Transcript Payments of scholarship honoraria and services foreign nationals

PAYMENTS OF SCHOLARSHIP,
HONORARIA AND SERVICES TO
FOREIGN NATIONALS
Memory Buffington
KSU Division of Financial Services
General Accounting
THREE COMMON TYPES OF PAYMENTS
•
Scholarships
•
Services Provided (Independent Contractor)
•
Honoraria
SCHOLARSHIPS
QUALIFIED SCHOLARSHIPS
Aid provided to individuals who
are a candidate for degree for
qualified educational expenses
at an eligible educational
institution.
• Includes tuition, required fees,
books, and required supplies.
• NOT TAXABLE (IRC, Section 117)
•
NONQUALIFIED SCHOLARSHIPS
Aid provided to individuals
who are a candidate for
degree to support expenses
other than qualified
scholarships.
• Includes room and board and
non-required supplies.
• TAXABLE
•
FELLOWSHIPS
•
Funding provided for educational development to nondegree seeking students, such as post-doctorates or faculty
members.
•
Fellowships are considered TAXABLE.
PAYMENTS FOR SERVICES/HONORARIA
SERVICES
•
•
•
Services provided to Kansas State
University that typically involve an
agreement or contract such as
consulting, speaking, or
professional entertainment event.
May be an independent
contractor or company.
TAXABLE
HONORARIA
•
Professional services that are
rendered nominally without
charge.
•
Typically no formal agreement or
required expectation of service
•
May only be provided to
individuals
•
TAXABLE
WHO IS A FOREIGN NATIONAL?
•
An individual who is not a citizen of the United States
•
May be a resident alien (if met Green Card Test or Substantial
Presence Test) or a nonresident alien (NRA) for tax purposes.
•
Note: Individual teachers and trainees present under a “J” or
“Q” visa or a student present under and “F”, “J”, “M”, OR “Q”
visa may exclude days present for the Substantial Presence
Test. See http://www.irs.gov/Individuals/InternationalTaxpayers/Substantial-Presence-Test for full details.
TAX TREATIES
•
Agreements between the United States and individual foreign
countries under which residents of those countries are taxed at
a reduced rate or are exempt from U.S. Income taxes on
certain income received from within the United States.
•
Excel Listing Summary of Current Tax Treaties:
•
U.S. Income Tax Treaty Table
http://www.k-state.edu/finsvcs/generalaccounting/nraassociatedforms.html
WHAT IS AN ITIN?
•
The Individual Taxpayer Identification Number (ITIN) is a tax
processing number issued by the Internal Revenue Service.
•
A foreign national may apply for an ITIN when not eligible to
receive a social security number for purposes of claiming a
tax treaty exemption or filing a U.S. tax return.
OF PAYOR
U.S.
Outside U.S.
Determine if scholarship
income being provided
is Foreign Source or U.S.
Source.
LOCATION OF ACTIVITY
LOCATION
TAXING
SCHOLARSHIP
PAYMENTS –
NRAS
U.S.
Outside U.S.
U.S. Source
Income
Foreign
Source
Income
Foreign
Source
Income
Foreign
Source
Income
TAXABLE SCHOLARSHIPS (CONT.)
•
Foreign Source Income (Scholarships) are NOT TAXABLE.
•
U.S. Source Income (Scholarships) are TAXABLE if they are
Nonqualified.
1.
2.
3.
4.
Student must complete W-8BEN to claim benefits of eligible tax treaty
and possess an ITIN.
If no eligible tax treaty present, 19% tax withholding on nonqualified aid
applies.
Scholarships provided through SFA are reviewed for taxability and the
withholding charge is posted to the student account.
Fellowships with applicable tax withholdings must be withheld prior to
the disbursement of the payment through General Accounting.
OF PAYOR
U.S.
Outside U.S.
Determine if income is
Foreign Source or U.S.
Source.
LOCATION OF ACTIVITY
LOCATION
TAXING
SERVICES/
HONORARIA–
NRAS
U.S.
Outside U.S.
U.S. Source
Income
Foreign
Source
Income
U.S. Source
Income
Foreign
Source
Income
TAXABLE SERVICES/HONORARIA (CONT.)
•
Foreign Source Income payments must have statement “All
services provided outside the U.S.”.
•
U.S. Source Income payments are TAXABLE.
1.
2.
3.
4.
Companies must provide W-8BEN-E to claim tax treaty exemption (may
use Foreign Tax ID in lieu of ITIN).
Individuals must provide W-8BEN and Form 8233 and have ITIN to claim
tax treaty exemption.
If not eligible for tax treaty or if not claiming, 35% withholding applies.
It is best practice to collect a W-8BEN-E or W-8BEN for all foreign
individuals providing services or being paid honoraria to establish they
have no U.S. presence.
REIMBURSEMENT OF TRAVEL
•
Honorarium or Independent Contractor travel reimbursement
may be nontaxable if:
1.
Travel expenses are in line with KSU’s Accountable Plan (i.e.
established per diem, airfare and lodging).
2.
Itemized receipts are provided.
•
It DOES NOT require individual to have an eligible tax treaty or ITIN.
VISA TYPES/ELIGIBILITY
VISA
CLASSIFICATION
KSU
INDEPENDENT
DEFINITION OF VISA
EMPLOYMENT
CONTRACTOR
HONORARIUM
KSU SCHOLARSHIP &
FELLOWSHIP
Visitor for
Business
NO
NO
YES WITH
RESTRICTIONS1
NO
Visa Waiver for Business
(VWB)
NO
NO
YES WITH
RESTRICTIONS1
Visitor for
Tourism
NO
NO
Visa Waiver for Tourism
(VWT)
NO
F-1
Sponsored by KSU
Student
F-1
Non-KSU
KSU
PRIZE OR
TRAVEL
REIMBURSEMENT
AWARD
YES WITH
RESTRICTIONS2
YES
NO
YES WITH
RESTRICTIONS2
YES WITH
RESTRICTIONS1
YES WITH
RESTRICTIONS1
NO
YES WITH
RESTRICTIONS2
YES WITH
RESTRICTIONS1
NO
YES WITH
RESTRICTIONS1
NO
YES WITH
RESTRICTIONS2
YES WITH
RESTRICTIONS1
YES
RESTRICTIONS OFFCAMPUS3
NO
YES WITH
RESTRICTIONS3
YES
YES
YES
Student
YES WITH
RESTRICTIONS4
NO
YES WITH
RESTRICTIONS4
YES
YES
YES
H1-B, O-1 & E-3
Sponsored by KSU
Temporary Worker in
Specialty Occupation
YES, ONLY AT KSU
NO
YES WITH
RESTRICTIONS5
NO
YES
YES
H1-B, O-1 & E-3
Non-KSU
Temporary Worker in
Specialty Occupation
NO
NO
NO
NO
NO
YES
J-1 Scholar
Sponsored by KSU
Exchange
Visitor
(Scholar)
YES
YES WITH
RESTRICTIONS3
YES WITH
RESTRICTIONS3
NO
YES
YES
J-1 Scholar
Non-KSU
Exchange
Visitor
(Scholar)
YES WITH
RESTRICTIONS3,4
YES WITH
RESTRICTIONS4
YES WITH
RESTRICTIONS4
NO
YES
YES
J-1 Student
Sponsored by KSU
Exchange
Visitor
(Student)
Exchange
Visitor
(Student)
YES
NO
YES WITH
RESTRICTIONS3
YES
YES
YES
YES WITH
RESTRICTIONS4
NO
YES WITH
RESTRICTIONS4
YES WITH
RESTRICTIONS4
YES WITH
RESTRICTIONS4
YES
B-1
Visa Waiver
Business
B-2
Visa Waiver Tourism
J-1 Student
Non-KSU
INFORMATION TO GATHER
1.
Determine if any amount being paid to individual could be
taxable.
2.
Establish in advance if individual/company receiving income
is a U.S. citizen/resident or nonresident alien for tax purposes.
3.
If a nonresident alien is receiving income determine what
type of Visa they will hold while present at KSU.
4.
If taxable, determine the country of residence/presence and
if there is an associated tax treaty.
5.
Have individual complete form W-8BEN and Form 8233 if
eligible to claim tax treaty benefits and ITIN.
APPLYING FOR AN ITIN
STUDENTS (SCHOLARSHIP)
•
The International Student Center
can assist students who are tax
treaty eligible to obtain an ITIN.
•
Student will complete W-7
application, noting Exception 2(c)
and attaching required
information.
INDIVIDUALS (VENDORS)
•
General Accounting is a Certified
Acceptance Agent and can assist
vendors in obtaining an ITIN if they
have an eligible tax treaty.
•
Requires a 30-45 minute in-person
interview with agent in General
Accounting.
•
Individual must show current
passport/visa and complete W-7
with agent who will submit on
his/her behalf.
WITHHOLDING TAXES
NONQUALIFIED
SCHOLARSHIP/FELLOWSHIPS
SERVICES/HONORARIA
•
Tax withholding rate of 19% (14% federal, 5%
state)
•
Tax withholding rate of 35% (30% federal, 5%
state)
•
Reduce payment by 19% or gross up payment
to net agreed upon amount.
•
Reduce payment by 35% or gross up payment
to net agreed upon amount.
•
Example: $1000 scholarship
•
Example: $1000 payment
1.
Reduce 19%: $1000 – (1000x.19)=
1.
$810 Payment, $190 taxes
2.
Gross Up: $1000 / 0.81 = $1234.57 =
$1000 payment, $234.57 taxes
Reduce 35%: $1000 – (1000x.35)=
$650 Payment, $350 taxes
2.
Gross Up: $1000 / 0.65 = $1538.46 =
$1000 payment, $538.46 taxes
SUBMITTING TAXES
1.
Submit all tax withholdings on a separate APV payable to
Kansas State University, 220 Anderson Hall.
2.
Place an “A” in the payment indicator.
3.
Include vendor name and address as well as withholding
calculation in the description of the document.
4.
The object code will be the same code as the payment, i.e.
E2690, E2620, E5620, etc.
PUT IT INTO PRACTICE
•
Each group will be provided examples that you might
encounter in your department.
Part 1: Determine what initial information you should gather.
Part 2: Given the additional information, what process should
you follow?
WEBSITE INFORMATION
•
Additional examples and information may be found at:
http://www.k-state.edu/finsvcs/generalaccounting/
paymentstoforeignnationals.htm
•
Publications
http://www.k-state.edu/finsvcs/generalaccounting/
nraassociatedforms.html
•
Forms
http://www.k-state.edu/finsvcs/generalaccounting/
Vendoring.html
QUESTIONS?
CONTACT INFORMATION
Memory Buffington
KSU Division of Financial Services
General Accounting
220 Anderson Hall
[email protected]
785.532.1845