Payments to Nonresident Aliens Presenter: Lisa McLaughlin, Office Supervisor lmclaugh@email.arizona.edu 621-3864

Introductions Name Department Years with UA Reason for attending-what you would like to get out of this class

Overview Policy 9.16 Foreign Individual Payments Required Documentation Taxation

Policy 9.16 Identifies payment allowed to foreign visitors Provides details about how to request payment Identifies Federal income tax consequences Complies with U.S. Citizenship and Immigration Services (USCIS) regulations NOTE: The University will not make any payment to a foreign visitor unless specifically allowed by policy 9.16

Who qualifies as a “Foreign Visitor”? A “foreign visitor” is: Anyone other than a US citizen or Permanent Resident (Green Card holder) “Foreign Visitors” can also be called: Nonresident Aliens (NRA) Foreign Nationals International visitors

What is not covered by policy 9.16? Policy 9.16 does not cover: Employee payments (Human Resources Recruitment Policy) Student payments through the financial aid office (Financial Policies and Procedures Manual 9.13) Processing a Disbursement Voucher or Requisitions (see UITS training or tutorials)

Foreign Individual Payments

Best Method of Payment Disbursement Voucher Purchase Order/Requisition After the fact for services provided To reimburse allowable expenses Stipends (non-service scholarship/fellowship) Purchase Order/Requisition Prepay for merchandise Prepay expenses (directly to a third party vendor) Payments over $5000 or multiple payments

Paying a 3rd Party (via a PO) Payment to a third party vendor on a foreign visitor’s behalf is considered a payment to the foreign visitor directly Note on the requisition: This Purchase Order is for a payment on behalf of [visitor] who is a nonresident alien from [country] Visitor’s visa type Length of time staying at the UA Purpose of the visit

Determining if payment can be made Things to know first: Visa type Visa sponsor (UA, Another institution, No sponsor) Purpose/Activities (Speaker, student, attending conference, etc.) Payment type (expense reimbursement, service fee, royalty, etc.) Allowable under Policy 9.16? Activities authorized based on immigration status? Able to obtain documentation to substantiate immigration status Note: Individuals cannot pay or pay on behalf of foreign visitors with personal funds and expect reimbursement.

Most common Visa types paid by UA B1, B2, WB, WT F1, J1 (students) J1 (short term scholars, research scholars) H1, O1, TN (expense reimbursements only) Employment Authorization (F-1 OPT, J2) Permanent Residents (Green Card holders)-treated as UA citizens

B1, B2, WB, WT (Business and Tourist Visas) Visa Waiver Program-travel to US for tourism or business for stays of 90 days or less (WB/WT). No separate visa document. Often referred to as ESTA. B1/B2 require an actual visa document Can be paid an honorarium for academic activities (lecturing, teaching, sharing knowledge, meetings, etc.) Subject to restrictions (9-5-6 Rule) $600 or less

9-5-6 Rule B1/B2/WB/WT visa holders can receive honoraria payments and associated expenses on the condition that: Academic activities do not exceed 9 days and payee has not received honoraria payments from more than 5 institutions in the past 6 months. Payee must submit a signed Honorarium Statement (found on eforms) to confirm that this is true.

9-5-6 Rule Does not apply to B1/WB status if reimbursing only for expenses associated with the usual academic activities Applies to B2/WT status even if reimbursing only for expenses Only the days the individual is engaged in academic activities during the visit are counted against the 9 days The 9 days is the time limit for academic activities for each visit The 5 times are counted per visit, even with the same institution Expenses for the days that are not counted against the 9 days are reimbursable if they are reasonably related to the academic activities

9-5-6 Rule Example A B1 visitor is on campus to work on a research project The visitor arrives on Day 1 and departs on day 14 Day 1 is Sunday He works from Days 2-9 and Days 9-12 He rests on Days 7 & 8 (weekend) and 13 Does he meet the 9-5-6 rule?

F1 and J1 Students Sponsored by the educational institution they are attending Generally may only be compensated for services by their sponsor Allowed to receive non-service scholarship/fellowship payments for institutions other than their sponsor

J1 Sponsored by Another Institution Must obtain a Responsible Officer (RO) letter from their sponsoring institution Letter must be signed by their RO (the person who signed form DS-2019) With RO authorization, J1 can be reimbursed for business expenses and paid a fee for services

F1 & J1 Student Travel Expenses

Responsible Officer (RO) Letter

Responsible Officer (RO) Letter An RO letter must include the following: Letterhead from institution Name of individual Confirmation of visa status Authorization for academic activities What can be reimbursed (fee for services, expenses, both) Signature of Responsible Officer Responsible Officer who signs the letter must be the same as the RO listed on the DS-2019

H1, O1, TN: Employment-based visas Only employer (sponsor) can pay these individuals for services Reimbursement for business expenses for academic activities is allowable Payment for services by someone other than their employer could jeopardize visa status

Employment Authorization F1 under OPT (Optional Practical Training) If under OPT, still considered to be in F1 student status even if graduated May only work in the field of study related to the degree completed Job must be appropriate to level of education J2 (Spouse of J1) Individuals who’ve applied for permanent residency under Adjustment of Status (AOS)

Honorarium and Associated Expenses Visa types allowed to be paid an honorarium and associated expenses: B1/B2 and WB/WT Border Crossing Card holders (Mexico) J-1 sponsored by another institution (RO letter required) EAD or EAC holders (self-employed)

Prospective Employee Interview Expenses Paying/Reimbursing for Interview Expenses Immigration authorization is not required Foreign documents are not required Proof of interviewing must be provided Please include the following statement on your edoc: “(Payee’s Name) is being reimbursed for expenses associated with interviewing only and did not perform any services for the University” If paying other than interview expenses, documentation must be collected Payment may be reported as income Tax may be withheld as required

Permanent Residents Treated as US citizens for documentation and taxation purposes Not appropriate to request a copy of their “green card” W-9 is only documentation required (can be found on eforms) Must have an SSN

Other Types of Payments Royalty: payment for the right to use some type of intangible (intellectual) property Software License Fee: fee for a license to use software without ownership rights Subcontract Service Payment Foreign Artist Payments: payment for a specialized performer/talent

Required Documentation

Immigration Documents Required Passport (photo page) Entry stamp (in passport) Visa (unless WB/WT) I-94 (front and back or electronic printout) Other Required Documents (as applicable) I-20 ( for F1) DS2019 (for J1) I-797 (H1, O1, TN) Honorarium Statement (as needed) Responsible Officer letter (as needed) Substantial Presence Test (as needed) GLACIER record (as needed)

GLACIER Record GLACIER is the online tax compliance software the UA uses to determine tax residency and treaty determination for foreign visitors GLACIER is required for any type of tax reportable payment such as fees for service, royalties and scholarship/fellowship payments GLACIER is not required if reimbursing expenses only or paying a third party vendor

Completing a GLACIER Record Department contacts FSO Accounts Payable FSO Accounts Payable will email GLACIER login information to the foreign visitor, if it’s required Once completed, foreign visitor prints and signs GLACIER reports and tax forms Signed GLACIER forms (originals) and required documentation are submitted with a Disbursement Voucher cover sheet to FSO Accounts Payable for payment.

Passport A passport is necessary to verify citizenship, and is issued by the visitor’s country of citizenship. Check issued and expiration dates

VISA A visa is issued by the United States government and allows a foreign visitor to travel to a US port of entry

I-94 Arrival/Departure Record If allowed to enter the US, the visitor receives a stamp in their passport or an I-94 This officially determines how long a visitor can remain in the US

I-94 Arrival/Departure Record Many visitors receive an electronic I-94 only. This document can be retrieved from the following website: https://i94.cbp.dhs.gov

Special Rules for visitors from Canada or Mexico Does not need a visa to enter the US May not be issued an I-94 or obtain an entry stamp Deemed B1 status without the I-94 Must provide a valid passport, Canadian Permanent Resident Card or Canadian Birth Certificate MEXICO May have a Border Crossing Card (BCC) equivalent to a B1/B2 visa An I-94 may not be issued to BCC holders If staying in the US for less than 30 days deemed B1 status without the I-94

Border Crossing Card Mexican citizens may have a Border Crossing Card to enter the US A BCC is equivalent to a B1/B2 visa

Passport with Entry Stamp The entry stamp is very important, as it determines the individual’s status. For a visa waiver (WB/WT) this is the only stamp the individual will receive

DS-2019 for J1 Expiration date on I- 94 or stamp reads as D/S (Duration of Status) Status expires on the end date of the DS- 2019

I-20 for F1 The expiration date on I-94 for an F1 student reads as “D/S”-it is the end date on the I-20.

Employment Authorization Card (EAC) Employment Authorization Document (EAD) With a valid EAC or EAD the following are not needed (if reimbursing for expenses only): Copy of passport Visa or I-94 SSN If an EAC or EAD holder is receiving a fee for services: SSN is required GLACIER record & documentation required Ensure that the EAC/EAD is reviewed for any restrictions Also referred to as a Work Permit

EAC/EAD Card

US Taxpayer Identification Number (TIN) If the foreign visitor will be paid a fee for services, they must have a US issued taxpayer ID number prior to payment: Social Security Number (SSN) Individual Taxpayer Identification Number (ITIN) EXCEPTION: If a foreign visitor receives compensation for services performed, will be working 30 or fewer days, and has no US TIN, payment can still be made. However, the individual will not be eligible for treaty benefits and the University must withhold federal income tax at a rate of 30% A foreign visitor may qualify for treaty benefits in this situation, if they provide a foreign tax ID number (new rule)

US Taxpayer Identification Number Most reimbursements for expenses only do not require an SSN or ITIN Payments of any kind made to scholarship/fellowship recipients without an SSN or ITIN will be subject to tax withholding For additional information, please see: Payments allowed and Disallowed Under Various Visa Classifications-Policy 9.16

Taxation

Taxes Scholarships/Fellowships (including school related reimbursements) 14% for F, J, M or Q status 30% for any other status Fees for Service 30% tax withholding Expense Reimbursements (except those that qualify as scholarships) No tax withholding Scholarships from a foreign source Services outside the US Employee paychecks Tax withholding issues unique to the employee

Services Performed Outside the US Not subject to US Immigration regulations Substantial Presence Test Form must be submitted to A/P Nonresident Alien-payment is not reportable/taxable Resident Alien-payment is reportable/taxable Include this statement in the DV or PO notes section: [Payee’s Name] is a Nonresident Alien who performed all services outside the US Taxing Jurisdiction

Substantial Presence Test (e-forms)

Foreign-sourced scholarship Foreign-sourced scholarship payment is not subject to US tax reporting or withholding A scholarship is foreign-sourced if: Academic activities take place outside the US Payer of the scholarship is located outside the US Documentation must be provided to verify that the scholarship is foreign-sourced

IRS Form Changes for Non-Resident Aliens and Foreign Entities (effective 7/21/14) Form W-8BEN Required for all nonresident alien individuals receiving compensation for services or royalties (regardless of whether or not a tax treaty is available If a treaty exemption is available, a foreign tax identification number may now be used in lieu of a US issued SSN or ITIN Form W-8BEN-E New form required for foreign entities receiving compensation for services or royalties Used to establish foreign tax residency and potentially claim an exemption from withholding due to an income tax treaty GLACIER record determines whether a W-8BEN-E or a W-8ECI form is needed

Form W-8ECI and W-8EXP Form W-8ECI Form W-8EXP Used for entities that wish to be exempt from tax withholding based on the receipt of Effectively Connected Income Effectively Connected Income is when a foreign entity has a permanent base of operations in the US and receive income that is effectively connected with the conduct of a trade or business in the US (i.e. income from commercial activities) Form W-8EXP Used by foreign governments and foreign tax-exempt organization to claim an exemption based on their status as a government or tax-exempt organization Must include a letter of determination from the IRS that it has tax exempt status under section 501(C)(3) of the Internal Revenue Code, or an affidavit from an attorney in the US stating that such a foreign entity would qualify under this section if it applied for status Restricted to certain types of income, not automatic because of government or tax exempt status

Tax Treaty Benefits Taxable payments may be exempt from tax withholding or taxed at a reduced rate based on an income tax treaty between the US and a foreign country A US TIN (SSN or ITIN) or a Foreign Tax ID must be provided in order to claim the treaty benefit Certain criteria must be met in order to qualify for the treaty benefit/not all types of income are eligible Not all countries have treaty benefits available, even if the payee has a US TIN A list of countries that currently maintain tax treaties can be found here: http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

Tax Treaty Benefits (cont.) Form W-8BEN is required for all independent compensation or royalty payments for individuals UA retains the form as a record for audit; form is not submitted to the IRS Valid for 3 years if a payment is reported on a 1042 during each of these years Form W-8BEN-E is required for all service or royalty payments to entities Same rules as W-8BEN Form 8233 Required for individuals receiving compensation for services who wish to claim a tax exemption due to a treaty benefit Original signatures are required Sent to the IRS for acceptance 10 business day waiting period before exemption is granted and payment can be made Valid for one year

Form W-8BEN

Form W-8BEN-E

Form 8233

Foreign Nationals-Tax Status

Reminders: The University of Arizona is unable to make any payments (including expenses) to a Foreign Visitor unless specifically allowed by the FSO Financial Policies and Procedures Manual 9.16 Preauthorization for exceptions must be approved by the Financial Services Office Tax Compliance area Payments must be paid directly to the Foreign Visitor or an appropriate third party vendor (i.e. hotel, travel agency) UA employees may not be reimbursed Non-employee may not be reimbursed

Reference and Resources FSO Financial Policies and Procedures Manual 9.16 http://policy.fso.arizona.edu/fsm/900/916 E-Forms http://uabis.arizona.edu/eforms/ FSO Operations/Accounts Payable Accts_pay@fso.arizona.edu 520-621-9097 Campus PO BOX 210158 University Services Building (USB), Room 402

QUESTIONS?