FEDERAL TAX WITHHOLDING INSTRUCTIONS

NONRESIDENT ALIEN (FOREIGN NATIONAL) CONTRACTORS

Eligibility for a nonresident alien (Foreign National) to receive compensation from a U.S. source depends on the person's visa status. Compensation for independent personal services paid to Foreign Nationals is subject to 30% federal tax withholding, unless the amounts are covered by a tax treaty.

• Eligibility for a Foreign National to use a tax treaty depends on the specific treaty between the U.S. and the home country, and the individual securing a social security number or Individual Taxpayer Identification Number (ITIN).

VISA STATUS RESTRICTIONS AND PROHIBITIONS

Both immigration and tax laws place a number of restrictions on payments made to short-term foreign visitors, including those on B visas or visa waivers. Most foreign scholars and researchers enter the U.S. with a J-1 visa, which allows them to teach or conduct research while on campus. Most other visa types limit the nature and locations of work that can be performed by the visitor. The department should contact the International Student and Scholar Services office at (612) 626-7100 for the short-term foreign visitors. This should be done immediately after the department is aware that an invitation is being extended to a foreign visitor.

The "B" visa and visa waiver restrictions are as follows:

• B visa and visa waiver holders are prohibited from being paid for employee services.
• Honoraria - Scholars with B-1, WB, B-2 or WT visa may receive an honorarium payment and documented expense reimbursement so long as the following criteria is satisfied.

  The academic activities last no longer than 9 days The person has been paid by no more than 5 other institutions within the previous 6 month period.

• Expense Reimbursements - Reimbursement of documented business or travel expenses for any period in excess of 9 days must be unrelated to the honoraria-generating activity.
• Certification - All B visa and visa waiver holders receiving honoraria and expense reimbursement payments must complete the Honoraria and Expense Reimbursement Certification Form. The certification form and instructions can be found on the Payroll Services web site at www.umn.edu/ohr/payroll/admin under "Paying Foreign Nationals". This form must be forwarded to Payroll Services.

Payments subject to 30% tax withholding include:

• Fees or Honoraria for lectures, live performances, consultations or research.
• Participation in scientific, educational, professional or business conventions, conferences or seminars.
• Reimbursed living and travel expenses not supported by receipts.
• Flat payments for living expenses.
• Reimbursement for lost income.
• Any other unspecified payments.

Payments not subject to 30% withholding include:

§ Reimbursed lodging and travel expenses which are supported by receipts. § Per diem amounts paid for meals and incidentals only within the current § government rates. § Payments made directly to a vendor on behalf of the Foreign National for properly documented expenses other than living expenses.

TAX TREATY ELIGIBILITY

To exempt a Foreign National from 30% withholding on the above payments, the following requirements must be met:

• Independent Personal Services tax treaty must exist between the U.S. and the person's home country, and must meet the eligibility requirements of that treaty.
• Foreign National must have a social security number, or apply for one through University of Minnesota Payroll Services. If not eligible to receive a social security number, the visitor must apply for an Individual Taxpayer Identification Number (ITIN).
• Eligible Foreign National must complete IRS Form 8233 and the Tax Treaty Affidavit. These forms are found on the web in the U - Wide Forms Library or on the Payroll Services web site at www.umn.edu/ohr/payroll/admin. Look under "Forms - Payroll Forms".
• The tax treaty exemption becomes effective for payments made after the treaty documents are processed by Payroll Services.
• Tax Treaty forms are effective for current calendar years only.

NOTE: A complete list of Tax Treaty countries is found on the Payroll Services web site at www1.umn.edu/ohr/payroll/admin.htm under "Paying Foreign Nationals". This site also has more detailed information concerning how to obtain a social security number or ITIN.

PREPARING CONTRACT or PAYMENT DOCUMENTATION

In addition to the general information needed to complete the contract and payment documentation, the following information must be included:

• Visa status and country of residence of the contractor.
• Tax ID, ITIN, or social security number, if available, or if eligible for a tax treaty.
• Documentation supporting reimbursed expenses.
• If services by the nonresident alien were not performed in U.S., provide statement to that effect.
• If the contractor is eligible for a tax treaty exemption submit the tax treaty forms to Payroll Services prior to processing the payment.
• If paying a B or visa waiver holder, submit the completed Honoraria and Expense Reimbursement Certification form to Payroll Services.

Year-end IRS Tax/Reporting concerns:

• Form 1042-S will be sent to the Foreign National independent contractor at year-end, as well as being reported to IRS.
• A tax return form1040NR should be completed by the contractor and submitted to IRS.
• The contractor may wish to read the following IRS publications to determine whether the payment is subject to 30% withholding or exemption through a tax treaty:

  Publication 515, Withholding of Tax on Noonresident Aliens and Foreign Corporations.
  Publication 519, U.S. Tax Guide for Aliens.
  Publication 901, U.S. Tax Treaties

• IRS tax publications, forms and instructions are available on the IRS web site at www.irs.gov under Forms and Publications, or can be ordered by calling 1-800-TAX-FORM (1-800-829-3676).

For questions on federal withholding tax or tax treaties, call Human Resources Call Center at 612-625-2016.