There are a few unique circumstances for departments on campus to be aware of when processing information related to nonresident alien employees at the university.
- When a department decides to hire a nonresident alien who is already present in the U.S., all routine "new hire" paperwork should be completed without delay.
- The Form W-4 must be completed with name, address, SSN, signature and date.
- The figures on the Form W-4 are irrelevant to the "new hire" process for a nonresident alien.
- There is no requirement to have a Social Security Number (SSN) at the time of hire for a newly-arrived nonresident alien.
- UM System HR Policy Manual HR-105 Employment Documentation makes an exception for newly-arrived nonresident aliens.
- When a new employee who is not a U.S. citizen or a lawful permanent resident completes the Form I-9 and chooses "alien authorized to work," that becomes their citizenship status in HRPD (PeopleSoft) and locks the Form W-4 data to the IRS requirement of "single, 0."
- If the employee is eligible for different allowances, the Nonresident Alien Taxation Office will make such a determination.
Accounting will not process payments for nonresident aliens except those that are for a reimbursement of business-related expenses in accordance with the university’s accountable plan (see UM System Finance Policy 22310 Expense Reimbursements).
All payments made to nonresident aliens (other than wages and scholarships paid through Financial Aid) must go through the Nonresident Alien Taxation Office. Procedures for honoraria, scholarships, royalties and prize recipients are described below.
In general, any time a department wishes to make a payment to an individual who is not a U.S. citizen, or to a business entity that gives any indication of being a foreign entity, the best practice is to contact the Nonresident Alien Taxation Office as early as possible. The tax information provided may be useful in drafting business agreements and contracts and is likely necessary to making the payment.
Before arrival of the nonresident alien, departments should contact the Nonresident Alien Taxation Office, which will review the payment pursuant to IRS regulations and will advise the department (and the payee) as to tax implications and the availability of tax treaty benefits.
There is a presumption that a payment to a nonresident alien will require a withholding tax of 30%, and, in many cases, this withholding will apply to an honorarium. The department may effectively cover the tax by grossing payment: [desired net payment/.7] = ‘grossed-up’ payment amount.
Honorarium payments may be made only to a nonresident alien who is in an immigration status that legally allows such payments. These statuses generally include persons in B-1, B-2, WB, and WT status.
For most financial aid, students receive payment via Student Financial Aid, and nonresident alien tax analysis and reporting occurs without involvement of additional departments.
Non-qualified scholarships are taxable income to both nonresident aliens and U.S. students. A taxable scholarship is any amount greater than the semester academic fees or amounts provided directly to the student in the form of cash or a check. Non-qualified scholarships made to student nonresident aliens reviewed by the Nonresident Alien Taxation Office will generally be taxed at 14%, unless a tax treaty exemption applies. If there is no tax assessment on file, withholding may be as high as 30%.
In some situations, departments pay students to travel to an academic conference. This may be referred to as a "travel scholarship" and is treated the same as other scholarship payments. In this case, the department should contact the Nonresident Alien Taxation Office for a review of the payment and any tax treaty benefit available to the student.
Prizes and awards are always considered U.S. source income for nonresident aliens. Withholding of U.S. taxes is required at 30% unless a tax treaty applies.
Recipients can contact the Nonresident Alien Taxation Office from anywhere in the world for assistance in submitting copies of passport and identification documents.
The Nonresident Alien Taxation Office will work directly with the department to complete payment forms.
Royalties are frequently paid without the payee ever traveling to the United States. This category of payment also includes most subscription and license fees paid to foreign corporations or partnerships.
Royalty payments are often covered by tax treaty, and the payee need not have a U.S. tax ID number to claim the treaty benefit. The Nonresident Alien Taxation Office will work directly with the department to obtain the necessary information and process payment.