Nonresident Alien Tax Compliance

U.S. immigration regulations under the jurisdiction of the U.S. Citizenship and Immigration Services (USCIS) of the U.S. Department of Homeland Security (DHS) govern and restrict the types of payments that can be made to individuals who are neither citizens nor permanent residents of the U.S.  IRS and Treasury Department rules govern the Federal income and Social Security tax withholding and reporting rules related to payments made in accordance with USCIS rules.
 
To be in compliance with the U.S. immigration and tax laws, Rensselaer, as a withholding agent, is required to identify all payments made to or on behalf of a nonresident alien, as well as apply appropriate tax withholding and report the payments to the IRS. The U.S. tax withholding and reporting rules governing nonresident aliens are quite different than those governing U.S. citizens and resident aliens. These regulations are complex and there are various compliance issues that need to be followed.
 
Information contained within these pages are intended to:

  • Provide guidance with respect to payments to individuals who are neither citizens nor permanent residents of the United States;
  • Promote compliance with U.S. Citizenship and Immigration Services (USCIS) rules regarding the types of payments that can be made to an individual based on his or her immigration status; and
  • Promote compliance with the Internal Revenue Service (IRS) income tax reporting and withholding rules.

The information on these pages are designed to provide department administrators with reference tools and resources in order to facilitate the process of paying an international visitor, student, scholar, faculty or other international individual or entity who is permitted to receive payment.

DISCLAIMER
The information contained within this website is provided for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.  All information in this site is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance and fitness for a particular purpose.

Accordion

Determining Tax Residency Status

Nonresident Alien

A nonresident alien (NRA) is a non-U.S. citizen who is not a permanent resident alien and who does not satisfy the substantial presence test which involves counting eligible days in the U.S.  Nonresident aliens are required to pay U.S. taxes only on their income from U.S. sources and are subject to Federal tax reporting and withholding rules that differ from those applicable to U.S. citizens and resident aliens.

From <https://www.irs.gov/publications/p515#en_US_2020_publink1000224807>

Permanent Resident Alien

A permanent resident alien is a non-U.S. citizen granted lawful U.S. permanent residence status.  Permanent resident aliens (often referred as “green-card holders”) are generally taxed in the same manner as U.S. citizens.

Resident Alien

A resident alien is a non-U.S. citizen who is a permanent resident alien or who satisfies the substantial presence test.  Resident aliens pay U.S. taxes on their worldwide income and are generally taxed in the same manner as U.S. citizens.

From <https://www.irs.gov/publications/p515#en_US_2020_publink1000224807>

Accordion

Payments

Wages / Salary / Compensation

Wages / Salary / Compensation

If the payment made to nonresident alien is determined to be a salary or wages, it is subject to payroll wage reporting and withholding and will be paid through Payroll. Employment compensation, or a salary, is taxed at marginal graduated rates.  This means income earned over certain levels set by the IRS is taxed at progressively higher rates.

  • If eligible for tax treaty benefits, both nonresident aliens and resident aliens can claim exemption from tax withholding by completing a GLACIER record.

Honoraria / Guest Speaker Fees

An honorarium is a payment to an individual for participation in an academic activity such as a guest lecture or invitational event.  If an international visitor will receive an honorarium payment from Rensselaer, the recipient must hold a visa that permits them to receive an honorarium.  An individual already in the U.S. may not necessarily be here under the correct visa classification.  If any international visitor cannot legally receive an honorarium payment based on visa restrictions, payment cannot be made. 

The process for foreign nationals to be paid an honorarium and/or travel reimbursement is complicated and has multiple components. The foreign national must travel on the correct visa; the department needs to do advance planning; tax treaty benefits may impact the tax rate for the honorarium; and, several different types of forms are needed for the payment.

In general, payments made to international visitors are immediately subject to U.S. tax withholding. There are some exceptions to this general rule but international visitors should clearly understand that taxes may have to be deducted from honoraria and/or travel reimbursements.  If an international visitor meets certain requirements, however, they may be able to benefit from tax treaty and other visa status benefits that reduce or exempt them from US taxation.

Who's Eligible to Receive an Honorarium

  • B-1, B-2, VWB (Visa Waiver Business) or VWT (Visa Waiver Tourist) provided the individual meets the conditions of the Honorarium Rule ("9/5/6" Rule) for "usual academic activity":
    • 9 days or less at Rensselaer
    • The individual has accepted such payment from no more than 5 educational or research institutions (including Rensselaer)
    • In the previous 6-month period
  • J-1 scholars sponsored by Rensselaer may receive compensation for occasional lectures or short-term consultations at Rensselaer or at another university that involve wages or other remuneration. The occasional lectures or consultations must be authorized in advance and in writing by the sponsoring institution listed on Form DS-2019.
  • J-1 scholars sponsored by another University may be invited to Rensselaer to give a lecture or participate in a sanctioned academic activity on an occasional basis. The scholar must obtain written authorization for the activity from the sponsoring university's Responsible Officer in the International Students Office in advance of the activity. The written authorization must be included as an attachment in OSCAR invoice payment request. 

An honorarium paid to a foreign national is subject to 30% withholding, unless the person can claim a tax treaty benefit.  Note: Those who are claiming a tax treaty must have an SSN. AN individual who is receiving an honorarium must complete a GLACIER profile in order to determine tax treaty eligibility and complete necessary forms before a payment can be made. 

An honorarium template can be utilized to request payment. 

Scholarship / Fellowship

Scholarship

A scholarship is an amount paid or allowed to a student at an educational institution for the purpose of study.  A scholarship should not require a student to perform any services. If it does, then it is considered compensation for services and is subject to payroll wage reporting and withholding and will be paid through Payroll.

A qualified scholarship is a tax-free amount (excluded from income) if it meets both of these criteria:

  • The student is a candidate for a degree at an educational institution and;
  • Amounts received as scholarship are used to pay for qualified educational expenses:
    • Tuition and fees required to enroll at or attend an eligible educational institution, and
    • Course related expenses (including but not limited to fees, books, supplies, or equipment) that are required for the courses at the eligible educational institution.  These items must be required of all students enrolled in a given course of instruction.

A non-qualified scholarship is not tax free (included in income) if:

  • Amounts paid to or on behalf of a student are used to pay for non-qualified expenses such as room and board, travel, research, optional equipment and other incidental expenses.

For additional information and more specific examples of qualified and unqualified expenses, see table 1-1 of IRS Publication 970 – Tax Benefits for Education.

Fellowship

A fellowship is an amount paid to an individual to aid in the pursuit of study or research in order to enhance his or her training in a specific field of interest.  The terms of receiving a fellowship may or may not include a service or work requirement.  If a fellowship requires an individual to perform services, the fellowship will be considered compensation for services and is subject to payroll wage reporting and withholding.

Similar to the above rules for scholarships, taxes do not have to be paid on a fellowship to the extent the funds are used for “qualified expenses”, which includes tuition, fees, books, and equipment required for classes or enrollment.  However, any portion of a scholarship, fellowship or grant spent on “non-qualified” expenses, such as room and board, living allowances, meal allowances, travel, research and medical insurance, should be included the recipient’s taxable income for the year. 

A scholarship or fellowship represents payment for services when the grantor requires the recipient to perform services in return for receiving the grant, or pursue studies, research, or other activities primarily for the benefit of the grantor. A scholarship or fellowship received on the condition of past, present, or future services by the recipient, or services that are subject to the direction or supervision of the grantor, also represents payment for services.

Nonresident alien (NRA) students who receive scholarships and fellowships from Rensselaer are subject to the same rules as U.S. citizens/permanent residents as to whether or not it is taxable. However, non-qualified scholarship and fellowship payments to NRA students that include non-service payments, room and board, living allowances, food allowances, incidental expenses, travel, and non-required equipment are subject to tax withholding at the time of payment.  Any scholarship or fellowship used to pay these costs are taxable and are reported on Form 1042-S.  Individuals on F, J, M or Q visas are taxed at the rate of 14% for Federal taxes.  If an individual is eligible for a tax treaty benefit, this may reduce or eliminate his or her tax withholdings.  If a student wishes to take advantage of a tax treaty, if applicable, he or she must enter all of their data into the GLACIER system.

Royalty

A royalty is the payment for the right to use intangible property such as copyrights, patents, models, design, secret processes or formulas, trademarks, etc.

A license fee is typically paid for the right to use something such as a software program for a period of time or for a number of logins.  A subscription fee is normally paid for the right to access a database or a collection of raw data/facts for a period of time or for a number of “subscribers” to login to access the database.  Therefore, license fees and subscription fees are royalty payments – the right to use the collection of raw data/facts or intellectual property. 

If an international person will be receiving royalty payments from Rensselaer, that individual must complete a GLACIER profile.  If an entity will be receiving a royalty payment, it must complete Form W-8BEN-E if treaty exists between the U.S. and the tax residence country of the entity.  If a treaty does not exist or there is no reduction of tax rate within the treaty, then 30% tax withholding will be required. 

Living Allowances

At Rensselaer, visiting research scholars are invited to come to the United States on a visa (usually J1) to collaborate with a faculty member at Rensselaer on a research.  A research scholar is selected by a faculty member who becomes aware of the researcher that has experience or is working on a project that complements their own group’s research.  These research scholars are supervised by either the faculty or senior researchers within the lab and are usually assigned an office space.  They are paid a living allowance payment.   
  
A living allowance represents compensation for services if the following apply:

  • There is a requirement for past, present, or future teaching, research, or other employment services by the recipient; or
  • If the payment for services are subject to the direction or supervision of the grantor; or
  • The grant payment enables the recipient to "pursue studies or research primarily for the benefit of the grantor.”

Therefore, living allowances received by the visiting research scholars at Rensselaer are typically compensation, are paid through Payroll, subject to the graduated tax, and must be reported as gross taxable income on the recipients’ income tax returns.

Travel Reimbursements

The IRS does not classify travel reimbursement as a category of income.  Travel reimbursements are only associated with the following categories of income:

  • Compensation (either dependent or independent)
  • Non-service Scholarship or Fellowship

The category of income is based on the combination of the relationship of the traveler with the payer in connection with (i) the expectation or not, of services to be rendered, and (ii) the benefit of the travel taking place.

If the person is an employee or independent contractor, the travel payment is for the benefit of the institution and the payment would fall under the rules of accountable plan. 

Travel by Students

Student travel payments are generally considered reimbursement (nontaxable, non-reportable to the IRS) if the travel:

  • Directly supports a faculty member's project or research program
  • Results or research will be used by the university
  • Research is performed to fulfill university's obligations to outside funding entity (contract/grant obligations under the direction of a faculty member)

In keeping with above criteria, travel expenses paid from federally funded research grants will be considered non-taxable to the students. 

Student travel payment is generally considered to be scholarship (taxable, reportable) if:

  • Reimbursement is made for activities in which the university obtains little or no benefit or the research is student led
  • The project/research's primary purpose and original intent is to further the student's education or training
  • Activities are performed to contribute to the development of the skills needed in the student's studies

Examples of Taxable Travel Grant or Scholarship

  • Student travels to the United Kingdom for dissertation research, which is not research the university would otherwise conduct. The student dissertation is the primary purpose of the travel, The student is the primary beneficiary
  • Student travels to a conference in Mexico as an attendee and does not present/contribute in official capacity.
  • Student travels to China for Mandarin language training which will assist in language proficiency needed for degree. This is supplemental work that the student may need to succeed, but it is not a required part of the degree.

Travel reimbursements paid from non-federally funded grants will be reviewed on a case by case basis by the Office of Tax within the Controller’s Office. 

Any reimbursement to an undergraduate or graduate student which is deemed to be scholarship will be subject to 14% federal withholding and the payment will be reported as scholarship income on Form 1042-S.

Travel by Visitors

Travel expenses for conference speakers and panelists (a person who has been invited to present a lecture, discussion, paper, or serve as a panelist, etc., at a conference) are considered non-taxable, business expenses by the IRS.  Therefore reimbursements for these expenses are not considered to be income to the invited speakers.  As such, no tax withholding is required on any partial or full reimbursement of travel related expenses paid to invited speakers.

Travel reimbursements for conference attendees (a person who attends a conference but is not an invited speaker or panelist) are considered to be taxable income by the IRS.  The reimbursement is a “travel grant” or “travel award” and is a non-service payment.  Rensselaer will withhold the tax from the reimbursement and remit payment to the IRS.  This means that the international conference attendee will not receive a full reimbursement of their travel expenses. Travel should be planned with a firm understanding of this. 

The amount of income tax withheld depends on a number of factors including the visa status of the attendee; tax treaty benefits; and the length of physical presence in the U.S.  It normally ranges from 14% - 30% of the travel reimbursement.

Travel expenses related to recruitment (e.g. prospective student visits and faculty candidates) are for the benefit of RPI and therefore, no tax withholding is required.

 

Procedures/Guidelines for Submitting Travel Reimbursements

1. International students must complete the Travel Form for the International Students

  • In most cases, the travel will be for the benefit of the Student, however, ultimate determination of travel benefit recipient (RPI vs Student) will be made by the Office of Tax within the Controller’s Office.
  • If travel is determined to be for the benefit of RPI, there will be no tax withholding.
  • If travel is determined to be for the benefit of the student, there will be a 14% tax withholding assuming F-1 or J-1 visa holder. 
  • Student must complete or update their GLACIER profile in order to receive payment, as completion of the profile will also assist in determining tax treaty eligibility.

2. Tax withholding calculation will be on the total amount of travel.

Example 1:

The department partially paid for the travel and the student is requesting reimbursement for the remainder of the travel expense.  The travel was determined to be for the student’s benefit and the department is not assuming responsibility for the tax. 

Total amount of travel expense was $1,000.  The department paid $500 and the student is requesting $500 in reimbursement.  The student will receive $360 with $140 in tax withheld on the full amount of the travel expense ($1,000 x 14%), not $430. 

Example 2:

Total amount of travel expense was $1,000.  The department paid $900 and the student is requesting $100 in reimbursement.  The student will not receive any amount since the tax withholding amount ($140) is greater than the $100 reimbursement request.  The remaining $40 will be collected from the department. 

 

Other Payments

Prizes and Awards

A prize or award given to a student in recognition of academic achievement or special recognition (i.e., writing contest, business competition) is taxable income to the student.  IRS regulations require that nonresident aliens who are receiving a prize/award are subject to 30% federal withholding on the payment.  Generally, tax treaty provisions are not available to exempt a prize/award from the 30% tax withholding.

It is possible for the department awarding the nonresident alien student to gross up tax so that the student receives the full amount of the award. Please see the "Paying a Nonresident Alien's Tax" section of the website for details on this process. 

Human Subject Payments

Human subject payments for participating in a study or research is taxable income to the student.  IRS regulations require that nonresident aliens who are receiving human subject payments are subject to 30% federal withholding on the payment.  Generally, tax treaty provisions are not available to exempt human subject payments from the 30% tax withholding.

For payments to nonresident aliens for a prize/award, or to human subjects, the individual will need to create a profile in GLACIER and they will receive a 1042S tax reporting form by March 15 of the next calendar year reflecting the amount award, taxes withheld, and amount netted.

In all cases, GLACIER must be completed before any payment can be processed regardless of the amount of the payment.  Under IRS regulations, no matter how small the payment, if the payment is subject to taxation, Rensselaer is required to withhold taxes.

Foreign Entity

When making payments to a foreign corporation, the facts and circumstances need to be analyzed to determine the appropriate withholding certificate to request, and which withholding rates or exemptions to apply.  The following need to be determined: the source of income, , whether the company has effectively connected income through a U.S. trade or business, whether or not the corporation is actually a personal holding company, and whether a tax treaty is applicable.  In order to arrive at the correct conclusions, it is imperative that the payment is correctly classified and the true beneficial owner of the income is identified.

If the payment to a foreign entity is for goods (e.g. books, supplies or other tangible goods), no tax withholding is required.

If the payment to a foreign entity is for services performed OUTSIDE of the U.S., no tax withholding is required. The "Services Performed Outside of the U.S." form should be filled out and signed by the foreign entity, to be included in Oscar for payment. 

If the payment is for services performed in the U.S. or for royalties, one of the following W-8 forms need to be completed

W-8 

As a withholding agent, Rensselaer is required by the IRS to collect the appropriate W-8 form from any foreign entity to establish the entity's foreign status.  In addition to the payment details provided when transactions are being processed to a foreign entity, these forms will help determine the appropriate tax withholding or exemption necessary for any U.S. sourced income being paid. Form W-8 and Instructions

W-8BEN-E

The W-8BEN-E is completed by entities claiming a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the U.S. has an income tax treaty and who is eligible for treaty benefits.  Form W-8BEN-E is valid for three years from when it was signed, unless a change in circumstances makes the information provided on the form W-8BEN-E inaccurate. Form W-8BEN-E and Instructions.

At a minimum, foreign entities must complete

  • Part I
  • Part III, and
    • Line 14a: For treaty purposes, a person is a resident of a treaty country if the person is a resident of that country under the terms of the treaty. A list of U.S. tax treaties is available at United States Income Tax Treaties - A to Z.
    • Line 14b: The box immediately after "b." must be checked if any treaty benefits are being claimed. If the resident country has entered into an income tax treaty with the U.S. that contains a "Limitation on Benefits" (LOB) article, one of the checkboxes in line 14b must be checked. 
      • The “Limitation on Benefits” (LOB) article is an anti-treaty shopping provision intended to prevent residents of third countries from obtaining benefits under a treaty that were not intended for them. IRS Treaty Table 4. Limitation on Benefits.
    • Line 15: Line 15 must be used only if the entity is claiming treaty benefits that require that it meet conditions not covered by the representations it makes in line 14 (or other certifications on the form). Specify:
      • (1) the Article and paragraph of the income tax treaty between the U.S. and the country identified on Line 14a;
        • (2) a reduced rate of, or exemption from, withholding under an income tax treaty;
      • (3) type of income;
      • (4) explain why it meets additional conditions in the Article and Paragraph
  • Part XXX

If any required field is not completed, the W-8BEN-E is considered invalid and will be rejected.  Foreign entities must provide either an EIN, ITIN or a foreign tax identification number in order to claim treaty exemption. 

Form W-8EXP

Generally used for payments to foreign governments, tax-exempt organizations, and other similar entity types. If the foreign entity indicates that it’s a foreign tax-exempt organization claiming tax exemption under U.S. tax law, then they must also provide an accompanying IRS determination letter (or a letter of opinion from a U.S. attorney), attesting that the organization would likely obtain tax-exempt status from the IRS. Additionally, they must also provide a U.S. taxpayer identification number on Form W-8EXP. Form W-8-EXP and Instructions.

Form W-8ECI

Generally used for payments of income to a foreign entity, which are effectively connected with a trade or business within the US.  If the foreign company is engaged in a U.S. trade or business, it must apply for a Taxpayer Identification Number because it is required to file a U.S. tax return reporting its U.S. business income.  In such cases, the foreign company should complete W-8ECI to allow the withholding agent to refrain from withholding tax. Form W-8-ECI and Instructions.

Paying a Nonresident Alien's Tax

If a department chooses to pay the tax on behalf of a nonresident alien, the tax payment is considered income and is taxable as well.  In such cases, a reverse calculation must be made to find out how much the initial payment must be after taxes are paid.  This is called “Grossing-up” and such requests should be clearly made in the comment sections of either the OSCAR invoice or Concur expense report. 

Example 1:  The department paid for the travel on behalf of the student and the travel was determined to be for the student’s benefit.  The department will also pay the tax for the student.  Travel reimbursement was $1,000.  The department would be responsible for $1,162.79 (100/86 x $1,000) so that $162.79 ($1,162.79 x 14%) of tax could be withheld. 

Example 2:  A nonresident alien student won the first place in a writing contest.  The prize is $200.  The department wishes to pay the tax on behalf of the student so that the student will receive the full amount of the prize.  The total amount that the department will pay is $285.71 (100/70 x $200) so that $85.71 ($285.71 x 30%) of tax could be withheld.  

Text Block

Tax Treaties

Tax treaties are bilateral agreements between the U.S. and a foreign country.  The U.S. has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Treaties also have many limitations on eligibility, amounts, and duration. 

IRS Publication 901, U.S. Tax Treaties provides whether a tax treaty between the United States and a particular country offers a reduced rate of, or possibly a complete exemption from, U.S. income tax for residents of that particular country.

The full text of tax treaties and accompanying Technical Explanations and Protocols can be obtained at United States Income Tax Treaties - A to Z.

IRS Tax Treaty Tables provides a summary of many types of income that may be exempt or subject to a reduced rate of tax.

In order to receive tax treaty benefits, a foreign individual or entity must have tax residence with the treaty country and must have the applicable tax ID (U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)).  If you do not have a taxpayer ID, ITIN or SSN, you will not be able to claim tax treaty benefits until you receive your number.

W-8BEN/W-BENE-E treaties are granted for three calendar years including the year the tax treaty is applied.
All income exempt under a tax treaty will be reported on Form 1042-S and mailed no later than March 15th following the end of the calendar year.  Individuals are required to file a U.S. tax return on this income, even if no taxes are withheld.

Text Block

GLACIER

GLACIER is an online tax compliance system. It is a secure and web-based program, which facilitates the U.S. tax classification process to determine appropriate tax withholding and possible tax treaty eligibility (if applicable). Foreign nationals receiving payment from Rensselaer will be given access to GLACIER and will be asked to complete a profile before payment will be made. 

Once a payment request has been made either through Concur or OSCAR, an email will be sent from Rensselaer to the individual receiving the payment notifying them that an email will be sent from GLACIER requsting that they fill out a GLACIER profile.  The email will be from support@online-tax.net, which includes the original login information

Generally, all required tax forms are generated by the system.  Note however, that this does not include the Form I-9 - Employment Eligibility Verification, which must be compeleted by anyone that will be an employee and paid through payroll. Additionally, "Required Document Copies" of one’s immigration documents must accompany any GLACIER submission for it to be considered complete.

Please Note – If an individual already has an existing GLACIER account with Rensselaer, they will NOT receive the login email from support@online-tax.net. They will get an email from the tax department telling them that they will need to login and update their existing account by going to https://www.online-tax.net.  If the login information is forgotten or lost, clicking on the “Forgot Login” link on the login screen will help with the process of retrieving it.