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Procedures For Handling Non-Wage Compensation To Foreign Nationals

by Neil Gibbs last modified Aug 02, 2008 01:09 PM

PURPOSE

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

PROCEDURE

All non-recurring non-wage payments to foreign nationals (non-resident aliens) require federal tax withholdings of 30% (or less). As a processing exception, non-wage payments to foreign nationals will be processed through the university’s payroll system because the accounts payable system can not handle automated tax collections.

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

Payments for non-recurring personal services provided by foreign nationals will be processed through the university’s payroll system under the following conditions:

• Foreign nationals will be characterized as “distinguished guest speakers”.

• Distinguished guest speakers must possess a visa which permits compensation/expense reimbursement from a U.S. income source.

• Foreign guest speakers who hold a social security number and a valid “J”, “M”, or “Q” visa are eligible to have their federal tax withholdings reduced to 14%.

• Foreign guest speakers who hold a social security number, and their presence in the United States is based on a trainee, student, or apprentice (“F” visa) status, or a teacher, professor, or researcher (“J” 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 foreign guest speaker obtains either a social security number or an individual taxpayer identification number. Income tax treaty exemptions will not be processed retroactively.

• Foreign guest speakers who do not hold a social security number must provide a completed IRS Form W-7, Application for IRS Individual Taxpayer Identification Number upon arrival.

• Payments will be processed by submission of a completed Non Wage Payment Packet.

• Only federal withholding tax will be collected. No other taxes will be withheld.

Foreign nationals with a B-1 (Temporary Visitor for Business) visa are individuals in the United States for a short time to engage in business activities such as negotiating contracts, consulting with business associates, attending business or professional conferences, or conducting research. Foreign visitors on a B-1 visa are not permitted to work in the United States. As an exception to this rule, the American Competitiveness and Workforce Improvement Act of 1998 allows persons entering the United States under a B-1 visa or the visa waiver program with a VWB status (Visa Waiver for Business) to accept speaker fees under the following conditions:

• The stay in the United States lasts no longer than nine (9) days for any single event.

• The foreign national has not accepted similar payments from more than five (5) institutions or organizations within the previous 6 months.

• The event is open to students and/or general public free of charge, with no sale of general admission tickets.

• The university issues to the foreign national a letter of invitation which clearly specifies the fee for the guest speaker’s event or activity, as well as the activity’s date and location.

• A letter of invitation is presented to the foreign national which in turn is used at the time the foreign national presents himself for admission to the United States as a B-1 or VWB visitor for business, and who states the intent to participate in a fee-for-guest-speaking activity.

• Upon arrival at the university, the foreign national completes a W-7 Form requesting an individual taxpayer identification number (ITIN) if they do not have a social security number or an individual taxpayer identification number currently. The return address on the W-7 Form should be the University of Louisville. A separate letter giving the university permission to open the letter and obtain the identification card should be attached to the form. The identification card will be subsequently forwarded to the foreign national’s home address.

• The employing unit must notarize all documents required for the W-7 Form and the letter of authorization.

• The unit will forward the completed document package, W-7 Form. Notarized documents, and invitation letter to Human Resources for processing in the payroll system.

REFERENCES:

IRS Web site Publications

  • Publication 15 (Circular E, Employer’s Tax Guide)
  • Publication 15-A (Employer’s Supplemental Tax Guide)
  • Publication 513 (Tax Information for Visitors to the United States)
  • Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities)
  • Publication 519 (U.S. Tax Guide for Aliens)
  • Publication 597 (Information on the United States-Canada Income Tax Treaty)
  • Publication 686 (Certification for Reduced Tax Rates in Tax Treaty Countries)
  • Publication 901 (U.S. Tax Treaties)

U.S. Citizen And Immigration Web site Bulletins

  • Employer Information Bulletin 1 (Nonimmigrant Classification Employment Eligibility and Reference Guide)
  • Employer Information Bulletin 2 (Guide for U.S. Business Hiring Temporary Employees from Outside the U.S.)
  • Employer Information Bulletin 108 (Employment Authorization of Aliens)

Information Concerning Compensation for Visiting B Nonimmigrant Aliens

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