Procedures for Handling Scholarship Payments to Foreign Nationals

PURPOSE

The purpose of this procedure is to provide guidelines which, if generally followed, will permit prompt handling of scholarship transactions through the university’s payroll system.

PROCEDURE

All scholarship payments to foreign nationals (non-resident aliens) require federal tax withholdings of 14% (or less). As a processing exception, scholarship payments to foreign nationals will be processed through the university’s payroll system because the accounts payable system can not handle automated tax collections. Scholarship payments to foreign nationals are subject to federal and state income taxes.

Scholarship checks are created twice per month. Unit business managers should contact the payroll office to coordinate timing issues.

Scholarship payments for foreign nationals will be processed through the university’s payroll system under the following conditions:

    • Foreign students who hold a social security number, or an individual taxpayer identification number (ITIN), and their presence in the United States is based on a trainee, student, or apprentice (“F” visa) status, and they are residents of a tax treaty country, may have their federal tax withholdings additionally reduced or eliminated.
    • The special withholding rates applicable under an income tax treaty are not effective until the student obtains either a social security number or an individual taxpayer identification number. Income tax treaty exemptions will not be processed retroactively.
    • Foreign students who currently do not hold either a social security number or a taxpayer identification number must provide a completed IRS Form W-7, Application for IRS Individual Taxpayer Identification Number in advance or upon arrival at the university.
    • If the IRS Form W-7 is provided in advance of the student’s arrival, the return address on the W-7 Form should be the home department. A separate letter giving the home department permission to open the letter and obtain the identification card on behalf of the student should be attached to the W-7 application form. When received, the identification card should be given to the student.
    • The employing unit must notarize all documents required for the W-7 Form and the letter of authorization.
    • Payments will be processed by submission of a completed Non Wage Payment Packet to the payroll office.
    • Only federal withholding tax will be collected. No other taxes will be withheld.

REFERENCES

IRS Publications

Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Entities (pdf)

Publication 519: U.S. Tax Guide for Aliens (pdf)

Publication 901: U.S. Tax Treaties (pdf)

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Personnel Services Building
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Louisville, KY 40208-1707