Federal Tax Withholding Instructions - Nonresident Alien Contractors
Appendix to Policy
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 a tax treaty covers the amounts.
- 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).
Note: Compensation paid for services performed outside the United States by a nonresident alien is not subject to 30% withholding, and not reported to IRS.
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 the visitor can perform. The department should contact the International Student and Scholar Services office at (612) 626-7100 for the short-term foreign visitors immediately after the department extends an invitation to a foreign visitor.
The "B" visa and visa waiver restrictions are as follows:
- B visa and visa waiver holders may not be 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 are 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 Reimbursement of Expense and Payment of Honoraria to Visitors with 'B', 'WB' and 'WT' Legal Status form and forward it to Payroll Services.
Compensation Subject to 30% Federal Withholding
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 have receipts to support them
- Per diem amounts paid for meals and incidentals only within the current government rates
- Payments made directly to a supplier on behalf of the Foreign National for properly documented expenses other than living expenses
Note: Certain per diems, living or travel expenses, and other payments made to nonresident aliens as recipients of grants or awards may be subject to 14% federal withholding.
Tax Treaty Eligibility
A Foreign National must meet the following requirements in order to be exempt from 30% withholding on the above payments:
- 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.
- The 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).
- The eligible Foreign National must complete IRS Form 8233 and the Tax Treaty Affidavit. You can find these forms on the web in the UWide Forms Library or on the Pay & Job Classification web site under "Nonresident Alien Tax Information & Forms."
- After Payroll Services processes the treaty documents, the tax treaty exemptions become effective for payments.
- Tax Treaty forms are effective for current calendar years only.
Note: You can find a complete list of Tax Treaty countries on the Payroll Administration web site under "International Students, Scholars, and Visitors." 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 the nonresident alien did not perform services 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 Reimbursement of Expense and Payment of Honoraria to Visitors with 'B', 'WB' and 'WT' Legal Status form to Payroll Services
Instructions to Contractors
Year-end IRS Tax/Reporting concerns:
- The University will send form 1042-S to the Foreign National independent contractor at year-end, as well as to the IRS.
- The contractor should complete tax return form1040NR and submit it to the 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 Nonresident Aliens and Foreign Entities
- 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 you can order items 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.