAs).  The reporting and taxation requirements of NRAs are very complex.  These guidelines for individuals and Business Centers serve to enable all parties to meet their reporting and taxation requirements.

Any payment made to a non-resident alien requires special attention and handling.  In order to make a payment to a NRA working in the US, the individual must have a US social security number (SSN) or a US individual tax identification number (ITIN). The only exception to this is for payments made that are determined to be part of a "qualified scholarship".

Because of the complicated tax laws and regulations for these payments, we strongly request that you review the “Inviting and Paying a Non-Resident Alien for Academic Activities” checklist. This checklist should be started well in advance of making a payment request.  Using this checklist and having the correct documentation will make the process much easier and faster.

All payments made to or on behalf of a NRA must be reported to the IRS.   In addition, all payments are subject to federal income tax withholding unless they are specifically exempted by either US tax law or by an income tax treaty. Note:  there are tax treaties with over 40 countries, each of which are unique, different, and can change frequently.

Examples of payments made to NRAs include, but are not limited to:

  • Wages/Compensation
  • Stipends
  • Travel & Expense Reimbursements
  • Scholarships/Fellowships (Note: Payments do not have to be paid in cash; credits to a student's account qualify under these requirements.)
  • Independent Contractor Payments
  • Royalties/Commissions
  • Honoraria Prizes/Awards

 Each payment requires the review of certain key factors:

  • Visa Type
  • US Residency Status (US citizen, substantial presence alien, resident alien, non-resident alien)
  • Substantial Presence Test

If a non-resident alien is exempt from federal income tax withholding because of either U.S. tax law or a tax treaty, that individual must file the appropriate form:

  • Form 8233 - Compensation (independent contractors and employees) and related payments
  • Form W-8BEN – Scholarship, fellowship (no service), royalties and other payments

Payments requiring federal income tax withholding are taxed at 14 percent, 30 percent, or graduated withholding rates depending on the type of payment.

The 1042S is the annual tax form used to report payments and tax withholding to NRAs.

Non-Resident Alien Status -

 A NRA is a person who is not a citizen or permanent resident of the United States and who has been admitted for a temporary stay that will end when the purpose of that stay has been met.  A resident alien, for immigration purposes, is the same as an immigrant, or a "green card" holder. A resident alien can be defined as a non-US citizen who has been authorized to live and work in the United States indefinitely.

A NRA for tax purposes is a non-US citizen who, during his or her stay in the United States either pays U.S. tax only on income from sources inside the US or else is exempt from paying US income tax because of a treaty between the United States and the government of his or her country of residence for tax purposes. Most NRAs receive no tax exemption for dependents. A NRA for tax purposes must file an income tax return on IRS Form 1040NR  US Non-resident Alien Income Tax Return on or before April 15th.

Categories established for immigration purposes do not necessarily coincide with those set up for tax purposes. Under certain circumstances, a NRA for immigration purposes may be a resident for tax purposes. Thus, students and scholars who are not citizens of the United States must take care to determine whether they are resident or non-resident aliens for tax purposes. Only then will they know how their income will be taxed and which income tax return form to file. For current information on tax laws regarding resident and non-resident aliens, IRS Publications 513, 515, 519, and 901 should be consulted.

Withholding Tax Information – Generally, a foreign person is subject to US tax on its US source income. Most types of US source income received by a foreign person are subject to US tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person’s country of residence and the United States.

Pay for Personal Services Performed - usually, a NRA who performs personal services within the United States during the tax year is engaged in a US trade or business.  Personal services performed by an independent non-resident alien contractor as contrasted with those performed by an employee are subject to the flat withholding rate unless that pay is specifically exempted from withholding or subject to graduated withholding. This category of pay includes payments for professional services made directly to the person performing the service.

Foreign Student or Exchange Visitor - A NRA individual temporarily present in the US under a "F", "J," "M," or "Q" immigration status for five calendar years (relating to visiting students, teachers, trainees, etc.) is considered to be engaged in a US business. This means that any taxable portion of a scholarship or fellowship grant and expenses incidental thereto, to the extent derived from US sources, are taxable at the same rates (but subject only to the flat withholding rate) applicable to a US citizen.

Method of Taxation - A NRA individual is taxed in the same manner as an US citizen and on all income which is effectively connected with their conduct of a trade or business in the US. They are also taxed at a flat rate set by the Internal Revenue Service on US source income that is not effectively connected with the conduct of a US trade or business.

Tax Treaties - A NRA individual is taxed on fixed or determinable annual or periodic income received from US sources at a flat rate unless a lower rate is set under an income tax treaty ratified by the United States. The US has negotiated a network of treaties with other countries to avoid international double taxation and to prevent tax evasion.  Non-resident Alien students from countries with which the US has an active tax treaty may be exempt from Federal Income Tax on wages that would otherwise be considered taxable.  In order for NRA students to claim benefit under the appropriate tax treaty, they must complete IRS Form 8233 “Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual.”  A new Form 8233 must be filed at the beginning of every calendar year in order to continue the exempt status under the tax treaty.

Rate of Withholding is based upon current IRS regulations.

Returns on Withholding - The University is required to withhold and pay a tax on income paid to a NRA individual and must make an annual return on Form 1042.

Annual information returns on payments to NRAs, foreign corporations and foreign partnerships are required on Form 1042S. There is never a situation in which Form 1099 is the appropriate form to use in reporting a payment to a non-resident alien.

 

NO TAX WITHHELD

TAXES WITHHELD

WAGES/COMPENSATION
(Employment status based on VISA type)

Recipient’s country of origin has a current tax treaty with the US government (Student required to provide documentation of residency, VISA status & eligibility of employment). For treaty to apply, recipient must submit Form 8233.

Recipient’s country of origin does not have a current tax treaty with the US government.

STIPENDS

Recipient’s country of origin has a current tax treaty with the US government (OSU Business Center required to provide documentation of recipient’s residency and VISA status).

Recipient’s country of origin does not have a current tax treaty with the US government.

TRAVEL & EXPENSE REIMBURSEMENTS

BOTH statements below must be true for reimbursement to be exempt from taxation:

Payment is made to an individual not being contracted through, or being paid while employed by, another institution.
-AND-
OSU Business Center has provided all original receipts for all costs (except per diems, as allowed by current OSU travel policy).

EITHER statement below can be true for reimbursement to be subject to taxation:

Payment is made to a foreign entity or to a private US institution which cannot be proven to have an “accountable plan” per IRS guidelines, for the participation of or services performed by its employee.
-OR-
OSU Business Center is unable to provide original receipts to document expenses to be reimbursed.

SCHOLARSHIPS &
FELLOWSHIPS

Recipient’s country of origin has a current tax treaty with the US government (recipient’s residency and VISA status is verified by data entered on student’s Banner  record)

Recipient’s country of origin does not have a current tax treaty with the US government.

INDEPENDENT CONTRACTOR SERVICE CONTRACTS
ROYALTIES/COMMISSIONS

Recipient’s country of origin has a current tax treaty with the US government and must submit form 8233 with valid US Individual Tax Identification or Social Security number (OSU Busines Center required to provide documentation of recipient’s residency and VISA status)

Recipient’s country of origin does not have a current tax treaty with the US government

 

Documentation Requirements

Form 8233 Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual is used to claim a tax treaty exemption for compensation payments, regardless of whether the individual is an employee or independent contractor. To claim the tax treaties benefit the foreign persons/originations must have US Tax Identification or a Social Security number. The form requires a ten-day waiting period, such that the withholding agent must wait for ten days after mailing the form to the IRS before making a payment to the individual for which no tax is withheld.

Copy of the foreign national’s passport identify page and I-94 must be readable.

Form W-8   Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

CO-NRA Form– A new CO-NRA form must be filed for every year a non-resident alien is employed.  Central Payroll and the OUS Controllers Division use the CO-NRA to determine a non-resident alien's employee tax status.  Non-resident employees who do not submit a CO-NRA form may be subject to Social Security and Medicare withholding.

Supplemental Information

International Glossary of Terms

Non-resident Alien Form Descriptions

Department and Employee Directory – Non-resident Alien Activities

Contact Info

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