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Taxation of Non-Residents
Presented by:
Mike Sattin and Steven Truong
Payroll Services
April 25, 2012
Payroll Services 2 4/27/2012
Today’s Agenda
Basic Withholding Concepts
Six Q’s of NRA Withholding
Tax Withholding Obligations
Maintenance
Payroll Services 3 4/27/2012
Code of Federal Regulations
Title 26 - Tax Withholding Obligations
Internal Revenue Codes Specific to Nonresidents
§ 1441. Withholding
§ 1441. Withholding of tax on nonresident aliens
§ 1442. Withholding of tax on foreign corp.
§ 1443. Foreign tax-exempt organizations
§ 1444. Withholding on Virgin Islands source income
§ 1461. Withholding Tax on Foreign Persons with U.S. Source Income
Basic Withholding Concepts
Payroll Services 4 4/27/2012
Tax Withholding Obligations
California Law
California Code – Revenue & Taxable Code
§ 18661-18667 General Rules
§ 17951-17955 Non-resident specific rules
For employees who are nonresidents of California
and work out of California, we need to apply the
relevant state laws in which the employee works.
Basic Withholding Concepts
Contact: Jeremy Henmi 310-794-0834
Payroll Services 5 4/27/2012
The Withholding Agent
Anyone who has control, receipt, custody, disposal, or payment of income to a foreign person
Responsibilities include: Liable for any required withholdings
Required to withhold at the time the payment is being made or determined
Required to remit taxes to IRS at a particular schedule
Required to file tax returns and issue tax statement for payments to non-residents for tax purposes
Basic Withholding Concepts
Payroll Services 6 4/27/2012
The Withholding Agent
Type of Tax Contact Phone Number
592B – CA income tax
for non-employees
Shirley
Sams
310-794-0197
Federal income tax
Employment tax
Aurora
Orozco
310-794-8728
At UCLA, the withholding agents for
nonresident aliens are…….
Basic Withholding Concepts
Payroll Services 7 4/27/2012
Taxes Withheld by
PPS / AP / BAR (3 paying systems)
Income tax
Federal
California
Other State
Employment tax
Social Security & Medicare
Payroll Services 8 4/27/2012
SIX Q’S OF NRA WITHHOLDING
1. What do we need to know about NRA tax?
2. Who is subject to withholding?
3. Which payment is subject to withholding?
4. When are payments subject to withholding?
5. Who is required to withhold?
6. How much tax should we withhold?
Payroll Services 9 4/27/2012
1. Why worry about taxing NRA’s?
There exists in the U.S. Two distinct tax
systems under IRC - each having it’s own
withholding and reporting rules that payers
are liable for.
There is a system for U.S. Persons and
one for Foreign Person.
NRA withholding applies only to payments
made to a “foreign person”.
Six Q’s of NRA Withholding
Payroll Services 10 4/27/2012
2. Who is Subject to NRA Withholding?
A “foreign person” includes:
A nonresident alien for tax purpose
A foreign corporation, foreign partnership, foreign,
estate, foreign trust
And any other person who is not a US person.
A FOREIGN PERSON
For the remainder of the class, a foreign person will be referred to as a NRA
Six Q’s of NRA Withholding
Payroll Services 11 4/27/2012
Who is a U.S. Person?
A citizen or resident of the United States
A partnership or corporation created or
organized in the United States
Any estate or trust other than a foreign
estate or foreign trust
Any other person that is not a foreign
person
(2. Who is Subject to NRA Withhold? Cont.)
Six Q’s of NRA Withholding
Payroll Services 12 4/27/2012
3. What is subject to NRA Withholding?
Any payment is subject to NRA withholding if it is from sources within the United States, and it is either:
Fixed or determinable annual or periodical (FDAP) income
(Service Payments, Fellowship/Scholarship, Payroll, etc.)
Income from the disposition or sale of personal property
Six Q’s of NRA Withholding
Payroll Services 13 4/27/2012
What is not subject to NRA tax?
All payments are considered taxable income
with the exception of:
I. Foreign Sourced Income – Not reported/Not taxed
II. Excluded under IRS Code – Not reported/Not taxed
III. Excluded under Tax Treaty – Not Taxed
Six Q’s of NRA Withholding
Payroll Services 14 4/27/2012
I. Foreign Sourced Income Exemption
(Not reported/Not taxed)
Sourcing Payment is important!
A U.S. Person is subject to U.S. tax on Worldwide income.
A NRA for tax purposes is subject to U.S. tax on U.S. sourced income
A NRA for tax purposes is not subject to U.S. tax on foreign sourced income
Six Q’s of NRA Withholding
Payroll Services 15 4/27/2012
II. IRS Code Income Exclusions
A. Section 117 – Qualified Scholarship
B. Section 125 – Cafeteria Plans
C. Section 62 – Accountable Plan
D. Section 861(a)(3) – foreign employee
E. Section 872 (b)(3) – foreign employee
F. Section 893 – employee of foreign government
Six Q’s of NRA Withholding
Payroll Services 16 4/27/2012
II.A. IRS Code Income Exclusion
Section 117
Sec. 117 allows for exclusion from income if the payment is for a Qualified Scholarship:
A qualified scholarship is any amount received by an individual as a scholarship or fellowship grant that is used for tuition and fees required for enrollment and required books, supplies, and equipment.
Six Q’s of NRA Withholding
Payroll Services 17 4/27/2012
II.B. IRS Code Income Exclusion
Section 125
Sec. 125 allows for exclusion from income if
the payment is made under a cafeteria
plan:
This allows the employer contributions for
health, dental, and vision benefits to be
excluded from gross income!
Six Q’s of NRA Withholding
Payroll Services 18 4/27/2012
Accountable Plan
Can be excluded from income taxes if properly
accounted for i.e. substantiate business within
60 days and delineate expenses
Travel Expense
Employee – Business expenses
II.C. IRS Code Income Exclusion
Section 62
Payroll Services 19 4/27/2012
III. Tax Treaty Exclusion
IRC 1441
The general withholding rate of 30%
will not apply if the payment is
exempt under an income tax treaty
between the individual’s country of
residence and the U.S.
Six Q’s of NRA Withholding
US Treasury
Tax Treaty Articles
Foreign Country
Payroll Services 20 4/27/2012
4. When are we required to withhold?
Withholding is required at the time you
make a payment of an amount subject to
withholding
A payment is made to a person whether or
not that person realizes there is an actual
transfer of cash or other similar aspect i.e.
imputed income.
Six Q’s of NRA Withholding
Payroll Services 21 4/27/2012
5. Who is required to withhold?
At UCLA, Payroll Services acts as the withholding
agent for purposes of NRA tax reporting obligations
to the IRS.
Three central departments on campus have the
responsibility to withhold the tax and report this
information to Payroll Services.
The Withholding Agent
Six Q’s of NRA Withholding
Payroll Services 22 4/27/2012
UCLA Payment Process
ACCOUNTS PAYABLE
Process Non-Employee Payments
One Time
Payments
Lecture Fee
Honorariums For Travel Office
Travel Expenses
Relocation Costs
YEAR END FORM
1099 and 592B
PPS Withholds taxes
BAR
YEAR END FORM Informational Statement
PAYROLL 1. Process Wage Payments
to Employees 2. Charge Benefits for Post
Docs 2. Withhold Taxes 3. Report Payments/taxes
YEAR END Process
CREATES FORMS
W2 and1042S
1042S for BAR & PAC
GRADUATE DIVISION
Process Fellowship/Scholarship Awards
Includes student travel
Bruin Buy
Six Q’s of NRA Withholding
Payroll Services 23 4/27/2012
6. How much tax is withheld for a NRA?
U.S. sourced income is usually
taxed at a rate of 30%.
Six Q’s of NRA Withholding
Payroll Services 24 4/27/2012
Exceptions to the 30% Rule
Wages paid to a NRA employee
Fellowship/Scholarship payments to a NRA
Tax Treaty Exemptions
Six Q’s of NRA Withholding
Payroll Services 25 4/27/2012
Tax Withholding on Specific Payments
A. Wages
B. Non-employment service payments
C. Post Doc payments
D. Fellowship/Scholarship
E. Reimbursements
F. Other payments: 1. Death Payments
2. Pension Payments
3. Awards
4. Relocation
Tax Withholding Obligations
Payroll Services 26 4/27/2012
A. Wage Payments
NRA working out of U.S.
NRA working in U.S.
NRA working out of California
Tax Withholding Obligations
Payroll Services 27 4/27/2012
UCLA employees may be subject to:
Federal Income tax At Graduated Tax Rates*
FICA Tax % of Gross Payment
OASDI Medicare
State Income Tax At Graduated Tax Rates*
* See current tax tables @ www.payroll.ucla.edu
Tax Withholding Obligations
Payroll Services 28 4/27/2012
Allowable W-4 Exemptions for
Residents for tax purposes
Residents may choose any allowances on the W-4!
Caution: As long as they meet their tax liability at year end
Resident with Tax Treaty
Federal Withholding
- None
State per DE 4
W2 and a 1042S
All Others Residents
Federal & State
Based on DE 4
W2
Tax Withholding Obligations
Payroll Services 29 4/27/2012
Required Withholding Documentation
NRA for tax purposes*
GLACIER generated W-4 and DE 4 (Payroll Services is office of record) Access to forms available @ www.online-tax.net
Residents for Tax Purposes*
GLACIER generated W-4 (Department is office of record) Access to forms available @ www.online-tax.net
UC W-4/DE 4 Fill-in Form is available @ www.ucop.edu/ucophome/cao/paycoord/ucw4-de4.pdf
Employee may update record at “At Your Service Online” *All foreign nationals are required to have a GLACIER record excluding
Permanent Residents, Refugees and Asylees.
Tax Withholding Obligations
Payroll Services 30 4/27/2012
Process for Forms W-4 and DE 4 Departments must ensure an “Initial GLACIER
Online Entry Form” is submitted then the employee will indicate the number of exemptions per IRS code and to adhere to regulations as provided by GLACIER
NRA’s who do not provide a form or provide an incomplete form must be withheld at single status, zero exemptions.
Incomplete forms include those without a SSN.
GLACIER generated withholding forms must be sent to the Payroll Office and withholding will then be updated
Tax Withholding Obligations
Payroll Services 31 4/27/2012
Restrictions on W-4 Exemptions for
NRA Employees Nonresident from:
Canada, Korea, or Mexico
Residents from American Samoa
or Northern Mariana Island
All Others
Nonresidents
Nonresident
with Tax
Treaty
Federal Withholding
- None
State per DE 4
State - W2
Federal - 1042S
Federal Withholding :
• Single Marital Status
• Can choose 1 allowance
for self, 1 for spouse, and
1 for each dependent
State per DE 4
Federal Restricted to:
• Single martial Status
• 1 allowance
State per DE 4
W2 - reports Federal and State info
Federal 1040NR or 1040NR-EZ
State 540* or 540NR or 540NREZ
Nonresident
works &
lives outside
the US
No tax
deduction
No reports,
No filing
Nonresident
Students from
India
Federal Withholding
• Single Marital Status
• Can choose additional
allowance for spouse
and dependent if
requirements are meet.
State per DE 4
Tax Withholding Obligations
Payroll Services 32 4/27/2012
Joe Bruin
Non-residents: Limited to Single Marital Status.
Non-residents: Limited to One allowance unless:
•Resident of Canada, Japan, Korea, or Mexico.
•Special Rate from Tax Treaty – India student
•Exempt per tax Treaty
State Status and Allowances – whatever will meet the tax liability
UC W-4NR/DE 4
Tax Withholding Obligations
OBSOLETE
FOR UCLA
MUST PROVIDE:
GLACIER
GENERATED
FORMS
SSN is required. Otherwise, the allowances are = 0
2010
Payroll Services 33 4/27/2012
Tax for NRA working in U.S.
Wages paid to an NRA working in the US as an employee are subject to graduated withholding in the same way as U.S. citizens/ residents unless exempted by a tax treaty.
Payment for U.S. sourced personal services is taxed as the previous chart shows.
Tax Withholding Obligations
Payroll Services 34 4/27/2012
Tax for NRA working out of U.S. Wages earned by nonresident aliens for
services performed outside of the United States are foreign sourced income.
The wages are not subject to reporting or withholding of federal or state income tax.
The wages are not subject to FICA tax
There are special codes in PPS to facilitate this.
Tax Withholding Obligations
Payroll Services 35 4/27/2012
Foreign Sourced
Income Statement
Hermione Black
www.tax.ucla.edu/
Submit Foreign Sourced Income
Statement when a nonresident
employee is working and living outside
of the United States along with a
Form UPAY 830.
Tax Withholding Obligations
4/25/12 Hermione Black Staff Researcher
Payroll Services 36 4/27/2012
Withholding Form for
a NRA working out of
U.S.
Hermione Black
123 45 6789
www.payroll.ucla.edu/
Note Special Coding on allowance fields. This coding
prevents the system from withholding and reporting
to the IRS and state of California.
Tax Withholding Obligations
2012
4/25/2012
Payroll Services 37 4/27/2012
State Income Tax
There are no California imposed restrictions on the number of allowances an employee can choose on their DE 4 Form.
State withholding (for employees) is based on information from the DE 4 form.
Income earned while living and working in California is subject to withholding
Income earned outside California may also be subject to withholding in the other state.
Tax Withholding Obligations
Payroll Services 38 4/27/2012
Resident W-4 Form
The Social Security number is
a must have. If an employee
completes the form without a
SSN, the IRS considers the W-
4 to be invalid and the
employee is restricted to
marital status S and 0
allowance
Tax Withholding Obligations
Bear Brown
123 45 6789
State status and allowance – whatever will meet the tax liability
2012
4/25/12
Payroll Services 39 4/27/2012
Payments to Non-California Residents working outside of
California
Payroll Services 40 4/27/2012
Out of State Employees
at UCLA are either: 1. Employees who are residents of California and work
outside California. Their liability is based on their “worldwide income”
They are withheld based what is claimed on their W-4
2. Employees who are non-residents of California and work in California.
They are withheld tax according to what is claimed on the W-4
There is no special exemption for these employees.
3. Employees who are non-resident of California and work outside of California
They are exempt from California taxes.
There may be a requirement to withhold for the state that they are working in.
Tax Withholding Obligations
Payroll Services 41 4/27/2012
STATE INFORMATION List of States which require state tax withholding from income earned while an individual
is living and working in that particular state. It also shows the withholding certificate
requirements for each state.
STATE CODE REQUIRES
WITHHOLDING
WITHHOLDING CERTIFICATE
REQUIREMENTS
Alabama AL Yes Form A-4
Arkansas AR Yes Form AR4EC
Connecticut CT Yes Form CT W-4
District of Columbia DC Yes Form D-4
Georgia GA Yes Form G-4/G4-E
Hawaii HI Yes Form HW-4
Illinois IL Yes Form Il-W4
Indiana IN Yes Form WH-4
Kentucky KY Yes Form K-4
Louisiana LA Yes Form L-4, L-4A, or L-4E
Maryland MD Yes Form MW 507
Michigan MI Yes Form MI-W4
Mississippi MS Yes Form 62-420
Missouri MO Yes Form MO W-4
New Jersey NJ Yes Form NJ-W4
New York NY Yes Form IT-2104 or IT-2140E
North Carolina NC Yes Form NC-4 or NC-4A
Ohio OH Yes Form IT-4
Virginia VA Yes Form VA-4
West Virginia WV Yes Form IT-104
Wisconsin WI Yes Form WT-4
Tax Withholding Obligations
Payroll Services 42 4/27/2012
STATE INFORMATION List of states which require (UC Version) Federal W4 Form.
STATE CODE REQUIRES
WITHHOLDING WITHHOLDING CERTIFICATE REQUIREMENTS
Arizona AZ Yes Federal W-4, must use UC version
California CA Yes “
Colorado CO Yes “
Delaware DE Yes “
Idaho ID Yes “
Iowa IA Yes Federal W-4, must use UC version but indicate “IOWA” on form
Kansas KS Yes Federal W-4, must use UC version
Maine ME Yes “
Massachusetts MA Yes Federal W-4 must use UC version. When claiming exempt use M-4
Minnesota MN Yes Federal W-4, must use UC version but indicate “Minnesota” on form
Montana MT Yes Federal W-4, must use UC version
Nebraska NE Yes “
New Mexico NM Yes “
North Dakota ND Yes “
Oklahoma OK Yes “
Oregon OR Yes “
Pennsylvania PA Yes “
Rhode Island PR Yes “
South Carolina SC Yes “
Utah UT Yes “
Vermont VT Yes “
List of States that don’t require state tax withholding: Alaska, Florida, Nevada,
New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Tax Withholding Obligations
Payroll Services 43 4/27/2012
Obtain this form from the Payroll Services web site
http://www.payroll.ucla.edu/forms/f
ormsfrm.htm
Tax deduction must be cancelled
UPAY 830 –
Out of state
Income tax
withholding
form
Bea A Bizzy
Payroll Services 44 4/27/2012
–For an employee working out of CA
1
997
Sirias Black
Black, Sirias 123456789 03 16 11
67-67 Burns Street 123 45 6789 11 25 69
New York, NY 11375
http://www.ucop.edu/ucophome/cao/paycoord/taxation.html
4/25/12
Note Special Coding on state Allowance. This coding
Prevents the system from Withholding and reporting To the state of California.
There may be liability in the State work is performed
May only choose 997 If a complete UPAY830
Is submitted
2012
S
Use of the appropriate
version of the W-4 (W-4/DE
or W4NR/DE 4)depends on
the residency status of the
employee.
Tax Withholding Obligations
Payroll Services 45 4/27/2012
Remember to change slide
# for actual printing of
handouts
FICA FICA
Tax Withholding Obligations
Payroll Services 46 4/27/2012
The current rates of withholding are:
FICA TAX
All employees must contribute to FICA or participate in an employer sponsored retirement plan unless exempted by law
Full FICA
OASDI 4.2%
Medicare 1.45%
Safe Harbor
DCP CAS 7.5%
Medicare 1.45%
Tax Withholding Obligations
Payroll Services 47 4/27/2012
Exemption From FICA Tax
IRC allows for exemption from FICA if:
The employee is a NRA Has a F1 or J1 visa status And works to further the purpose for which visa was issued Student Exemption
PAYROLL OFFICE CONTACT IS Lola Espinoza @ 794-8724
UCLA does not honor Totalization Agreements*
Tax Withholding Obligations
* Exception is Canada
Payroll Services 48 4/27/2012
B. INDEPENDENT PERSONAL
SERVICES PAYMENT
Tax Withholding Obligations
Payroll Services 49 4/27/2012
Independent Personal Service
Payments
Independent Personal Services are services provided to a non-employee. Typical payments include:
Honorarium
Guest speaker fee
Lecture fee
Presentation fee
There is no required withholding form.
Tax Withholding Obligations
Payroll Services 50 4/27/2012
Withholding
Independent Personal Service Payments
Income Code 16 Federal Withholding
Independent Personnel Payments are taxed at the
rate of 30% of gross payment unless the visitor is
eligible for a tax treaty
State Withholding
Independent Personnel Payments that annually
total greater than $1500 are taxed at the rate of
7% of gross payment unless the visitor is a
nonresident of California.
Tax Withholding Obligations
Payroll Services 51 4/27/2012
C. POST DOCTORAL PAYMENTS
Tax Withholding Obligations
Payroll Services 52 4/27/2012
Post Doc Benefit Payments
APM390 was revised to mandate
departments to pay for the cost of benefits
to individuals with title codes of:
3252 - Post Doc Employee
3253 - Post Doc Fellow Recipient
3254 – Post Doc Paid Direct
The revised policy set up a taxable situation
Tax Withholding Obligations
Must have the
same paperwork
as an employee
Payroll Services 53 4/27/2012
Post Doc Benefit Payments
Employer paid benefits for post doctoral employees are not taxable because the benefits are exempted by the Code Section 125. Title codes 3252 and 3240. [Income Code 17 & 18]
Payments of benefits by the employer for the non-employee post doctoral titles however are taxable. Title Codes 3253 and 3254 [Income Code 15]
As you have learned, UCLA is only required to report and withhold for payments to NRA’s. For the NRA’s, the value of the benefits will be imputed as income.
Tax Withholding Obligations
Contact Payroll Services 310-794-0784
Payroll Services 54 4/27/2012
Post Doctoral Benefit Payments
A GLACIER generated IRS FormW-4 will be required.
Since the income is being classified as a fellowship payment, rates attributed to that income will be applied.
Federal Tax Rates:
14% to NRAs with “F,” “J,” “M,” or “Q” status.
30% to all others
0% if tax treaty eligible
California Tax Rate – no withholding required
Tax Withholding Obligations
Payroll Services 55 4/27/2012
D. Fellowship/Scholarship Grants
Tax Withholding Obligations
Payroll Services 56 4/27/2012
Scholarship/Fellowship Grants
A scholarship or fellowship grant is an amount given to an individual for study, training, or research, and does not constitute compensation for personal services.
Whether a fellowship grant from U.S. sources is subject to NRA withholding depends on the nature of the payments and whether the recipient is a candidate for a degree.
Candidate for a degree.
No withholding required from a qualified scholarship from U.S. sources – Section 117 exclusion.
A non-qualified scholarship is subject to NRA withholding.
The withholding rate is 14% paid to nonresident aliens present in the U. S. in “F,” “J,” “M,” or “Q” nonimmigrant status.
Payments made to nonresident alien individuals in any other immigration status are subject to 30% withholding.
Tax Withholding Obligations
(Gift Award) (Research Award)
Payroll Services 57 4/27/2012
Non-degree candidate (post Docs).
Must withhold on the total amount of the scholarship.
In order to use the reduced 14% rate, the following must be true: Must be present in the U.S. in “F,” “J,” “M,” or “Q” nonimmigrant status,
The grant must be for study, training, or research at an educational organization in the United States.
The grant must be made by: A tax-exempt organization operated for charitable, religious, educational, etc.
purposes,
A foreign government,
A federal, state, or local government agency, or
An international organization, or a binational or multinational educational or cultural organization created or continued by the Mutual Educational and Cultural Exchange Act of 1961 (known as the Fulbright-Hays Act).
If the grant does not meet above requirements, withholding tax rate is 30%.
Scholarship/Fellowship Grants
Tax Withholding Obligations
Payroll Services 58 4/27/2012
Recap of Tax Rates
Fellowship/Scholarship rates are as follows:
Federal tax rates are:
0%if tax treaty eligible
14% to NRAs with “F,” “J,” “M,” or “Q” status.
30% to all others
California tax withholding rate is 0.
Tax Withholding Obligations
Payroll Services 59 4/27/2012
TAX TREATMENT OF FELLOWSHIP/SCHOLARSHIP PAYMENTS
AWARD
Fellowship / Scholarship Payments
QUALIFIED
Books, Tuition, and required fees
Degree
Candidate
Non-Degree
Candidate
Not Taxable/
Not Reportable
Post Docs Undergraduates
1042S
UN-QUALIFIED
Room and Board
Travel ( for student benefit)
Equipment
Research, teaching or other service
1042S
1042S
1042S *
or W2
1042S
1042S
1042S
1042S
1042S *
or W2
*if Tax Treaty
Tax Withholding Obligations
Payroll Services 60 4/27/2012
E. Reimbursements
Tax Withholding Obligations
Payroll Services 61 4/27/2012
Generally, the following are NOT REQUIRED
when reimbursing travel expense to a
nonresident alien
Sourcing the Payment
Determining Residency for tax
purposes
Tax Payer ID
Tax Withholding
REASON: the payment is
Not subject to tax Withholding or reporting
Tax Withholding Obligations
Payroll Services 62 4/27/2012
Reimbursements
Travel Expenses
Reimbursement for the travel expenses of
a nonresident alien are not reportable to
the IRS and are not subject to NRA
withholding if the payments are made
under an accountable plan (Sec.62)
This treatment applies only to the
payment of travel and lodging expenses.
Tax Withholding Obligations
Payroll Services 63 4/27/2012
Other Payments
Death Cases Taxability depends if the payment is made in the year of
death or in the year after death.
Immigration fees Taxability depends on the type of fees being paid and
the status of the visa Not taxable: Employer related (sec.62) normal business expense
Permanent Resident fees may be taxable. It depends if the expense is critical to the mission of the University.
Retirement Taxability depends on where the pension is earned.
UCOP and Fidelity
Tax Withholding Obligations
Payroll Services 64 4/27/2012
Exemption from Federal Tax:
Tax Treaties
A tax treaty is a privilege, not a right
Tax Withholding Obligations
IRC section 1461 makes UCLA accountable for tax treaty approval or denial.
Payroll Services 65 4/27/2012
Tax Treaty Exemptions:
What is a tax treaty?
An agreement between the U.S. and another country
that allows either a reduced rate of withholdings or
complete exemption from federal withholding tax.
They are meant to avoid double taxation of income.
Each treaty is divided up by articles. The articles
describe the terms of each treaty.
The United States has tax treaties with 56 countries.
Some states honor the federal tax treaties – California does not!
Tax Withholding Obligations
Payroll Services 66 4/27/2012
Publication 901 has Tax Treaty information Country
of Resident Article Payor Description of Payment
Income Code Maximum
Presence in US
Maximum $$ Received in
Calendar Year that can be
exempt from federal taxes
China, People’s Rep Of 15 Scholarship or fellowship grant No limit Any US or foreign resident No limit 20(b) 16 Independent personal services 183 days Any contractor No limit 13 20 Public entertainment No limit Any contractor No limit 16 17 Dependent personal services 183 days Any contractor No limit 14 18 Teaching 3 years U.S. educational or research instit. No limit 19 19 Studying and Training Remittance or allowance No limit Any foreign resident No limit 20(a) Compensation during training or while gaining experience No limit Any US or foreign resident $5,000 20(c)
Available at IRS web site (www.irs.gov) - Publication Section (Pub. 901)
Tax Withholding Obligations
Payroll Services 67 4/27/2012
Current tax treaty provisions recognized at UCLA (by type of income)
Dividends – Income Codes 5, 6
Royalties - Income Codes 10, 11, 12
Fellowship/Scholarship - Income Code 15
Independent Personal Service - Income Code
16
Employment - Income Code 18
Student Employment - Income Code 19
Performer – Income Code 20
Other – Income Code 50 (death payments)
Tax Withholding Obligations
Payroll Services 68 4/27/2012
To Be Eligible for a Tax Treaty:
1. A tax treaty article must exist between the US and country of residence of the visitor and have a corresponding article.
2. The visitor must be a resident of the tax treaty country and a nonresident of US* unless otherwise allowed by tax treaty.
3. Primary purpose of visit and actual job must meet the tax treaty.
4. Time and $$$ constraints must be met.
5. Required to have a tax payer ID# - SSN, EIN, ITIN
6. Must complete appropriate paper work.
Tax Withholding Obligations
Payroll Services 69 4/27/2012
Exception to Non-Residency Requirement
Generally, only non-residents for tax purposes
are eligible for a tax treaty exemption.
Exception Clause
A visitor (who meets the provisions of their tax
treaty article) who becomes a resident for tax
purposes may continue to claim the exclusion
from income if their country’s tax treaty contains a
provision to do so
LET PAYROLL DETERMINE THIS FOR YOU
Tax Withholding Obligations
Payroll Services 70 4/27/2012
Example of Exception Clause
10/5/10 12/31/10
Non-Resident
1/1/11 12/31/11
Non-Resident
1/1/12 09/10/12
Resident for tax purposes
John Pierre entered the U.S. on October 5, 2010 for the very first time. He planned to
teach at UCLA until September 10, 2012 on a Research/ Scholar J1 visa.
10/4/11
1st year tax treaty eligibility 2nd year tax treaty eligibility
RESIDENCY
2010 -Non-resident for tax purposes
2011 - Non-resident for tax purposes
2012- Resident for tax purpose
Tax Treaty
1st year : 10/5/10 – 10/4/11
2nd year : 10/5/11 – 10/4/12
Tax Withholding Obligations
Payroll Services 71 4/27/2012
Required Paper Work
GLACIER Generated Forms:
Depends on type of Payment
Generally the following document for tax treaty
eligibility is required:
8233 or
IRS W-8BEN or W-9
Tax Withholding Obligations
Payroll Services 72 4/27/2012
PAPER WORK REQUIREMENTS
Employment
Non-Employment
Independent
Personnel
Services
Non Services
Payments:
Royalties,
Dividends
Travel Fellowship/
Scholarship
Residency
Determination
GLACIER
GLACIER
GLACIER
GLACIER
Documentation
of Visa Status
Required
unless sourced
out of US
Required
unless sourced
out of US
Required unless
sourced out of
US
Required
Tax Exemption
Form
GLACIER
generated:
8233 or
W-9
GLACIER
generated
Form 8233
GLACIER
generated
W-8BEN
GLACIER
generated
W-8BEN
Additional
Statement
GLACIER
generated Tax
Treaty Statement
based on Income
Code*
GLACIER
Honoraria
Statement
Declaration of
Immigration
Status by Non-
US Citizens
Payroll Services 73 4/27/2012
Tax Treaty – Professor or Researcher
Tax Withholding Obligations
Payroll Services 74 4/27/2012
Tax Treaty Chart - Income Code 18: This table is for individual whose
primary purpose for entering the U.S. is to teach or research.
COUNTRY CODE MAX. PRES. TREATY PRIMARY PURPOSE ARTICLE LIFE TIME LIMIT
Bangladesh BG 2 years no limit Teaching or Research 21(1)
Belgium BE 2 years no limit Teaching or Research 20
Bulgaria BE 2 years no limit Teaching or Research
China CH 3 years** no limit Teaching or Research 19
Commonwealth ̂ ^ 2 years no limit Teaching or Research VI (1)
Czech REP EZ** 2 years no limit Teaching or Research 21 2 years
Egypt EG 2 years no limit Teaching or Research 22
France** FR 2 years no limit Teaching or Research 20 2 years
Greece ` GR 3 years no limit Teaching only XII
Hungary HU 2 years no limit Teaching or Research 17
India IN 2 years***** no limit Teaching or Research 22
Indonesia ID*** 2 years no limit Teaching or Research 20 2 years
Israel IS 2 years no limit Teaching or Research 23
Italy IT 2 years no limit Teaching or Research 20
Jamaica JM *** 2 years no limit Teaching or Research 22 2 years
Japan JA 2 years no limit Teaching or Research 19
Korea (south) KS 2 years no limit Teaching or Research 20
Luxembourg**** LU 2 years no limit Teaching or Research XIII
Netherlands NL 2 years***** no limit Teaching or Research 21 (1)
Norway NO 2 years no limit Teaching or Research 15
Pakistan PK 2 years no limit Teaching only XII
Philippines RP 2 years no limit Teaching or Research 21
Poland PL 2 years no limit Teaching or Research 17
Portugal PO** 2 years no limit Teaching or Research 22 2 years
Romania RO 2 years no limit Teaching or Research 19
Slovak REP. LO** 2 years no limit Teaching or Research 21(5) 2 years
Slovenia SI 2 years no limit Teaching or Research 20(3) 5 years
Thailand TH 2 years****** no limit Teaching or Research 23
Trinidad/Tobago TD 2 years no limit Teaching or Research 18
United Kingdom UK 2 years****** no limit Teaching or Research 20
Venezuela VE 2 years no limit Teaching or Research
^^Commonwealth includes: Armenia(AM), Azerbaijan(AJ), Belarus(BO), Georgia(GG), Kyrgyzstan(KG), Moldova(MD),
Tajikistan(TI), Turkmenistan(TX), Ukraine (UP), and Uzbekistan(UZ)
In the Aggregate: Visits US in 1998 and 1999, returns to China for a year and comes back to US in 2001 can use the treaty for 2001
Residents of these countries are only allowed 1 lifetime tax treaty exemption
Retroactive treaties
***Treaty only good for payment by sponsor
Must equal purpose of visit
and appointment
Tax Withholding Obligations
BE SURE TO USE MOST
CURRENT CHART
Payroll Services 75 4/27/2012
Treaties with Special Time Limits
Income Code 18 CHINA
Tax treaty eligibility is based on 3 aggregate years.
Example: A resident of China visits the US and takes
advantage of the treaty in 2010 and 2012, returns to
China for 1 year and comes back to the US in 2012.
This visitor still has 2012 to use the treaty
GREECE – Most treaties have an eligibility period of 2
years but Greece has a 3 year eligibility period
Tax Withholding Obligations
Payroll Services 76 4/27/2012
Retroactive Treaties
Income Code 18
Allows the US to tax individuals retroactively to the
first day of the tax treaty if presence is 1 day over
the maximum period.
Countries with a retroactive clause in their treaty
are: India, Luxembourg, Netherlands, Thailand,
and United Kingdom
Tax Withholding Obligations
Payroll Services 77 4/27/2012
One Time Treaties Income Code 18
Some treaties allow only a 1 time application of
the treaty. Countries with a one time clause in
their treaty are: Czech Republic, France,
Indonesia, Jamaica, Portugal, and Slovak
Republic
Tax Withholding Obligations
Payroll Services 78 4/27/2012
Sponsor Specific Income Code 18
Luxembourg is sponsor specific which
means that only payments made by the
sponsor will be eligible for tax treaty
application.
Tax Withholding Obligations
Payroll Services 79 4/27/2012
Tax Treaty Eligibility Period –
Service Based Treaty Begins on the date of entry in eligible status and
ends base of the duration of treaty.
Can cross tax years
Example: Professor Brown enters the U.S. on
10/2/2010 and is eligible for a 2 year
treaty. The eligible period is:
10/2/10 – 10/1/11 – year 1
10/2/11 – 10/1/12 – year 2
Prof. Brown is eligible for tax treaty exemption until 10/1/12
Tax Withholding Obligations
Payroll Services 80 4/27/2012
Tax Treaty – Student Employee
Tax Withholding Obligations
Payroll Services 81 4/27/2012
Tax Treaty Chart Income Code 19
This table lists countries that have a tax treaty
with the US for students who receive income for
employment
Payroll Services determines tax treaty eligibility.
COUNTRY MAX. PRES. MAX AMT ARTICLE
Bangladesh 2 $8,000.00 21 (1)
Belgium 5 years $2,000.00 21 (1)
Bulgaria no limit $9,000.00 19 (1)(b)
China, Peo.’s Rep no limit* $5,000.00 20 (c)
Cyprus 5 years $2,000.00 21 (1)
Czech Republic 5 years $5,000.00 21(1)
Egypt 5 years $3,000.00 23 (1)
Estonia 5 years $5,000.00 20(1)
France 5 years $5,000.00 21 (1)
Germany 4 years $5000.00 20 (4)
Iceland 5 years $2,000.00 22 (1)
Indonesia 5 years $2,000.00 19 (1)
Israel 5 years $3,000.00 24 (1)
Korea 5 years $2,000.00 21 (1)
Latvia 5 years $5,000.00 20(1)
Lithuania 5 years $5,000.00 20(1)
Morocco 5 years $2,000.00 18
Netherlands ** no limit* $2000.00 22 (1)
Netherlands 3 year $2000.00 22 (1)
Norway 5 years $2,000.00 16 (1)
Pakistan no limit* $5,000.00 XIII(1)
Philippines 5 years $3,000.00 22 (1)
Poland 5 years $2,000.00 18 (1)
Portugal 5 years $5,000.00 23 (1)
Romania 5 years $2,000.00 20 (1)
Slovak Republic 5 years $5,000.00 21 (1)
Slovenia 5 years $5,000.00 20 (1)
Spain 5 years $5,000.00 22 (1)
Thailand 5 years $3,000.00 22 (1)
Tobago/Trinidad 5 years $2,000.00 19 (1)
Tobago/Trinidad** 5 years $5,000.00 19 (1)
Tunisia 5 years $4,000.00 20
Venezuela 5 years $5,000.00 21(1)
* Benefits provided extends only for such period of time as is reasonably necessary to
complete the education, training, or purpose of visit.
** Must be securing training required to qualify for a professional specialty
What happens when max level is reached?
Tax Withholding Obligations
Payroll Services 82 4/27/2012
Additional Information for Student Treaty Income Code 19
Spain –Article 22 Exemption from federal taxes up to $5,000. This amount must be reduced by the personal exemption allowance. The allowance for 2012 is $3,800.00 Therefore, the limit of this treaty would be $1,200.00 for year 2012. China – Article 20 Provides exemption for the period that is reasonably necessary to complete the education of training
Tax Withholding Obligations
Payroll Services 83 4/27/2012
How to determine duration of tax treaty eligibility
Student
Begins on the date of entry in eligible status and ends based of the maximum presence limit of treaty.
Count the taxable years
Example: Student enters the U.S. on 10/2/2008 and is eligible for a 5 year treaty. The eligible period is:
2008 – year 1
2009 - year 2 Eligibility period
2010 – year 3 10/2/08-12/31/2012
2011 – year 4
2012 – year 5
Tax Withholding Obligations
Payroll Services 84 4/27/2012
Required Documents for Employment
Residency for Tax Purposes
Work authorization document
I-94
GLACIER generated documents: W-4
W-9 Form
W-9 Attachment
NRA for tax Purposes
Work authorization document
I-94
GLACIER generated documents: W-4 and DE 4
8233 Form
Tax Treaty Statement
Tax Withholding Obligations
Payroll Services 85 4/27/2012
How to complete the form 8233
Refer to:
Class Handout
or
WWW.PAYROLL.UCLA.EDU
Payroll Forms; Alien Forms
Tax Withholding Obligations
Payroll Services 86 4/27/2012
Tax Treaty Example 8233 Form This is the completed 8233 form for the tax treaty example.
Must be a SS#
From Visa From I-94
Tax Withholding Obligations
2012
Payroll Services 87 4/27/2012
From Income Code 18 Chart
Tax Treaty Example 8233 Form Tax Withholding Obligations
Pierre Payroll 4/25/2012
PAYROLL OFFICE ONLY
Payroll Services 88 4/27/2012
Tax Treaty – Independent Personal
Services
Tax Withholding Obligations
Payroll Services 89 4/27/2012
Independent Personal Service - Income Code 16
This table is to be used for individuals who perform an independent personal service
Tax Withholding Obligations COUNTRY MAX. PRES. $ LIMIT ARTICLE Australia 183 days no limit 14 Austria no limit no limit 14 Bangladesh 183 days no limit 15 Barbados 89 days 5000.00 14 Belgium 182 days no limit 14 (2)(a)(b) Bulgaria no limit no limit 7** Canada no limit no limit XIV China* 183 days no limit 13 Commonwealth 183 days no limit VI (2) Cyprus 182 days no limit 17 Czech Republic 183 days no limit 15 Denmark no limit no limit 14(1) Egypt 89 days no limit 15 Estonia 183 days no limit 14 Finland no limit no limit 14 France 183 days no limit 14 Germany no limit no limit 14 Greece 183 days 10000.00 X Hungary 183 days no limit 13 Iceland 182 days no limit 18 India 89 days no limit 15 Indonesia 119 days no limit 15 Israel 183 days no limit 16 Italy 183 days no limit 14 Jamaica 89 days 5000.00 14 Japan no limit no limit 7** Kazakhstan 183 days no limit 14 Korea (South) 182 days 3000.00 18 Latvia 183 days no limit 14 Lithuania 183 days no limit 14 Luxembourg no limit no limit 15 Mexico 182 days no limit 14 Morocco 182 days 5000.00 14 Netherlands 183 days no limit 15 New Zealand 183 days no limit 14 Norway 182 days no limit 13 Philippines 89 days 10000.00 15 Poland 182 days no limit 15 Portugal 182 days no limit 15 Romania 182 days no limit 14 Russia 183 days no limit 13 Slovak Republic 183 days no limit 15 Slovenia no limit no limit 14 South Africa 183 days no limit 14 Spain no limit no limit 15 Sri Lanka 183 days no limit 15 Sweden no limit no lmit 14 Switzerland 183 days no limit X Thailand 89 days 10000.00 15 Tobago/Trinidad 183 days 3000.00* 17 Tunisia 183 days 7500.00 14 Turkey 183 days no limit 14 Ukraine no limit no limit 14(1) United Kingdom no limit no lmit 7*** Venezuela no limit no limit 14 ^^Commonwealth includes: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan(, Turkmenistan, and Uzbekistan **Belgium, Bulgaria, Canada, Germany, Iceland, Japan and UK are Business Profits articles.
TAXABLE YEAR
Payroll Services 90 4/27/2012
Required Documentation for
withholding on Independent Personal
Services Payment
GLACIER Generated
8233 Tax Treaty Form for most Independent
Personal Payments
OR
W-8BEN for Royalty payments and Entities
Tax Withholding Obligations
Contact: Mike Sattin 310-267-5774
Payroll Services 91 4/27/2012
W-8 BEN
for
Non-Service
Payments
(ie, Royalties
and Entities)
Tax Withholding Obligations
Payroll Services 92 4/27/2012
Tax Treaty –Fellowship/Scholarship
Tax Withholding Obligations
Payroll Services 93 4/27/2012
Tax Treaty Chart - Income Code 15 COUNTRY MAX. PRES. $ LIMIT ARTICLE Armenia* 5 years 9999.99 VI(1) Azerbaijan* 5 years 9999.99 VI(1) Bangladesh no limit no limit 21(2) Belgium**** (pre 2008) 5 years no limit 21(1) Belarus* 5 years 9999.99 VI(1) China, People’s Rep no limit no limit 20(b) Cyprus 5 years no limit 21(1) Czech Republic 5 years no limit 21(1) Egypt 5 years no limit 23(1) Estonia 5 years no limit 20(1) France 5 years no limit 21(1) Georgia* 5 years 9999.99 VI(1) Germany no limit no limit 20(3) Iceland 5 years no limit 22(1) Indonesia 5 years no limit 19(1) Israel 5 years no limit 24(1) Kazakhstan 5 years no limit 19 Korea 5 years no limit 21(1) Kyrgyzstan* 5 years 9999.99 VI(1) Latvia 5 years no limit 20(1) Lithuania 5 years no limit 21(1) Moldova* 5 years 9999.99 VI(1) Morocco 5 years no limit 18 Netherlands 3 years no limit 22(2) Norway 5 years no limit 16(1) Philippines 5 years no limit 22(1) Poland 5 years no limit 18(1) Portugal 5 years no limit 23(1) Romania 5 years no limit 20(1) Russia 5 years no limit 18 Slovak Republic 5 years no limit 21(1) Slovenia 5 years no limit 20(1) Spain 5 years no limit 22(1) Tajikistan* 5 years 9999.99 VI(1) Thailand 5 taxable years no limit 22(1) Tobago/Trinidad 5 years no limit 19(1) Tunisia 5 years no limit 20 Turkmenistan* 5 years 9999.99 VI(1) Ukraine 5 years no limit 20(1) Uzbekistan* 5 years 9999.99 VI(1) Venezuela 5 years no limit 21(1)
* These countries are also known as the Commonwealth Countries. Students of the
Commonwealth Countries can only qualify for the IRC Section 117 Exemption or for the
Tax Treaty Exemption; whichever is more favorable.
** 5 year limit pertains only to Training or Research.
*** No limit for regular university study. 2 year limit for apprentice or business trainee.
**** Belgium income code 15 article not renewed in 2008. Only applicable if date of
entry is prior to 1/1/08.
Fellowship/Scholarship - This
table is for student who receive
fellowship/scholarship awards.
Payroll Sevices is the campus
office that determines eligibility.
Tax Withholding Obligations
Payroll Services 94 4/27/2012
Required Documents
Tax Withholding Obligations
Fellowship tax treaty documents are generated from GLACIER for individuals from a country with tax treaty eligibility with the US. The documents include an exemption for fellowship income.
Tax Summary Report cover page
GLACIER generated W-8BEN Form - to determine residency for federal tax purposes
*Forms can be obtained from GLACIER*
Payroll Services 95 4/27/2012
W-8 BEN for
Fellowship
&
Scholarship
Payments
Tax Withholding Obligations
Pierre Payroll 04-25-12
Payroll Services 96 4/27/2012
Year End Tax Documents
The statements provided by UCLA Payroll Service: W-2: Federal/State Wage & Tax Statement for Employees
1042S: Federal Wage & Tax Statement for non-resident non-employees or employees on a Tax Treaty
The IRS requires withholding agents to provide a
statement indicating any income paid to
nonresidents and corresponding withholdings.
Accounts Payable provides the 592B Form – Nonresident Withholding Tax
Statement for non-resident of California who work as independent
contractors in California.
Maintenance
Payroll Services 97 4/27/2012
W2 Reports federal and state taxable earnings and corresponding taxes for employees. Employees on tax treaty will receive a W2 with California information only. The federal information will be on a 1042S.
If you have any questions concerning the contents of any field, please call Aurora Orozco at (310)794-8728.
2011
Maintenance
Note difference between federal and state grosses. Due to pre tax parking.
98 4/27/2012
1042-S Reports federal taxable income for all non-employee payments made to non-
residents. Reports federal taxable income for non-resident employees who claim a tax
treaty. If you have any questions concerning the contents of any field, please call Michael Sattin x75774.
Maintenance
(2011)
Payroll Services 99 4/27/2012
Reports California
source income for
all non-employee
who are not-
California residents.
This form will be
issued by Accounts
Payable. Please
direct questions to
Shirley Sams at
(310) 794-0197
592B 2011
2011
Payroll Services 100 4/27/2012
Congratulations! You made it
to the end of class
You now have a general knowledge
of nonresident Alien taxation and
UCLA tax obligations