West Chester University. Taxation Issues Nonresident Aliens

Size: px

Start display at page:

Download "West Chester University. Taxation Issues Nonresident Aliens"

Anabel Curtis
5 years ago
Views:

1 West Chester University Taxation Issues Nonresident Aliens

2 Agenda Tax Compliance Issues Nonresident aliens (NRA) o Vendor Payments o Scholarships o Tuition Waivers o Prizes o Stipends Tax related Forms Definition Process Improvements Questions 2

3 WCU Tax Compliance Issues International students Nonresident alien not reporting waivers and scholarships Stipends not currently reported on W-2 Payments international vendors/independent contractors Nonresident Aliens receiving Pell and direct loans Definition difference with IRS/ Nonresident Alien vs. immigration purpose 3

4 Definitions: Nonresident Alien and Resident Categories established for immigration purposes do not necessarily coincide with those set up for tax purposes. Under certain circumstances, a nonresident alien for immigration purposes may be classified as a resident for tax purposes. Thus, students and scholars who are not citizens of the United States must take care to determine whether they are resident or nonresident aliens for tax purposes. Only then will they know how their income will be taxed and which income tax return form to file. A nonresident alien for tax purposes is a person who is not a U.S. citizen and who does not meet either the "green card" or the "substantial presence" test A resident alien for tax purposes is a person who is a U.S. citizen or a foreign national who meets either the "green card" or "substantial presence" test The first test is the "green card test." If at any time during the calendar year you were a lawful permanent resident of the United States according to the immigration laws, you are considered to have met the green card test. The second test is the "substantial presence test." To meet the substantial presence test, you must have been physically present in the United States on at least: 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count: All of the days you were present in the current year, and One-third of the days you were present in the first year before the current year, and One-sixth of the days you were present in the second year before the current year. 4

5 Visas J-1 Visa The Exchange Visitor (J) non-immigrant visa category is for individuals approved to participate in work-and study-based exchange visitor programs. Participants are integral to the success of the program. Professor and Research Scholar Program The exchange of professors and research scholars promotes the exchange of ideas, research, mutual enrichment and linkages between research and academic institutions in the United States and foreign countries. Short-Term Scholar Program Professors, research scholars and other individuals with similar education or accomplishments travel to the United States on a short-term visit for to lecture, observe, consult, train or demonstrate special skills at research institutions, museums, libraries, post-secondary accredited academic institutions or similar types of institutions. F-1 Visa The F-1 Visa is for students attending a full-time degree or academic program at a school, college or university. The F-1 Visa is valid for as long as it takes the student to finish his or her course of study. An F-1 Visa also allows students to work on campus and in some situations even off campus. H-1B Visa Persons in specialty occupations which require the theoretical and practical application of a body of highly specialized knowledge requiring completion of a specific course of higher education. This category also includes fashion models and Government-to-Government research and development, or co-production projects administered by the Department of Defense. 5

6 Forms 1042 and 1042-S Form 1042-S Sent to Individual and IRS Form 1042-S reports taxable federal income and the corresponding federal tax withholding relating to the following types of income received by U.S. nonresidents: * Wage payments made to employees who have claimed tax treaty benefits * Tax reportable Fellowship/Scholarship income * Service payments made to independent contractors for work performed in the U.S. * Royalty payments issued to individuals or entities. * Non-employee Prize or Award payments Form 1042 Sent to IRS Purpose of Form The 1042 form is used to report the tax withheld on certain income of foreign persons, including nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts. Who Must File - University Every withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or periodical income must file an annual return for the preceding calendar year on Form

7 Tax Treaty In most cases, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld from the payment made to the foreign person. Note: At this time, PASSHE does not recognize treaties to reduce a foreign person s U.S. tax liability. Therefore, West Chester University also does not accept tax treaties. 7

8 Qualified and Nonqualified Tuition Qualified Tuition and Related Expenses Expenses/fees for tuition, books, supplies and equipment required for the enrollment of attendance of a student at an educational institution. In general, gross income does not include any amount received as a qualified scholarship. Nonqualified Tuition and Related Expenses Expenses/fees for room, board, books, supplies, equipment, travel, research and other services provided to students not required for courses of instruction at an educational institution. 8

9 W-2 NRAs may receive this form if they have jobs on campus or off campus Received by January 31 9

10 U.S. Source of Income for Taxable Scholarship or Fellowship Grants 1. Paid to F,J,M and Q visa holders 2. Subject to withholding at a rate of 14% to the extent that the amount awarded exceeds tuition charges 3. All other income is subject to withholding at a rate of 30% 10

11 1042-S NRA students or NRA vendors should receive a 1042-S for: Scholarship for financial aid money that is in excess of tuition AND U.S. source of funds OR Vendor payments NRA student will not receive a 1042-S for: Aid money paying tuition & fees only OR Not U.S. source of funds NRAs may receive multiple forms in a year for each type of income 1042-S are due to students and vendors by March 15 11

12 1042-S 12

13 1098 T Tax Form Nonresident alien students do not qualify for American Opportunity of Lifetime Learning tax credits NRAs should not receive the 1098T tax form The exception is someone who elects to file their tax return as a resident alien When you meet the Substantial Presence Test or are married to a resident or citizen, you can request a 1098T 13

14 1040NR or 1040NR - EZ Use one of these forms to file the tax return of nonresident alien 14

15 1040NR 15

16 Tasks and Roles by Departments: International Programs Tax Prep Software Expand capability of software I-20 Verify Provide accurate census data for all nonresident aliens at WCU Payroll Stipends/Student Wages Substantial Presence Test Financial Aid Coordinate with international office to ensure that nonresident aliens do not receive Pell or direct loans Administer Scholarships, Workers, Aid Report the information to the students and the IRS 16

17 Flow of Responsibilities Admissions International Programs Payroll Financial Aid 1042 &1042-S Filing 17

18 Flow of Responsibilities E- Req Payment Request Form Accounts Payable 1042 &1042-S Filing 18

19 Questions?? Contact for more information: Josh Stewart Bernadette Hinkle Financial Aid Accountant AVP, Finance & Business Services

Non U.S. Resident Taxes (NRA) University of Washington Student Fiscal Services

Non U.S. Resident Taxes (NRA) University of Washington Student Fiscal Services 1 Agenda U. S. Source of Income Scholarships Fellowships Tuition Waivers Prizes Stipends Social Security Number Tax Related