The hardest thing in the world to understand is the income tax. Albert Einstein FOUNDATIONS IN UNIVERSITY FINANCE UNIVERSITY TAX
University Tax Cassandra Franks, CPA Director, University Tax Services Financial Management Services Participant Outcomes Recognize when payment situations have tax consequences Payments made Payments received Locate and use the available resources to review procedures, inform stakeholder of potential tax issues, and appropriately report payments INDIANA UNIVERSITY 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 Payments made to students b. W-2 Payments made to employees c. 1099-MISC Payments made to vendors d. 1042-S Payments made to international individuals e. ST-103 Payments made with sales tax 3. Tax Support INDIANA UNIVERSITY 2
Test Question Tax will be your favorite FiUF topic! Use your clicker to submit your answer: A. True B. False 100% 0% True False INDIANA UNIVERSITY 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 100% 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) 0% 0% 0% 0% 0% A. B. C. D. E. F. INDIANA UNIVERSITY 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 INDIANA UNIVERSITY 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. INDIANA UNIVERSITY 6
University Tax Services Organized as a full service department with 10 staff members Keeping IU compliant with: Internal Revenue Service Social Security Administration State and local jurisdictions IU policies INDIANA UNIVERSITY 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 INDIANA UNIVERSITY 8
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 INDIANA UNIVERSITY 9
Reality is IU is a BIG Taxpayer Total Payroll and Retirement Payments - 2015 Retirement, $203,830,646, 33% Payroll Retirement Payroll, $417,558,519, 67% INDIANA UNIVERSITY 10
Not just payroll tax Non-Payroll Tax Payments - 2015 Other Tax, $96,129.21, 6% Sales/Innkeepers, $1,034,317.33, 57% NRA, $473,572.52, 26% UBIT, $203,146.00, 11% NRA UBIT Sales/Innkeepers Other Tax INDIANA UNIVERSITY 11
Forms Reported - 2015 107,802 1098-T 78% delivered electronically 52,116 W-2, 79% delivered electronically 9,596 1098-E 5,734 1099-Misc 382 1099-R 128 1099-K 2,070 1042-S Weekly, Monthly, Quarterly, and Annual payments and returns (Total of 714 payments/returns) INDIANA UNIVERSITY 12
Tax Reporting INDIANA UNIVERSITY 13
FORM 1098-T Tuition Statement 107,802 forms, 78% electronic delivery INDIANA UNIVERSITY 14
Form 1098-T Tuition Statement Reports Bursar Data (SIS) Payments received for qualified tuition and related expense Scholarships and grants Information only form for educational tax credits ONLY at this time Lifetime Learning and American Opportunity INDIANA UNIVERSITY 15
What do you think of when you hear the word stipend? Use your clicker to submit your answer: 100% A. Living allowance B. Scholarship C. Wage D. Payment E. Not Sure 0% 0% 0% 0% Living allowance Scholarship Wage Payment Not Sure INDIANA UNIVERSITY 16
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 Ask yourself What is my payee doing for the money? INDIANA UNIVERSITY 17
Payments of Scholarship/Fellowship Must follow Federal Financial Aid Compliance and Department of Education Payments to students must be made through SIS Any exceptions paid on a DV must be approved by campus RARE! Payment to nonstudents need to be analyzed Policy SPA-11-010, Payments and fee Remissions to Graduate Students on Sponsored Programs INDIANA UNIVERSITY 18
FORM W-2 Wage and Tax Statement 52,116 forms, 79% electronic delivery INDIANA UNIVERSITY 19
Form W-2 Wage and Tax Statement Reports Payroll Data (HRMS): Wages Taxes withheld Additional reportable amounts INDIANA UNIVERSITY 20
Form W-2 Wage and Tax Statement Additional Reportable Amounts: Non-Cash Fringes Graduate-level tuition benefit reported by Tax/HR Reported provided by HR and Bursar automatically applied to Employee s paycheck, Tax notifies EE via e-mail For tuition paid by department on behalf of employee, call Tax may be other reporting issues if not considered a Working Condition Fringe Benefit = REQUIRED for the position Prizes and awards reported by departments Need to complete a Prize Data Collection Form from Tax website for all prizes given, not just to employees Also see policy VII-4 Drawings, Games and Prizes Gifts to employees (clothing, other items) reported by departments Non-cash (or cash) items given to employees Also see policy FIN-ACC-I-590 on Gifts to Employees or Non- Employees INDIANA UNIVERSITY 21
Form W-2 Wage and Tax Statement Additional Reportable Amounts: Non-Cash Fringes Moving expenses reported by departments, reviewed by Tax Submit DV using 5070 object code, Tax reviews for allowable vs. unallowable Also see policy FIN-ACC-I-310 on Moving Expenses New policy in draft for 2016!!! Complimentary tickets (Athletic or Entertainment) reported by Tax Department to submit to Tax for payroll reporting Personal use of an IU vehicle reported by Tax Tax issues questionnaires each year department to report personal use of car INDIANA UNIVERSITY 22
Form W-2 Wage and Tax Statement IRS Accountable Plan Exclusion from taxable wages (when certain rules are followed): 60 day rule applies Travel reimbursements Handled by Travel Management Services See Policy FIN-TRV-2.0 for Reimbursement of Travel Expenditures Reimbursement for out of pocket expenses Policy for FIN-ACC-I-620 Reimbursement Under the Accountable Plan Reimbursements need to be substantiated within 60 days or deemed taxable income to individual INDIANA UNIVERSITY 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 INDIANA UNIVERSITY 24
FORM 1099-MISC Miscellaneous Income 5,734 forms INDIANA UNIVERSITY 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 Prizes and Awards! INDIANA UNIVERSITY 26
Form 1099-MISC Miscellaneous Income Object Codes DRIVE Tax Reporting SEE FULL LISTING ON FMS TAX WEBSITE! Rents Royalties Form 1099-MISC Other Income Nonemployee Compensation Medical & Healthcare INDIANA UNIVERSITY 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 INDIANA UNIVERSITY 28
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Royalties Royalties: 4506, 4673, 4674, 4675, 4676 Rights and Permissions: 4670, 7671 Royalties INDIANA UNIVERSITY 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 INDIANA UNIVERSITY 30
Payments for Prizes/Awards Reportable as Other Income, Reported on 1099-MISC Recognition of special achievement, special skill, knowledge, or special renown in a certain area Cash or non-cash prize reportable See IU Policy VII-4 Drawing, Games and Prizes Other Income INDIANA UNIVERSITY 31
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Medical and Healthcare Physician Fees: 4563 Laboratory Service: 5074 Fees Medical: 4524 Medical & Healthcare INDIANA UNIVERSITY 32
Form 1099-MISC Miscellaneous Income Object Codes Drive Tax Reporting Nonemployee Compensation Over 80 object codes, from artist to waste disposal Nonemployee Compensation INDIANA UNIVERSITY 33
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 INDIANA UNIVERSITY 34
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 INDIANA UNIVERSITY 35
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 INDIANA UNIVERSITY 36
A lot of reportable object codes can be found on the University Tax Services web page. 100% Use your clicker to submit your answer: A. True B. False 0% True False INDIANA UNIVERSITY 37
misclassification INDIANA UNIVERSITY 38
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 see Tax website! INDIANA UNIVERSITY 39
Independent Contractor Employee INDIANA UNIVERSITY 40
Employee vs Independent Contractor Misclassification W-2 or 1099-MISC Attributes of a Independent Contractor: Service is of short duration Established business Determines how to do the work Risk of financial loss Hires/pays workers Not teaching, researching, or providing instruction this is IU s mission! INDIANA UNIVERSITY 41
Employee vs Independent Contractor Misclassification W-2 or 1099-MISC Attributes of an Employee Service is of longer duration Provided tasks, tools, and instruction Protected from risk of financial loss Teaching/Research Services provided to support primary purpose of institution Similar services provided by other employees INDIANA UNIVERSITY 42
Case Studies INDIANA UNIVERSITY 43
Case Study 1: Robert Brannon Robert Brannon should be classified as an independent contractor and paid through KFS on a DV. 100% Use your clicker to submit your answer: A. True B. False 0% True False INDIANA UNIVERSITY 44
Case Study 2: Marie Higgins Marie Higgins should be classified as an independent contractor and paid through KFS on a DV. 100% Use your clicker to submit your answer: A. True B. False 0% True False INDIANA UNIVERSITY 45
FORM 1042-S Foreign Person s U.S. Source Income Subject to Withholding 2,070 forms INDIANA UNIVERSITY 46
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 INDIANA UNIVERSITY 47
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 INDIANA UNIVERSITY 48
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 INDIANA UNIVERSITY 49
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) INDIANA UNIVERSITY 50
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. INDIANA UNIVERSITY 51
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. INDIANA UNIVERSITY 52
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 INDIANA UNIVERSITY 53
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/ Tax has assembled a committee of functional, central administrative departments to draft guide on making payments to foreign individuals 2016! INDIANA UNIVERSITY 54
When would tax be charged to a foreign vendor? Use your clicker to submit your answer: A. Purchase of goods from a foreign vendor 100% B. International faculty with treaty benefits C. Foreign student with qualified scholarship D. Foreign speaker from a nontreaty country 0% 0% 0% A. B. C. D. INDIANA UNIVERSITY 55
DRAFT Payment Guidelines INDIANA UNIVERSITY 56
FORM ST-103 State of Indiana Sales and Use Tax Filed each month INDIANA UNIVERSITY 57
Form ST-103 Indiana Sales and Use Tax Reports KFS Data: Sales tax collected on proprietary activities at the department level and remitted at time of sale University Tax Services makes total University payment each month Total of $1,034,317.33 paid for sales taxes in 2015 INDIANA UNIVERSITY 58
Collecting Sales Tax Associated with a private business Outside the scope of activities Proprietary activity (taxable) INDIANA UNIVERSITY 59
Collecting Sales Tax INDIANA UNIVERSITY 60
For which activity would sales tax not be charged? Use your clicker to submit your answer: 100% A. Surplus store sales B. Museum gift shop C. Collection of tuition D. Food to non-students 0% 0% 0% A. B. C. D. INDIANA UNIVERSITY 61
FORM 990-T Unrelated Business Income Tax Return Filed annually INDIANA UNIVERSITY 62
Pre-test Question Widgets are sold by a department and the funds will be used to pay for student scholarships is this considered unrelated business income? Use your clicker to submit your answer: A. True B. False 50% 50% True False INDIANA UNIVERSITY 63
Unrelated Business Income (UBI) IU does in fact pay income taxes Total of $203,146 for FY2014 Any revenue generating activity that s outside our IU mission of teaching and research Treasury requires RPAQ approval prior to initiation See IU Policy FIN-TRE-VI-121 Establishing and Modifying Revenue Producing Activities (RPA) INDIANA UNIVERSITY 64
UBI Examples Advertising income Catering Corporate sponsorship payments Sports camps Use of facilities by the public Key UBIT Concept: How the Funds are Used Does Not Matter How the Funds are Earned Does Matter INDIANA UNIVERSITY 65
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@iu.edu INDIANA UNIVERSITY 66
CONTACT INFOMATION University Tax Services taxpayer@iu.edu Fax: 812.856.4861 https://fms.iu.edu/tax/ INDIANA UNIVERSITY 67