FOUNDATIONS IN UNIVERSITY FINANCE UNIVERSITY TAX
University Tax Cassandra Franks Director, University Tax Services Financial Management Services Participant Outcomes Recognize when payment situations have tax consequences Locate and use the available resources to review procedures, inform stakeholder of potential tax issues, and appropriately report payments I N D I A N A U N I V E R S I T Y 1
University Tax: Our Agenda 1. Some Basics a. Why we should care about tax reporting b. About University Tax Services c. IU s tax status 2. Tax Reporting and Related Issues a. 1098-T b. W-2 c. 1099-MISC d. 1042-S e. ST-103 3. Tax Support I N D I A N A U N I V E R S I T Y 2
University Tax Basics https://fms.iu.edu/tax I N D I A N A U N I V E R S I T Y 3
We should care about proper tax reporting because we want to: Use your clicker to submit your answer: A. Be good corporate citizens and follow the law 17% 17% 17% 17% 17% 17% B. Avoid fines and penalties C. Provide accurate information on required tax forms to others D. Avoid reputation harm E. All of the above F. Never mind. IU doesn t pay tax (not-for-profit) A. B. C. D. E. F. I N D I A N A U N I V E R S I T Y 4
University Tax: Basics We need a tax office because we: Receive funds from and provide funds to students Pay employees Engage in revenue-generating (auxiliary) activities Pay for services and rentals I N D I A N A U N I V E R S I T Y 5
University Tax Services: Mission Our mission is to contribute to the University's overall success by advancing compliance with Federal and State tax laws throughout the university community by acting as the unified resource for interpretation, education, and enforcement with regard to tax issues. I N D I A N A U N I V E R S I T Y 6
University Tax Services Organized as a full service department with 6 professional staff and 3 hourly staff Keeping IU compliant with: Internal Revenue Service Social Security Administration State and local jurisdictions IU policies I N D I A N A U N I V E R S I T Y 7
University Tax Services COMPLIANCE EDUCATION Payroll Tax Consultation Nonresident Alien Tax Sales Tax Full Service Office Seminars Web Resources Unrelated Business Income Tax Misc. Tax Forms Email Communication I N D I A N A U N I V E R S I T Y 8
IU is a tax-exempt organization, so it doesn t have to pay any tax. Use your clicker to submit your answer: 50% 50% A. True B. False True False I N D I A N A U N I V E R S I T Y 9
About IU s Tax Status Indiana University maintains dual status: 1. Instrumentality of the State of Indiana Governmental Entity Sec. 115 Established by the State Legislature 2. Exempt Organization Nonprofit organization Sec. 501(c)(3) Indiana University s Primary Purpose: Teaching, research, and public service I N D I A N A U N I V E R S I T Y 10
About IU s Tax Status In reality, IU pays quite a lot in taxes Remitted in 2014 Payroll Taxes $ 405,834,009 Sales & Innkeeper s Tax $ 1,131,041 Payments to Nonresident Aliens $ 412,675 FY 2013 Earned: Paid: $306,315 Unrelated Business Income $102,713 Business Income Tax I N D I A N A U N I V E R S I T Y 11
Tax Reporting I N D I A N A U N I V E R S I T Y 12
FORM 1098-T Tuition Statement 107,581 forms, 55% electronic delivery I N D I A N A U N I V E R S I T Y 13
Form 1098-T Tuition Statement Reports Bursar Data (SIS) Payments received for qualified tuition and related expense Scholarships and grants Information only return for educational tax credit I N D I A N A U N I V E R S I T Y 14
What do you think of when you hear the word stipend? Use your clicker to submit your answer: A. Living Allowance B. Scholarship C. Wage D. Payment E. Not Sure 0% 0% 0% 0% 0% A. B. C. D. E. I N D I A N A U N I V E R S I T Y 15
Stipend: Defined sti pend noun 1. a periodic payment, especially a scholarship or fellowship allowance granted to a student. 2. fixed or regular pay; salary. stipend = payment But more importantly I N D I A N A U N I V E R S I T Y 16
Ask yourself What is my payee doing for the money? I N D I A N A U N I V E R S I T Y 17
More Tax Forms & Related Issues I N D I A N A U N I V E R S I T Y 18
FORM W-2 Wage and Tax Statement 51,367 forms, 78% electronic delivery I N D I A N A U N I V E R S I T Y 19
Form W-2 Wage and Tax Statement Reports Payroll Data (HRMS): Wages Taxes withheld Additional reportable amounts I N D I A N A U N I V E R S I T Y 20
Form W-2 Wage and Tax Statement Additional Reportable Amounts: Non-Cash Fringes Graduate-level tuition benefit Prizes and awards Gifts to employees (clothing, other items) Moving expenses Complimentary tickets (Athletic or Entertainment) Personal use of an IU vehicle I N D I A N A U N I V E R S I T Y 21
Form W-2 Wage and Tax Statement IRS Accountable Plan Exclusion from taxable wages (when certain rules are followed): Travel reimbursements Reimbursement for out of pocket expense Certain moving expenses I N D I A N A U N I V E R S I T Y 22
The IRS Accountable Plan excludes certain reimbursements from taxable wages when the expenses are (1) for university business, and (2) are substantiated within: Use your clicker to submit your answer: 25% 25% 25% 25% A. 30 days B. 60 days C. 90 days D. 120 days A. B. C. D. I N D I A N A U N I V E R S I T Y 23
Form W-2 Wage and Tax Statement Withholding income tax in other states Over 200 employees living and working in 40 registered states New Primary Work Location field in HRMS Driven by Hire, Promote, Demote, Transfer or Maintain Job Data edoc Tax is notified by departments of the change in location this drives tax withholding and paychecks I N D I A N A U N I V E R S I T Y 24
FORM 1099-MISC Miscellaneous Income 5,417 forms I N D I A N A U N I V E R S I T Y 25
Form 1099-MISC Miscellaneous Income Reports KFS Data: Rents, Royalties, other income, medical and health care payments and nonemployee compensation To corporations and non-corporations I N D I A N A U N I V E R S I T Y 26
Form 1099-MISC Miscellaneous Income Object Codes DRIVE Tax Reporting Rents Royalties Form 1099-MISC Other Income Nonemployee Compensation Medical & Healthcare I N D I A N A U N I V E R S I T Y 27
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Rents Costume Rentals: 4610 Equipment Rentals: 4615, 4620, 5391 Space Rental: 4680, 4694 Rents I N D I A N A U N I V E R S I T Y 28
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Royalties Royalties: 4506, 4673, 4674, 4675, 4676 Rights and Permissions: 4670, 7671 Royalties I N D I A N A U N I V E R S I T Y 29
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Other Income Research participants/participant fee: 4061, 4087, 4561 Prize and award: 4866 Other Income I N D I A N A U N I V E R S I T Y 30
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Medical and Healthcare Physician Fees: 4563 Laboratory Service: 5074 Fees Medical: 4524 Medical & Healthcare I N D I A N A U N I V E R S I T Y 31
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Nonemployee Compensation Over 80 object codes, from artist to waste disposal Nonemployee Compensation I N D I A N A U N I V E R S I T Y 32
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Common Errors Nonemployee Comp COMMON ERROR Graphic Designer 4166 Printing and Duplication, instead of 4520 Contracted Services I N D I A N A U N I V E R S I T Y 33
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Common Errors Nonemployee Comp COMMON ERROR Guest Speaker 4013 Conference & Workshops, instead of 4535 Honoraria I N D I A N A U N I V E R S I T Y 34
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Common Errors Nonemployee Comp COMMON ERROR Employee Reimbursement Use of service or rental object codes Creates 1099-MISC for employee I N D I A N A U N I V E R S I T Y 35
A list of reportable object codes can be found on the University Tax Services web page. (hint: see handout) Use your clicker to submit your answer: A. True B. False 0% 0% A. B. I N D I A N A U N I V E R S I T Y 36
misclassification I N D I A N A U N I V E R S I T Y 37
Employee vs Independent Contractor Misclassification W-2 or 1099-MISC Misclassification: Results in the wrong tax form generation: W-2 v. 1099-MISC Is a hot topic for IRS Can be avoided by following IU Policy IV-220 Determination of Employee or Independent Contractor Status Deem to be an employee unless meets criteria Complete the Interactive Independent Contractor Questionnaire I N D I A N A U N I V E R S I T Y 38
Independent Contractor Employee I N D I A N A U N I V E R S I T Y 39
Employee vs Independent Contractor Misclassification W-2 or 1099-MISC Criteria to be an independent contractor Based on fact and circumstance Direction and control Has an established business Short in duration Teaching/research activity is almost always classified as an employee relationship this is IU s mission. I N D I A N A U N I V E R S I T Y 40
Case Studies I N D I A N A U N I V E R S I T Y 41
Case Study 2: Marie Higgins What were your top three reasons why an Independent Contractor Questionnaire should be completed? Make your selections in priority order. Use your clicker to submit your answer: 20% 20% 20% 20% 20% A. Ms. Higgins has a registered business name. B. She provides services to other clients C. She is an expert in this field D. The consulting work is different than her teaching position E. The engagement is short in nature A. B. C. D. E. I N D I A N A U N I V E R S I T Y 42
FORM 1042-S Foreign Person s U.S. Source Income Subject to Withholding 2,066 forms I N D I A N A U N I V E R S I T Y 43
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Reports KFS, HRMS and SIS Data All income types paid to nonresident aliens under a different tax code than U.S. persons Similar to W-2 and 1099-MISC for U.S. persons I N D I A N A U N I V E R S I T Y 44
U.S. Person vs Non-U.S. Person Type of Payment Wages (Employment) Independent Contractor U.S. Person Withhold Tax Yes No Reportable Yes W-2 Yes 1099-MISC Non-U.S. Person Withhold Tax Yes Yes Reportable Yes Yes Services by Corporation No No Yes Yes Royalty No Yes 1099-MISC Yes Yes Prize & Award No Yes 1099-MISC Yes Yes Scholarship/Fellowship No No Info 1098-T Yes Yes Purchase of product No No No No Rental/Lease No Yes 1099-MISC Yes Yes I N D I A N A U N I V E R S I T Y 45
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Who are nonresident aliens? Foreign visitors International Students International Teachers or Researchers Enter the U.S. on a non-immigration visa, such as F-1, J-1, B-1 Have not passed the substantial presence test I N D I A N A U N I V E R S I T Y 46
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Wages to Nonresident Aliens Special withholding tables apply Students, faculty and staff complete the International Tax Questionnaire Treaty benefits may be available University Tax Services determines tax status, based on the questionnaire (FNIS) I N D I A N A U N I V E R S I T Y 47
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Scholarships to Students Non-qualified scholarships are subject to tax withholding Non-qualified scholarship: all scholarship less qualified educational expense (tuition), less book allowance Student Information System (SIS) automatically withholds federal and state tax. I N D I A N A U N I V E R S I T Y 48
Payments to Foreign Vendors NON-TAXABLE Payments for: Goods Services performed outside the U.S. Tax treaty TAXABLE Payments for: Services performed inside the U.S. Internet access used in the U.S. Royalties used inside the U.S. I N D I A N A U N I V E R S I T Y 49
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Payments to Foreign Vendors U.S. or Foreign, as established on the KFS vendor record. (W-9 or W-8) All payments to foreign vendors require University Tax Service review KFS document initiators should leave a note if payment is for goods or foreign-sourced services I N D I A N A U N I V E R S I T Y 50
Form 1042-S Foreign Person s U.S. Source Income Subject to Withholding Short-term Visitor Preplanning Payment? Travel and/or Honorarium Set expectations! Invite letter is highly recommended Documents to collect Is the department going to pay the taxes? Is there a tax treaty? More information at FMS website https://fms.iu.edu/tax/international/foreign-vendors/ I N D I A N A U N I V E R S I T Y 51
When would tax be charged to a foreign vendor? Use your clicker to submit your answer: A. Purchase of goods from a foreign vendor 25% 25% 25% 25% B. International faculty with treaty benefits C. Foreign student with qualified scholarship D. Foreign speaker from a nontreaty country A. B. C. D. I N D I A N A U N I V E R S I T Y 52
FORM ST-103 State of Indiana Sales and Use Tax Filed each month I N D I A N A U N I V E R S I T Y 53
Form ST-103 Indiana Sales and Use Tax Reports KFS Data: Sales tax collected on proprietary activities I N D I A N A U N I V E R S I T Y 54
Collecting Sales Tax Associated with a private business Outside the scope of activities Proprietary activity (taxable) I N D I A N A U N I V E R S I T Y 55
Collecting Sales Tax I N D I A N A U N I V E R S I T Y 56
For which activity would sales tax not be charged? Use your clicker to submit your answer: A. Surplus store sales B. Museum gift shop C. Collection of tuition D. Food to non-students 0% 0% 0% 0% A. B. C. D. I N D I A N A U N I V E R S I T Y 57
Unrelated Business Income IU does in fact pay income taxes Any revenue generating activity that s outside our IU mission of teaching and research Treasury requires RPAQ approval prior to initiation Trade or Business Regularly Carried On Substantially Unrelated UNRELATED BUSINESS INCOME I N D I A N A U N I V E R S I T Y 58
UBI Examples Advertising income Catering Corporate sponsorship payments Sports camps Use of facilities by the public Congress has taken a stronger stance on this the IRS is complying with their wishes to investigate. I N D I A N A U N I V E R S I T Y 59
In general, Tax analysis is based on Facts & Circumstances. The tax department is trained to provide guidance to the university community in order to keep the university in compliance, but we need your help. Know when to call and share your facts! When in doubt, email Taxpayer@Indiana.edu I N D I A N A U N I V E R S I T Y 60
CONTACT INFOMATION University Tax Services taxpayer@indiana.edu Fax: 812.856.4861 https://fms.iu.edu/tax/ I N D I A N A U N I V E R S I T Y 61