The Internal Revenue Service requires that we apply U.S. withholding and reporting rules consistent with your U.S. tax status, resident alien or nonresident alien. Resident aliens are taxed like U.S. citizens, while nonresident aliens are taxed under different withholding and reporting rules. Your U.S. tax status depends on your U.S. immigration status and U.S. presence. Also, you may be entitled to tax exemptions depending on your U.S. tax status or an applicable tax treaty, or both. Since your immigration actions and U.S. presence may change the way you are taxed, we request that you provide us with up-to-date information each year so that we may verify your status and any applicable tax exemptions. Without this information, we cannot provide you with tax exemptions which might otherwise be applicable.
Supplemental Form W-4 Instructions for Nonresident Aliens - http://www.irs.gov/pub/irs-pdf/n1392.pdf
i) Nonresident aliens should pay particular attention to the following lines when completing Form W-4.
Line 2. You are required to enter a social security number (SSN) on line 2 of Form W-4. If you do not have an SSN, you must apply for one on Form SS-5, Application for a Social Security Card. You can get Form SS-5 at http://www.ssa.gov/ssnumber/ss5.htm or from any Social Security Administration (SSA) office.
Note. You cannot enter an individual taxpayer identification number (ITIN) on line 2 of Form W-4.
Line 3. Check the single box regardless of your actual marital status
Line 5. Generally, you should claim one withholding allowance. However, if you are a resident of Canada, Mexico, or South Korea, a student or business apprentice from India, or a U.S. national, you may be able to claim additional withholding allowances for your spouse and children. See Publication 519 for more information.
If you are completing Form W-4 for more than one withholding agent (for example, you have more than one employer), figure the total number of allowances you are entitled to claim and claim no more than that amount on all Forms W-4 combined. Your withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the highest-paying job and zero allowances are claimed on the others.
Line 6. Write “nonresident alien” or “NRA” on the dotted line. If you would like to have an additional amount withheld, enter the amount on line 6.
Line 7. Do not claim that you are exempt from withholding on line 7 of Form W-4 (even if you meet both of the conditions listed on that line).
Income Code 18 and 19 - Employment Income
Wage and Salary payments to Students, Scholars and Staff
Salaries, wages, or any other pay for personal services (referred to collectively as wages) paid to nonresident alien (NRA) employees are subject to graduated withholding in the same way as for U.S. citizens and residents if the wages are effectively connected with the conduct of a U.S. trade or business. Under IRC section 864(b). Any wages paid to a nonresident alien individual for personal services performed as an employee for an employer are generally exempt from the 30% "NRA withholding" if the wages are subject to graduated withholding. Please refer Publication 15 for IRS withholding tables.
Non-Resident Alien For Tax Purposes
FN will be paid via the Payroll System either weekly or monthly. FN will complete Form W-4. (If Non-Resident for tax purposes - please see Rules for completing W-4). Wage reported on Form W-2. If eligible for tax treaty exemption, individual will sign Form 8233 with certifying statement. FN will receive Form 1042-S and W-2 for tax filing.
Resident Alien For Tax Purposes
FN will be paid via the Payroll System either weekly or monthly. FN will complete Form W-4. (Follow the same rules as US Citizens) Wage reported on Form W-2. If eligible for tax treaty exemption, individual will sign Form W-9 with treaty article and saving clause exception. FN will receive Form 1042-S and W-2 for tax filing.
Please refer to Guide for Graduate Student Appointments for definition and coding to Teaching Assistant/Research Assistant and Teaching Fellow/Research Fellow positions. http://www.finance.upenn.edu/comptroller/tax/appointments.shtml
Income Code 16 - Self Employment Income
Self-employment income is income that arises from the performance of personal services, but which cannot be classified as wages because an employer-employee relationship does not exist between the University and the Foreign person. The Internal Revenue Code imposes the self-employment tax on the self-employment income of any U.S. citizen or resident alien who has such self-employment income. However, nonresident aliens are not subject to self-employment tax.
U.S. source nonemployee compensation for any amount in excess of zero is reportable on Form 1042-S. The University will withhold at 30% or lesser tax treaty rate if applicable (Publication 515, or Publication 901). The beneficial owner of the income (Foreign person) could claim the benefit of the tax treaty article which deals with "Independent Personal Services", or with "Business Profits". Tax & International Operations will perform an analyst to determine if individual is eligible. The FN may claim the lesser tax treaty rate by signing Form 8233 and return it to TIO Office. U of Penn will report the payment on Form 1042-S even if the entire amount of compensation is exempt under a tax treaty.
A gratuitous payment of money or other thing of value to a person for the person’s participation in a usual academic activity for which no fee is legally required. An honorarium is provided as a token of appreciation for participation in an activity or event, and not as a contractual obligation to pay for services rendered.
For a complete guide, please refer to Honorarium Payments at http://www.finance.upenn.edu/comptroller/tax/honorarium_matrix1.shtml
An independent contractor or consultant is a person who provides services to Penn. If a specific fee is charged for a speaking engagement or an individual indicates they will participate or speak only if they are compensated, then the amount paid is considered a fee for service.
For a complete guide, please refer to Independent Contractor at http://www.finance.upenn.edu/comptroller/tax/contractor_guide.shtml
Income Code 15 - Scholarships and Fellowships
U.S. source scholarships/fellowships are reportable only for amounts which are taxable. The taxable portion of a scholarship/fellowship is that portion which is not excludible from gross income as a "qualified scholarship" under IRC section 117. U of Penn will withhold at a rate of 14% if the individual is in F, J, M, or Q nonimmigrant status. U of Penn will withhold at 30% for payees in other nonimmigrant statuses. The student articles of some income tax treaties exempt scholarships/fellowships from U.S. income tax. (See IRS Publication 515 or 901.) Tax & International Operations will perform an analyst to determine if individual is eligible. The FN may claim the lesser tax treaty rate by signing Form W-8BEN and return it to TIO Office. U of Penn will report the payment on Form 1042-S even if the entire amount is exempt under a tax treaty. Please follow IRS Publication 970 – Tax Benefits for Education on how to report.
Educational Fellowship Recipient/Pre-doctoral Trainee
Must be a Full-time graduate student enrolled in a degree program.
An Educational Fellow receives a fellowship that is normally paid from University of Pennsylvania funds, such as a dean’s account or the University Fellowship fund, which requires no service of the student for the term of the appointment. Amounts paid to such students are to aid in the pursuit of their studies, the primary purpose of which is to further the students' education and training.
A pre-doctoral trainee receives a fellowship that is paid from external grants but that requires no service of the student for the term of the appointment. The normal source of funding is a U.S. government training grant (i.e. an N.R.S.A. institutional or individual grant). A Pre-Doctoral Trainee does not perform services for the University, but may engage in research to further his or her personal and professional development.
Since an Educational Fellow and Pre-Doctoral Trainee is not required to perform services, the University is not currently required to withhold Federal income tax, FICA/Medicare tax, Pennsylvania Personal income tax, or City of Philadelphia wage tax or report any payments on IRS Form W-2. There are special rules that apply to Non-Residents of the US. See above.
Please refer to Guide for Graduate Student Appointments for definition and coding to Educational Fellowship Recipient and Pre-Doctoral Trainee positions. http://www.finance.upenn.edu/comptroller/tax/appointments.shtml
The University’s Policy for Postdoctoral Fellows at the University of Pennsylvania is as follows - stipends provided to all recipients are considered non-compensatory and therefore not “wages” for Federal income or FICA tax withholding purposes. Stipends are taxable for Pennsylvania personal income tax and subject to withholding because such payments do not meet all of the fifteen conditions specified by the Pennsylvania Code for exclusion. These stipends are also taxable for the Pennsylvania Unemployment Contribution and City of Philadelphia wage taxes and withholding.
Although no reporting or withholding is required for U.S. postdoctoral appointments, the individual must report and pay federal income tax on any payments in excess of tuition, fees, books, and certain other expenses. There are special rules that apply to Non-Residents of the US. See above.
Please refer to Guide for Post-Doctoral Appointments for definition and coding to Post-Doc Researcher, Post-Doc Fellows and Employment Based positions. http://www.finance.upenn.edu/comptroller/tax/post_doctoral_appointments.shtml
Income Code 50 - Other Income, Prizes and Awards
Use this category to report U.S. source FDAP income that is not reportable under any of the other income categories. Examples of income that may be reportable under this category are commissions, insurance proceeds, patronage distributions, prizes, and racing purses.
As discussed earlier under Income Subject to NRA Withholding , every kind of FDAP income from U.S. sources that is not effectively connected with a U.S. trade or business is subject to NRA withholding unless the income is specifically exempt under the Code or a tax treaty. You generally must withhold at the 30% rate on this income.
Prizes/Awards Tax Treaty Chart
Tax treaties can only be applied after an individual has their U.S. taxpayer identification number (SSN or ITIN). Treaty Articles are listed next to each country for inclusion on Form W8-BEN.
|Austria - 21||Germany - 21||Lithuania - 21||Spain - 23|
|Belgium - 20||Hungary - 19||Luxembourg - 21||Sweden - 22|
|Bulgaria - 20||Iceland - 19||Netherlands - 23||Switzerland - 21|
|Czech Republic -22||Ireland - 22||Russia - 19||Tunisia - 21|
|Denmark - 21||Italy - 22||Slovak Republic - 22||Turkey - 21|
|Finland - 21||Japan - 21||Slovinia - 21||Ukraine - 21|
|France - 21||Latavia - 21||So Africa - 21||United Kingdom - 22|
Income Code 12 - Royalties
If the royalty income is from a U.S. source and paid to a nonresident alien, then it is reportable for any amount in excess of zero. U of Penn will withhold at a rate of 30% or lesser tax treaty rate, if applicable. Foreign person or entity of the income may claim the benefit of the tax treaty article which deals with “Royalties Income” The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with correct Article and withholding amount to the TIO Office. U of Penn will report the payment on Forms 1042-S, even if the entire amount of income is exempt under a tax treaty.
Income Code 42/43 - Athletes & Entertainers
U.S. source personal service income paid to an individual athlete or entertainer is reportable on Form 1042-S for any amount in excess of zero. U of Penn will withhold at a rate of 30% or lesser tax treaty rate if applicable. The beneficial owner of the income will claim the benefit of the tax treaty article that deals with "artistes, athletes or entertainers" or with "Independent Personal Services", if the treaty language allows it. The beneficial owner may claim the lesser tax treaty rate by filing Form 8233 with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of compensation is exempt under a tax treaty.
If the payee is a sole proprietor using a dba (doing business as) name, follow the same rules as for an individual.
If the payee is a foreign corporation, a foreign partnership, or a group of foreign individuals using a dba, here are things to consider:
- Do the services of the athlete or entertainer constitute independent personal services or dependent personal services?
- Does the athlete or entertainer have a fixed base or permanent establishment in the United States?
- If a third-party agent is involved in arranging the events of the athlete or entertainer, is he a "dependent agent" or an "independent agent?"
- If a foreign corporation bills you for the services of the athlete or entertainer,
- Is the foreign corporation a personal holding company?
- Does the foreign corporation have a fixed base or permanent establishment in the United States?
- Does the athlete or entertainer control his own activities, or does the corporation control his activities?
- Is the athlete or entertainer a major shareholder in the foreign corporation?
- Is the athlete or entertainer trying to use the corporate structure for tax advantages, which would not accrue to an individual?
- Has the foreign corporation been formed under the laws of a tax haven country, or been formed in a certain country because of the favorable tax treaty treatment afforded by the U.S. treaty with that country?
- Is the athlete or entertainer allocating his income between the foreign corporation and himself for tax advantages?
- If a group of entertainers is involved, and the group asks for payment to be made to the group, which of the following best describes this group of entertainers:
- a group of alien individuals,
- a foreign partnership,
- a domestic partnership with foreign partners, or
- employees and/or agents and/or shareholders of a foreign corporation?
Central Withholding Agreements
Foreign athletes and entertainers who are making a tour of the United States may wish to enter into a "Central Withholding Agreement" with the IRS because, generally, such agreements reduce the amount of taxes withheld on the U.S.-source gross receipts of the foreign athlete or entertainer. A request for a central withholding agreement should be submitted at least 45 days before the agreement is to take effect. For additional information on obtaining a CWA, contact us at CWA.Program@irs.gov or forward your request to the address shown in the discussion found at Central Withholding Agreements
Tax Treaty Claims by Groups of Foreign Entertainers:
Any foreign person (including a nonresident alien individual, a foreign corporation, a foreign partnership, or any other entity which is not a U.S. person) which makes a tax treaty claim with a U.S. withholding agent must provide his TIN (Taxpayer Identification Number) on Form 8233 or on Form W-8BEN (with certain exceptions involving income from interest and dividends). The regulation also makes clear that the “beneficial owner” of the income must make the tax treaty claim. The beneficial owner of the income is the person that is required under U.S. tax principles to include the amount paid in his gross income under Internal Revenue Code section 61, and to report the income on a U.S. income tax return. A beneficial owner can be an individual, a corporation, a complex trust, an estate, or any other entity that is not a flow-through entity.