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

413-01: NRAs Services and Travel

Fiscal Operations Manual
Section 400: Expenditures
Effective: 03/30/2009
Revised: 12/3/2013

The American Competitiveness and Workforce Improvement Act of 1998 provided the ability to pay reimbursements for expenses and honoraria to international visitors engaged in academic activities. In addition to work authorized visa types, we can now pay visitors in a "B" status. Payments for services are considered taxable income to a foreign national and will be subject to federal income tax unless your visitor is eligible for tax treaty benefits.  In order to file a reduced rate of withholding certificate, they must have a federal tax reporting identification number.

Honorarium Services - Foreign nationals with a B-1, B-2, Visa Waiver Business (VWB), and Visa Waiver Tourist (VWT) may accept a payment for services and/or travel reimbursement under the following conditions:

  • For “usual academic activity or activities” These activities include lecturing, teaching and sharing of knowledge or performance.
  • 9 days or less at OSU.
  • The individual has accepted such payment from no more than 5 educational or research institutions (Including OSU) for the previous 6-month period.

Note: The 9/5/6 rule does not apply to those who are only reimbursed for receipted expenses and not receiving honorariums.

Required Forms necessary to process payment for an honorarium to a Foreign National.

  • Visitors that enter the US with Visa Status B1or a combination of B1/B2will need to submit an International Visitor Data Sheet.
  • Your visitor may apply for an ITIN by mail using Form W-7 .  Start the process early as it can take up to six weeks before an ITIN card will be issued. Note: if the tax treaty benefit is to be applied for an ITIN will be required.
  • Payments for honorariums must be processed as Personal Professional Service Contracts (PPSC). Submit the completed PPSC to Procurement & Contracting Services (PaCS), attach copy of passport and I-94 Visa. Payment will be subject to 30% withholding. It is also important to indicate on the PPSC where the services will be provided (United States or Country of Origin). After contract is approved, submit the following documents to Financial Accounting & Analysis (FA&A) within Business Affairs:
    • copy of the signed PPSC
    • W- 8 (or form 8233 if applicable)
    • Copy of Identification page of the passport
    • Copy of I-94 Departure Card (official documentation of immigration status)
    • International Data Sheet.
    • If your visitor is already in the United States in a J or H status, teaching at another institution or working for another entity: If visitor has H type visa, OSU cannot pay honorarium, can only reimburse travel expenses.  H type visa is tied to the visitor’s sponsored institution.
    • If visitor has J type visa, and the service provided to OSU is in line with service provided to visitor’s institution, visitor must provide a letter of authorization from sponsor’s International Program office, allowing him/her to perform this service for OSU.
  • After services are rendered, send payment request to the appropriate Business Center for approval. The payment will be processed through FA&A.

Caution: US law significantly restricts what employment foreign nationals may accept. Before committing to an honorarium for a foreign national, departments must ensure the person has the appropriate visa that allows such a payment. For short-term visits made for the purpose of delivering a lecture or speech, only certain visa classifications are authorized to accept an honorarium. An individual already in the US may not necessarily be here in the correct visa classification. Do not assume that an international visitor holds the correct visa classification, especially if he or she is already in the US You must look at additional sources of information that could include the individual's passport visa or stamped I-94 card to determine visa classification. 

Travel reimbursements with proper documentation and receipts are not subject to tax withholding - includes airfare, rental car, ground transportation, meal per diems, lodging, etc. (refer to OSU Travel Policy FIS 411  for guidance).

Payment for Services and Travel

Supplemental Information

            Checklist – Payment for Services

            Payments That Can Be Issued to Foreign Nationals

413-02: NRAs Payroll – University Employment

413-02: NRAs Payroll – University Employment

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

An international student’s employment eligibility is based on the Visa Type he or she holds.  Employment is any work performed or services provided in exchange for money, tuition, fees, books, supplies, room and/or board or other benefit.  A non-immigrant who is permitted to engage in employment may engage only in such employment as has been authorized.  Any unauthorized employment by a NRA constitutes a failure to maintain status, see 8 C.F.R. 214.1(e)

University Employment Types & Required Documentation

CO-NRA form

Determines employees tax status

Submitted upon employment and renewed annually for reporting purposes

W4

State and Federal tax withholding

Submitted upon employment or when changes needed

I-94

Submitted with CO-NRA form (admission/departure record)

Submitted upon employment and renewed annually  for reporting purposes

DS2019/I20

Submitted with CO-NRA form (certification of eligibility)

Submitted upon employment and renewed annually  for reporting purposes

8233/Attachment letter (optional)

To claim a tax treaty exemption

Submitted upon employment and renewed annually  for reporting purposes

Employment Authorization Card (EAD)

Provides holder a legal right to work in the U.S.

Maybe needed upon employment and /or for annual reporting purposes

Student Employment - Federal regulations allow an international student holding a J-1 or F-1 Visa to work for the University a maximum of 20 hours per week during the academic year and full-time during University vacations (8 C.F.R. 214.2(f)(9)(i)).  If a student has more than one University job, total hours cannot exceed 20 hours in any given week during the academic year, unless it is the student’s annual vacation term.  During the vacation term, the student is eligible to work full-time. If a student is unsure whether a particular on-campus job is permissible, he/she should speak with an International Student Advisor in International Scholar & Faculty Services (ISFS) before beginning employment.

If the position meets one of the following conditions, it is considered University employment:

  • It is related to a scholarship, assistantship or fellowship; or
  • It occurs on the premises of the University the student is authorized to attend and it provides a service to OSU students (this includes the OSU Bookstore and fast food restaurants on campus); or
  • It occurs at an off-campus site that is educationally affiliated with Oregon State University’s established curriculum (e.g. Hatfield Marine Science Center and OSU Seafood Laboratory in Astoria).

F-1 and J-1 students must meet these conditions to be eligible for on-campus employment:

  • They must be in good academic standing and in lawful immigration status;
  • They must continue to engage in a full course of study, except for official school breaks and annual vacations; and
  • J-1 students must obtain written approval from the Program Sponsor (listed in Block #2 on the DS-2019) prior to beginning employment.
  • Undergraduate Enrollment Criteria: To be eligible for university employment, international undergraduate students must register for and complete a minimum of 12 credit hours each term during the academic year (8 C.F.R. 214.2(f)(6)(i)(B)).  If a student is registered for less than 12 credits, an approved Reduced Course Load Form must be on file with International Student Advising & Services.

Graduate Student Enrollment Criteria: To be eligible for University employment, international graduate students must register for and complete a minimum of nine(9) credit hours each term during the academic year (8 C.F.R. 214.2(f)(6)(i)(B)).  If a student is registered for less than nine (9) credits, an approved Reduced Enrollment Form must be on file with International Student Advising & Services.

Faculty and Staff Employment - International employees are generally subject to U.S. income tax on their U.S. source income and must complete the W-4 form, which determines how much tax will be withheld from wages.  A number of foreign countries have income tax treaties with the United States, which can often reduce or eliminate U.S. tax on income earned.  Check to see if you are from a tax treaty country. See Business Affairs, Business Center Resources, Training, Payroll, Non-Resident Alien, Tax Treaties for Non-Resident Aliens – 2012.

Pay Non-Resident Alien Payroll

 

Supplemental Information

IRS Notice 1392  Supplemental Form W4 instructions for Nonresident Aliens

Paying Wages to a Non-resident alien (checklist)

 

413-03: NRAs Scholarships and Fellowships

Fiscal Operations Manual
Section 400: Expenditures
Effective: 03/30/2009
Revised: 12/3/2013

Scholarship and fellowship payments are made to assist a person in pursuing a course of study or research.

Taxable income is any money paid to a foreign visitor on which taxes are required to be paid to the US government. The agency that pays the scholarship (OSU) is required to deduct a certain amount from each student’s scholarship or student account to cover the student's estimated tax liability.

Withholding means that the taxes a foreign visitor is obligated to pay to the US government will be taken out of the scholarship check or charged to the student, if the full scholarship payment is made to the student.  OSU collects the withholding taxes by placing a charge ‘NRA Withholding’ on the student’s account and sends the taxes to the IRS as required by law.  The University reports the amount of any scholarship or fellowship monies received by non-resident alien students, as well as, any Federal taxes withheld on IRS Form 1042S “Foreign Person’s US Source Income Subject to Withholding” by the annual March 15th deadline. 

The IRS allows a portion of scholarships and fellowships to be excluded from taxable income.  Scholarship and fellowship payments made to foreign visitors may include a combination of the following:

  • Tuition, fees, books, and course-related materials (non-taxable)
  • Room and board for scholar athletes (taxable)
  • Stipends for living expenses including meals, lodging, and other personal items (taxable)
  • Medical insurance premiums paid to insurance companies (taxable)

Portions of scholarship and fellowship payments that are used for meals, lodging, non-mandatory medical insurance, travel, personal living expenses, or stipends are taxable income unless a specific tax treaty exclusion applies. 

Non-taxable Payments - A qualified tuition reduction (such as GRA/GTA) will not be taxable for those graduate students at an educational institution who perform teaching or research activities for that institution.  In order for the teaching or research activities to lead to a non-taxable tuition reduction, the activities performed must be incidental to the student’s educational endeavors. For undergraduates, a qualified tuition reduction is not taxable, if the reduction is not representative of a payment for services. 

  • A student loan is not considered to be a scholarship because the loan is expected to be repaid. It is generally not taxable.
  • Cash and cash equivalent payments made by a student’s family member or a third party with the intent of settling the student’s debt to OSU are not scholarships and are not taxable.

Responsibilities

  • Students are responsible for completing the proper tax forms and providing them to the University, as well as, notifying the University of any change in their tax status.  Changes in tax status include moving between states, changes in deductions, etc.  Students should also be aware of the various forms they must file with the IRS and their State and local governments each year.  Students should make every effort to keep detailed records of all IRS, INS, State, and local government forms and any other important documentation submitted to the University or to the various governmental authorities.  Students should also keep photocopies of all their important forms/documents in a safe place to avoid future disputes over lost documents. 
  • If the total sum of your US source income was less than the personal exemption you are not required to file IRS Form 1040NR-EZ or Form 1040NR. However, if you had any taxes withheld, you should file IRS Form 1040NR-EZ or Form 1040NR to get a refund of these taxes and you must still file Form 8843.  If you owe taxes and don't file, the IRS can assess penalty and interest plus seize US bank assets for repayment. Fines and penalties can often amount to more than the original tax debt.
  • No one from the University can act as a representative for an individual when dealing with the IRS; however; in the event of a tax question or problem, the University can assist in supplying appropriate supporting documentation for payments made to individuals. 
  • The tax responsibilities of the University arise from its status as a state, non-profit educational institution, as an employer, and as a provider of student financial assistance.  The University is responsible for withholding taxes from paychecks and other taxable payments made by the University to students and for the reporting of information to the IRS and to the various state and local tax authorities in accordance with statutes and regulations. 

Pay a Stipend to Non-Resident Aliens

Supplemental Information

          Fellowship Stipends Checklist

          Certificate of Residency

          Graduate Fellow Appointment Form

413-04: NRAs Foreign Business Payments

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

If you are paying a Stipend, Payment for Services, or Travel Reimbursement for a foreign individual then you need to use the FIS Policy 413 Non-Resident Aliens.

If your payment needs to be made to a foreign company, foreign business, foreign organization, foreign government, foreign withholding partnership,  withholding foreign trust, foreign private foundation, government of a US Possession, or a foreign central bank of issue then please follow the guidelines in this section on Payments to Foreign business entities.

WARNING: Payers are responsible for requesting a Form W-8 from any of the above business entities that are presumed, or otherwise believed, to be foreign.  The foreign entity is responsible for determining which of the four IRS W-8 forms is appropriate for their business situation.   These forms should be completed and signed only by persons who are authorized to do so and who are knowledgeable as to the operations of their respective business, organization or other foreign entity. 

For payments to be made to foreign business entities (not individuals) use the following procedure:

  • Question 1: Is the payment for products, goods or foreign source services provided outside the US?

If yes, no reporting or withholding is necessary.  The Business Center should collect the appropriate original W-8 form and send that form along with the copy of the vendor invoice to Vendor Maintenance for the vendor set up.  The Business Center will enter payment into Banner with account code 24999. 

If no, it is possible that withholding tax may be mandatory.  The Business Center will collect the original appropriate IRS W-8 form plus any additional documentation required.  A complete list of W8 form types is listed below including information on additional documentation for tax withholding purposes. 

Original W-8BEN - Used primarily by entities and individuals to claim foreign status or treaty benefits and to establish that the payee is not a US entity.

  • Is there a US reporting Tax ID number? 

If yes, then is part II claiming Treaty benefits completed?  If no, then payment is tax exempt if income is covered by an article In the Treaty.

All fields in line 10 must be completed to claim exemption on royalty payments.Send copy of vendor invoice/contract to Vendor Maintenance with the original W-8 form for the vendor set up.  Enter payment into Banner using proper account code.

If there is no US Tax reporting ID number, payment is subject to 30% withholding.  Send vendor invoice/contract to Vendor Maintenance, Business Affairs for the vendor set up. Enter payment into Banner using proper account code. 

Original W-8EXP - Used primarily by the following entities to claim exemption from tax withholding:

Foreign governments, foreign tax exempt organizations, foreign private foundation, govt. of a U.S. Possession, or foreign central bank of issue. 

The entity must be claiming exemption under IRS code 115(2), 501(c) , 892, 895 or 1443(b).  Otherwise they need to file a W-8BEN or W-8ECI.

Original W-8IMY - Used primarily by an intermediary, a withholding foreign partnership, a withholding foreign trust, or flow through entity.  

Copies of appropriate withholding certificates, documentary evidence, and withholding statements must be attached to the W-8IMY as well.

Payment for both of these forms; EXP and IMY, is usually exempt from withholding.   Send copy of invoice/contract to Vendor Maintenance with the original W-8 form for vendor set up.

Original W-8ECI Used primarily by the payee or beneficial owner indicating that all the income that is listed on the form is effectively connected with the conduct of a trade or business within the United States.

If there is a US Tax reporting ID number, the payment is subject to 30% tax withholding unless there is a services income listed on line 9.  In that case payment is exempt from withholding.

Send copy of invoice/contract with Original W-8 to Vendor Maintenance for vendor set up.  Enter Payment into Banner with proper account code. 

If there is not a services income listed on line 9, then we are required to obtain from the entity a different type of W8 form.  Send the invoice/contract with original appropriate W-8 to Vendor Maintenance for vendor set up.  Enter payment into Banner withholding 30% tax using the proper account code. 

If there is not a US Tax reporting ID number on the W-8ECI form, then payment is subject to 30% withholding.  Send Original W8 form plus copy of invoice to vendor maintenance for vendor setup. Enter payment into Banner with proper account code.

Payments to Foreign Entities