immigration and tax compliance on payments to nonresident aliens

1. Immigration and Tax Compliance on Payments to Nonresident Aliens Chunyan Pan University of Arizona Financial Services Office Tax Compliance March 2010

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3. 3 Foreign Nationals � Immigration Status

4. 4 Payments to FNs � Immigration Restrictions Can only be made for the activities authorized by the U.S. Citizenship and Immigration services (USCIS) based on the FN�s immigration status Documentations must be obtained to substantiate the FN�s immigration status and allowable activities The University will not make any payments (including expenses) to a FN unless specifically allowed by FRS Policy Manual 9.16

5. 5 Questions to ask Before you check 9.16 policy, you need to know about the FNs: Visa type Sponsor of the visa (UA, another institution, or no sponsor) Activities of the FN Payment type � reimbursement of expenses? Fee for services? �Stipend�?

6. 6 Typical Allowable Payments to Non-immigrants B1, B2, WB, WT � do not need visa sponsor, can be paid an honorarium and associated expenses for usual academic activities, subject to restrictions (the 9-5-6 rules) F1 and J1 students: sponsored by the educational institution that they are attending. Generally only allowed to be compensated by the sponsor for services. Allowed to receive non-service scholarship from institutions other than the sponsor J-1 non-students (scholars, researchers) may be paid for services and related expenses by sponsoring institution, and by another institution only if approved by the sponsoring institution (RO letter required) H1, O1, TN: employment-based, only allowed to be paid for services by the employer (sponsor). May be allowed to be reimbursed business expenses by another institution for academic activities which is an integral part of their employment (O1 artists will be covered separately)

7. 7 General Immigration Documentation Required Passport (photo page) Visa stamp/sticker I-94 (front and back)-must be obtained before the FN departs from the US Other (as applicable): I-20 for F1 DS 2019 for J-1 I-797 Approval Notice for H1, O1, TN, and P

8. 8 PASSPORT

9. 9 Visa and I-94 A visa allows a FN 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 the FN to enter the country. I-94 is also called Arrival/Departure Record, is the small white card given to the FN at the port of entry to the US. This form is very important since it officially determines how long an FN can remain in the US under a specific nonimmigrant status. A FN cannot re-enter the US with a expired visa. However, as long as the FN stays in the US, and the I-94 is valid, the expired visa does not matter

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11. 11 I-94 Front

12. I-94 Back

13. 13 Visa Waiver For FNs from a country participates in the Visa Waiver Program. They don�t need a visa to enter the US for a visit lasts no more than 90 days They are issued an I-94W (small green card) with the WB (Waiver for Business) or WT (Waiver for Tourist) stamp Authorized activities and document requirements for WB are similar to B1, for WT are similar to B2

14. 14 I-94W Front

15. 15 I-94W Back

16. 16 Visa and I-94: Special Rules for Canadians and Mexicans Canadians may not need a visa to enter the US, and may not be issued an I-94 at US port of entry �deemed on B-1 status without the I-94. A valid passport, Canadian Permanent Resident Card or Canadian Birth Certificate is required. Mexicans may have a Border Crossing Card (BCC) which is also a B1/B2 visa. An I-94 may not be issued to the BCC holders if they will be staying in Tucson for less than 30 days. Deemed under B-1 status without the I-94

17. Border Crossing Card

18. 18 I-20 for F1 The expiration date on I-94 for F-1 student reads as �D/S� � it is the end date on the I-20

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20. 20 Permanent Residents: You can ask if the FNs are PR, however it is not appropriate to request a copy of their green card, unless they provide it voluntarily. Treat them as a US citizen for documentation purpose, and request for a W-9 is appropriate.

21. 21 FNs with EAD or EAC An non-immigrant may obtain the EAD/EAC under different immigration status. For example: F-1 under OPT (Optional Practical Training), J-2 (spouse of J-1 student and J-1 nonstudent) Non-immigrant who has applied for permanent residency and under AOS (�Adjustment of Status�) Must read the card to see if there is any restriction If the EAD/EAC holder is under OPT, the holder is still under F-1 student status even the student has graduated. It is required to verify that the employment/self-employment is in the field of the student�s study and is appropriate to the level of education (indicated on the last page of the I-20).

22. 22 Ta x Compliance

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24. 24 Nonresident Alien Tax Compliance System - Glacier The University has introduced a web-based tax compliance system called Glacier. It is used to Determine tax residency status Determine tax treatment for reportable income Prepare applicable tax documents for eligible FNs to apply for tax treaty exemption Tracks the tax residency status and tax treaty exemptions (dollar amount limit, time limit etc)

25. 25 Payments* to NRAs

26. 26 US Taxpayer Identification Number (TIN) Required for Reportable Payment US Social Security Number Card, or Individual Taxpayer Identification Number (ITIN) Notice issued by the IRS If the FN fails to the TIN (SSN or ITIN), payment cannot be paid without a statement �Verification of Request for US Taxpayer Identification Number�, signed by the FN The FN does not qualify for treaty benefit without a appropriately executed tax form (8233 or W-8BEN with a US TIN) Be careful that Canadian SSN is also a 9 digit number that can be easily confused with US SSN

27. 27 Payment for Services Performed by FNs Outside the US Not subject to US Immigration regulation Foreign-sourced income to the FNs � not subject to US taxation if the FNs are NRAs for tax purposes FN submits a Substantial Presence Test Form to A/P prior to the service to determine his/her tax residency status If the FN qualifies as NRA, payment is not reportable, not taxable If the FN qualifies as RA, the payment is reportable/taxable in the same way as the payment made to a US citizen

28. 28 SUBSTANTIAL PRESENCE TEST FORM

29. 29 Payment of Foreign-sourced Scholarship Foreign-sourced scholarship payment is not subject to US tax reporting or withholding Scholarship is foreign-sourced if The academic activities take place outside the US, OR The payor of the scholarship is located outside the U.S. Documentation must be provided to substantiate the foreign source.

30. 30 Tax Treaty Benefits for NRAs A taxable payment to the NRA may be exempt from US taxation or taxed at a reduced rate based on the Income Tax Treaty between the US and the FN�s country of residence for tax purposes The NRA must meet certain criteria in order to qualify for the treaty benefit A US TIN (SSN or ITIN) must be provided by the FN in order to claim the treaty benefit Appropriate tax form must be completed (with NRA�s signature) to apply for the treaty benefit (e.g. Form 8233 for compensation, W-8BEN for scholarship and royalty) year

31. Tax Treaty Benefits for NRAs (con�t) Form 8233 � must be sent to the IRS for acceptance. Must wait for 10 days before the treaty exemption is granted to the FN Form W-8BEN � no need to send to the IRS. UofA retain the form as its own record for audit Form 8233 is only valid for one year; Form w-8BEN is valid for 3 years if the payment is reported on 1042s each 31

32. 32 Part III Typical Payments to Nonresident Aliens

33. 33 Honorarium and Associated Expenses FNs on nonimmigrant visa who are allowed to be paid an honorarium and associated expenses include B1/WB, B2/WT, BCC, if honorarium rules are met J-1 sponsored by another institution is allowed to paid an honorarium and associated expenses if approved by his/her visa sponsoring institution (RO letter required) EAD or EAC holders may be paid an honorarium and associated expenses as self-employed

34. 34 Honorarium Rules for B1/B2/WT/WB Status only usual academic activities (such as lecturing, teaching, sharing knowledge, attending meetings of boards and committees) are allowed Honorarium must from no more than 5 institutions within a six month period for usual academic activities lasted for no more than 9 days (9-5-6 rule) A Statement stating that the FN meets the 9-5-6 rules is required in addition to the regular immigration documents

36. 36 9-5-6 Rules The 9-5-6 rule does not apply to FNs under B1/WB status if only reimbursing expenses associated with the usual academic activities. However, the rule does apply to B2/WT status even only expenses are reimbursed (no honorarium) Only the days when the FN engages in the academic activities during the visit are counted against the 9 days The 9 days is the time limit for each visit The 5 times are counted per visit, even with the same institution Expenses for the days that are not counted against the 9 days are reimbursable if they are reasonably related to the honorarium activities

37. 37 Example of 9-5-6 Rules A B-1 visitor is on campus to work on a research project with a UA faculty member. The visitor arrives on Day 1 and departs on Day 14. Day 1 is Sunday. He works from Day 2 to Day 6, and Day 9 to D Day 12. He rests on Day 7 Day 8 (weekend), and Day 13. Although he is here for 14 days, he works for only 9 days, so he meets the 9-day rule. Expenses for Day 1, Day 7 and Day 8 and Day 14 (departure day) are reasonably related to his academic activities during this visit. We need further information for Day 13 to determine if there is a valid business reason for him to stay for one more day at the University's cost (e.g. flight delayed to Day 14 due to weather).

38. 38 Payment to J-1 sponsored by another Institution Other than the regular immigration documents, the J-1 (sponsored by another institution) must obtain a RO letter from his sponsoring institution authorizing his activities at UA. The Letter must be signed by the RO (Responsible Officer), usually is the one who signed his DS2019. With the authorization by the RO, the J-1 can be reimbursed business expenses and paid a fee for services

39. 39 LETTER FROM THE RESPONSIBLE OFFICER

40. 40 H1, O1 and TN professors/researchers sponsored by another institution Expenses related to the usual academic activities are allowed to be reimbursed to the H1,O1 and TN professors/researchers sponsored by another institution Any payment represents fee for services (e.g. honorarium) is not allowed to be paid to the FNs If paying a fee for services provided by these FNs, must be approved by the FNs� sponsoring institution, so the payment will be paid to the sponsoring institution

41. 41 Employee Interview Expenses Immigration authorization is not required for job interview Foreign documentations are not required if paying/reimbursing substantiated interview expenses for the job candidate. Proof of interviewing purpose of the visit must be provided (e.g. copy of official job posting) However, if paying anything more than the job candidate's interview expenses, documentations must be collected to verify the FN�s immigration status, and the payment may be reported as income to the job candidate (e.g. payment for expenses for the job candidate�s family members) and tax may be withheld as required

42. 42 Student (F1 & J1) Travel Expenses

43. Royalties Industrial royalties: use of , or the right to use patents, trademarks, secret processes and formulas, goodwill, franchise, �know-how� and similar rights. May include rents for the use or lease of personal property Motion picture or television copyright Other royalties, such as royalties paid for copyrights on books, periodicals, articles etc 43

44. Source of Royalties The source of royalty income is where the property is used. Examples Book: if a book is published in a France, but is used by UA in the US, it is US source and the payment to the French Publisher is subject to 30% NRA tax withholding 44

45. Royalties - Examples Photography if UA is paying all rights to the picture, is not a sale of tangible item and is not subject to NRA withholding. If UA is paying for the right to use the picture that belongs to the NRA artist, the payment is a royalty. If the use is in US, then subject to 30% NRA withholding and reporting 45

46. Royalties � Examples Con�t Film rentals: if UA rents a film from a foreign country, the payment is treated the same as royalty payment. Sourced in the US and subject to 30% tax withholding Equipment rental: if UA rents a piece of equipment from a foreign country and uses in the U.S. � results in royalty and 30% NRA tax withholding 46

47. Payments to Foreign Artists and their US agents Payments to the US agent of the foreign artists are deemed payment directly to the foreign artists and are subject to the NRA tax rules A 1042s will be issued under the NRA artist�s name even the payment is made to the US agent Artists could be on O-1, P1, P2, or P3 visa Required foreign documents include: copy of passport, visa stamp, I-94, I-797 and a statement from the artist (or agent) that the event at UA is on the itinerary submitted to USCIS when applied for visa 47

48. Payments to Foreign Artists and their US agents Typical paying department is UApresents. A Tax questionnaire is usually attached to the check request who helps us to identify the foreign artists and make tax determination If the department did not indicate the artists are foreign national, but we suspect it from the name of the group, we should question the department and/or the agent If the US entity is a production company (not a agent) who owns the performance fees, then the payment is not considered made to the foreign artists. If the artist group is a foreign entity and the artists are is employees who only receive regular paychecks (i.e. do not share profit or loss), the NRA payee is the foreign entity, not the individuals 48

49. Individual artists may claim treaty exemption on Form 8233 � run by GLACIER to verify if they have provided one Artist entity may claim treaty exemption on W-8BEN � GLACIER does not recognize � submit to Tax Compliance for approval Artist(s) and the US agent may enter into a Central Withholding Agreement (CWA) with IRS, exempting UA from tax report/withhold 49

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51. 51 Reference & Resources FRS Departmental Manual 9.16 Payment to Nonresident Aliens http://www.fso.arizona.edu/fso/deptman/9/916nonre.html Chunyan Pan, Tax Compliance, 621-1957, panc@ariozna.edu

52. 52 Acknowledgment Tammy Strom, Amy Dougherty, FSO-Accounts Payable for image of all forms and immigration documents