University of Washington Policy Directory

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*Formerly part of the University Handbook
Administrative Policy Statement
32.4.1


Guide for Payments to Nonresident Aliens

(Approved by the Executive Vice President by authority of Executive Order No. 5)



1.  General Overview

The purpose of this policy statement is to provide a reference tool and administrative procedural guide for University departments that make payments to nonresident aliens in order to assure that the University fulfills its tax withholding and reporting obligations in accordance with federal laws and regulations. This policy statement does not cover all situations. It covers only the most common type of payments made to nonresident aliens invited to the University that are processed through the Purchasing/Accounts Payable or Travel systems. It does not apply to payments made to aliens who are appointed as University employees or who are awarded financial aid through scholarships or fellowships. Assistance with payments to aliens may be obtained from the following sources:

  • Employees—Call the Payroll Office, 206–543–9186
  • Financial Aid—Call the Student Accounts Office, 206–543–4061
  • All Other Payments—Send inquiries via email to nratax@u.washington.edu

In no way should this guide be construed to be rendering legal or tax advice to nonresident aliens. Aliens who have specific tax questions or problems are advised to seek assistance from the Internal Revenue Service (IRS), a certified public accountant, or an attorney.

  a. Nonimmigrant Visa Classification and Compensation Eligibility

Generally, compensation for services performed as an independent contractor and travel or expense reimbursements may be made as shown in the following table, provided:
    #1 The nonresident alien is invited and formally sponsored by the University or has appropriate written authorization to visit the University from the organization that sponsored the nonresident alien's visit to the United States.
    #2 The nonresident alien obtains an Immigration and Naturalization Service's Arrival/Departure Record, INS form I–94 at the port of entry into the United States.
    The University is not legally authorized to pay compensation when the individual's nonimmigrant visa classification does not permit such payments or when the individual is not in possession of the appropriate documentation. Departments should contract the International Services Office, 206–543–0841, to determine nonimmigrant visa classification and other factors to consider before inviting an alien to visit the University. In addition, if the alien is to be paid compensation as an independent contractor during their visit and is from a country having a tax treaty with the United States, the alien should be furnished with an Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual, IRS form 8233, to claim exemption from federal tax withholding as described in these procedures at the time the invitation to visit is extended. The alien should complete and return the form prior to their arrival in this country. Exemption from withholding on the basis of a tax treaty is only effective for payments made at least ten days after the University has accepted and mailed the Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual, IRS form 8233, to the IRS.
   
Nonimmigrant Visa Class1
Description
 Independent
Contractor2
 Compensation		 Travel/Expense Reimbursement
B–1 Visitor for Business No Yes
B–2 Visitor for Pleasure No No
F–1 Students No Yes
H–1 Temporary Worker No Yes
J–1 Exchange visitors including students, scholars, and trainees Yes Yes
TN A TN visa is issued in lieu of a H–1 visa or other work-authorized visa (Used by Canadian and Mexican residents under NAFTA) No Yes
WB Admitted without visa under Visa Waiver Program; treated as B–1 visitor for payment purposes No Yes
WT Admitted without visa under Visa Waiver Program; treated as a B–2 visitor for payment purposes No No

1 The nonimmigrant visa classifications shown above are the ones most commonly used for aliens invited to visit the University; for classifications not shown above, send inquiries via email to nratax@u.washington.edu.

2 See Section 1.c.1 for a definition of an independent contractor.

  b. Taxpayer Identification Number

While a taxpayer identification number (see Section 1.c.9 for a definition) is not required to receive payments as an independent contractor or to take advantage of tax treaty benefits to which the nonresident alien may be entitled, IRS regulations require a taxpayer identification number on any tax returns filed by a nonresident alien after January 1, 1997. Therefore, it is highly recommended that any invitation extended to a nonresident alien to visit the University include an Application for IRS Individual Taxpayer Identification Number, IRS form W–7, and related instructions for the individual's use in obtaining an Individual Taxpayer Identification Number (ITIN), unless it is known that the individual has already been issued an ITIN or is required to have a United States Social Security Number. The Application for IRS Individual Taxpayer Identification Number, IRS form W–7, and related instructions may be obtained from the International Services Office, 206–543–0841, for inclusion with letters of invitation, or is available at United States consulates.
  c. Definitions
    1) Independent Contractor—An independent contractor is an individual who performs personal services for the University, where the University has the right to specify the result to be accomplished but not the means and methods by which the result is to be accomplished. Independent contractors include guest lecturers, speakers, seminar participants or leaders who are paid a fee (commonly referred to as an honorarium) for performing the service. Independent contractors also include individuals serving in an advisory or consulting capacity in the performance of research with a faculty member or employee. For further information and required documentation to substantiate independent contractor status, see Administrative Policy Statement 32.3.
    2) Honorarium—An honorarium is generally a payment to an individual possessing recognized professional or scientific credentials which uniquely qualifies him or her to be a guest lecturer, speaker, seminar participant or leader, and the fee to be paid for the service is not established by a contractual agreement between the University and the individual. The fee is usually an amount determined by the sponsoring department and is paid on a voucher prepared by the sponsoring department rather than on an invoice submitted by the individual performing the service.
    3) Alien Status—Non-United States citizens are classified as either resident aliens or nonresident aliens.
      a) Resident Aliens—A resident alien for immigration purposes is an individual who is not a citizen of the United States, who has been admitted as an immigrant, and is authorized to live and work in the United States indefinitely-commonly referred to as a "green card" holder. A resident alien for tax purposes must pay tax to the United States government on his or her worldwide income, regardless of source. A resident alien for tax purposes can claim exemptions for dependents and must file an income tax return on IRS forms 1040, 1040A or 1040EZ.
      b) Nonresident Aliens—A nonresident alien for immigration purposes is an individual who is not a citizen of the United States and who has been admitted for a temporary stay that will end when the purpose of the visit has been accomplished. A nonresident alien for tax purposes is a non-United States citizen who, during his or her stay in the United States, either pays United States tax only on U.S. Source income or is exempt from paying United States taxes because of an income tax treaty between the United States and the government of his or her country of residence for tax purposes. Generally, a nonresident alien for tax purposes receives no tax exemption for dependents and must file an income tax return on an Income Tax Return for Nonresident Aliens, IRS form 1040NR.
    4) Source of Income—Payment made to a nonresident alien independent contractor is "sourced" according to where the service is performed; the place to which the payment is made, the organization providing the funding, or the currency in which the payment is made are not factors in determining "source." Payment made to a nonresident alien independent contractor is "U.S. Source" income subject to federal taxes if the services are performed in the United States; if services are performed outside of the United States, the income is "International Source" income and exempt from United States taxation.
    5) Taxable Income—Any compensation paid to a nonresident alien, or paid to a third party on their behalf, on which taxes are required to be paid to the United States government is taxable income to the recipient. Employee wages, stipends, independent contractor earnings, honorariums, prizes and awards, and lump sum payments to defray the costs of travel which are not accounted for under an accountable travel plan are all considered taxable income and federal taxes must be withheld by the University from such payments at the appropriate withholding rate. Reimbursement for travel expenses (including living allowances) that are submitted for reimbursement through an accountable plan that reimburses the individual or makes payment to a third party on the individual's behalf for actual expenses incurred will not be considered taxable income.
    6) Withholding—Withholding means that amounts necessary to cover United States taxes will be taken out of the payroll, stipend, independent contractor, or other payments made by the University and remitted to the IRS as required by federal laws. For payments to nonresident alien independent contractors, the rate of withholding is 30% unless federal tax is specifically exempted by a tax treaty between the United States government and the government of the nonresident alien's country of residence. Invoking the provisions of a tax treaty is not automatic. The University is required to file an International Person's U.S. Source Income Subject to Withholding, IRS form 1042–S, with the IRS by March 15 of each year to report the amount of all payments made to the nonresident alien during the previous calendar year, whether or not there was withholding on the payments.

Note: As stated above, if the nonresident alien is not from a tax treaty country, or does not wish to invoke the provisions of the tax treaty, tax will be withheld from the gross amount to be paid at the rate of 30%. However, if the department desires the net payment to the nonresident alien to be a specific amount after withholding is applied, the net amount must be increased to cover the taxes to be withheld. The gross charge to the budget may be determined by the following formula:

Amount of net payment
1 – tax rate
Example: The department desires to pay a visitor an honorarium of $500 after taxes have been withheld. Applying the formula ($500/[1 – .3] = $714.29), the department budget would be charged a total of $714.29.

    7) Tax Treaty—An agreement negotiated between the United States government and the government of another country that may qualify a nonresident alien for exemption from income tax withholding. It is important to note that the existence of a tax treaty between the United States and the nonresident alien's country of residence does not always mean that the type of payment being made by the University to the nonresident alien is exempt from tax. Benefits of tax treaties vary widely and some countries place specific dollar and time limitations on the earnings that may be exempted from tax under their treaty. IRS Publication 901 summarizes the benefits available to nonresident aliens by virtue of tax treaties. A copy of IRS Publication 901 may be obtained from the IRS.

Note: Tax treaties updated or newly ratified during the course of any calendar year are not effective until January 1 of the next calendar year, and are not incorporated into IRS Publication 901 until scheduled periodic updates. Questions regarding potential treaties with a country not listed in IRS Publication 901, may be sent via email to nratax@u.washington.edu.
    8) Living Allowances—Allowances paid in lieu of per diem reimbursements to visitors who are not being paid compensation for the performance of personal services. Typically, these visitors are scientists, scholars, or students who are invited to the University for training or information exchanges. Living allowances are generally paid only when the individual will be visiting the University for at least 30 days and desires to obtain lodging and/or meals from noncommercial facilities (e.g., rent an apartment and prepare their own meals).

Payments are made in 30-day increments starting at the beginning of the visit to cover monthly rent plus a reasonable amount for meals. If required by a rental agreement, the first monthly payment may include the rent amount for the first and last month, plus a damage deposit. The total of living allowances paid may not exceed the maximum per diem entitlement (lodging plus meals) had the individual stayed in and obtained meals from commercial facilities for the same period of time.

Generally, the individual is responsible for making his or her own arrangements for lodging and meals, and living allowances will be paid directly to the individual. Under exceptional circumstances, the University may contract with a third party for lodging to be provided to the nonresident alien; however, the total cost of leased lodging facilities may not exceed the lodging portion of the per diem entitlement had the individual stayed in commercial facilities. Leases for lodging on behalf of a nonresident alien who will be visiting for periods of 30 to 90 days will be negotiated by the Purchasing Department. Leases in excess of 90 days must be negotiated by the University's Real Estate Office. Payment of living allowances or contracting for lodging on behalf of the individual will not preclude the reimbursement of miscellaneous travel expenses (e.g., airfare, rental cars, taxis, etc.) normally authorized for reimbursement under University travel procedures.
    9) Taxpayer Identification Number—A number issued by an agency of the United States government that identifies the taxpayer to the IRS on any forms required to be filed in relation to federal income tax administration. The Taxpayer Identification Number (TIN) may be a United States Social Security Number (SSN) issued to individuals by the Social Security Administration, a Federal Employer Identification Number (FEIN) issued to a United States business entity by the IRS, or an Individual Tax Identification Number (ITIN) issued by the IRS to an individual who is a nonresident alien and who does not qualify for an SSN. An SSN is required for any individual (United States citizen, resident alien, or nonresident alien) who will be paid as an employee by a United States business entity.
  d. Forms
    1) Purchase Requisition—This online document is entered into the Purchasing/Accounts Payable System (PAS) to initiate or confirm a purchasing or travel action.
    2) Employee Versus Independent Contractor Classification Checklist—Employee Versus Independent Contractor Classification Checklist form is used to determine whether an individual performing services for the University should be classified as an employee or as an independent contractor. See Administrative Policy Statement 32.3 for related information.
    3) Nonresident Alien Payment Data Sheet—The Nonresident Alien Payment Data Sheet form is used to provide necessary information to determine federal tax withholding status and to be able to report payments made to a visiting nonresident alien as required by the IRS.
    4) Arrival/Departure Record—The Arrival/Departure Record, INS form I-94, is issued by the Immigration and Naturalization Service to nonimmigrant aliens upon arrival in the United States. An individual in possession of the departure portion of this may only be compensated if the document is annotated with an appropriate nonimmigrant visa classification. The expiration date is noted on the form. Note: A copy of this form must be attached to the University's Nonresident Alien Payment Data Sheet form.
    5) Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual—The Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual, IRS form 8233, is required to be filed with the IRS to substantiate exemption from federal tax withholding on U.S. Source compensation paid to a nonresident alien performing services as an independent contractor. The form and instructions for its completion may be obtained from the International Services Office, 206–543–0841, or by making an email request to nratax@u.washington.edu. Departments are encouraged to furnish the visitor with this IRS form for completion prior to the visitor's arrival at the University. The visitor should be directed to return the completed form to the sponsoring department for forwarding (original and two copies required) to the Accounts Payable Office, Attn: NRA Desk, Box 351130. This form is required to be certified by the Accounts Payable Office and filed with the IRS on behalf of the visitor a minimum of ten days prior to making a payment that is to be exempt from tax withholding.
    6) Ownership, Exemption or Reduced Rate Certificate—The Ownership, Exemption or Reduced Rate Certificate, IRS form 1001, is required to be filed to substantiate exemption from federal tax withholding on payments other than on compensation paid to an independent contractor, including fellowships and scholarships. The form and instructions for its completion may be obtained by sending an email request to nratax@u.washington.edu.
    7) Invoice Voucher/Receiving Report—The University's Invoice Voucher/Receiving Report form is used as an invoice to substantiate payments by a vendor who has no invoice form of his or her own, or when a vendor or claimant invoice would not be expected. The form is available from University Stores.
    8) Travel Expense Voucher—The Travel Expense Voucher (TEV) form is used to substantiate reimbursement of travel expenses. The form is available from University Stores.