PAYMENTS OF SCHOLARSHIP, HONORARIA AND SERVICES TO FOREIGN NATIONALS Memory Buffington KSU Division...

PAYMENTS OF SCHOLARSHIP, HONORARIA AND SERVICES TO FOREIGN NATIONALSMemory BuffingtonKSU Division of Financial ServicesGeneral Accounting

THREE COMMON TYPES OF PAYMENTS

• Scholarships

• Services Provided (Independent Contractor)

• Honoraria

SCHOLARSHIPS

QUALIFIED SCHOLARSHIPS

• Aid provided to individuals who are a candidate for degree for qualified educational expenses at an eligible educational institution.

• Includes tuition, required fees, books, and required supplies.

• NOT TAXABLE (IRC, Section 117)

NONQUALIFIED SCHOLARSHIPS• Aid provided to individuals

who are a candidate for degree to support expenses other than qualified scholarships.

• Includes room and board and non-required supplies.

• TAXABLE

FELLOWSHIPS

• Funding provided for educational development to non-degree seeking students, such as post-doctorates or faculty members.

• Fellowships are considered TAXABLE.

PAYMENTS FOR SERVICES/HONORARIA

SERVICES

• Services provided to Kansas State University that typically involve an agreement or contract such as consulting, speaking, or professional entertainment event.

• May be an independent contractor or company.

• TAXABLE

HONORARIA

• Professional services that are rendered nominally without charge.

• Typically no formal agreement or required expectation of service

• May only be provided to individuals

• TAXABLE

WHO IS A FOREIGN NATIONAL?• An individual who is not a citizen of the United States

• May be a resident alien (if met Green Card Test or Substantial Presence Test) or a nonresident alien (NRA) for tax purposes.

• Note: Individual teachers and trainees present under a “J” or “Q” visa or a student present under and “F”, “J”, “M”, OR “Q” visa may exclude days present for the Substantial Presence Test. See http://www.irs.gov/Individuals/International-Taxpayers/Substantial-Presence-Test for full details.

TAX TREATIES

• Agreements between the United States and individual foreign countries under which residents of those countries are taxed at a reduced rate or are exempt from U.S. Income taxes on certain income received from within the United States.

• Excel Listing Summary of Current Tax Treaties:• U.S. Income Tax Treaty Table

http://www.k-state.edu/finsvcs/generalaccounting/nraassociatedforms.html

WHAT IS AN ITIN?

• The Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service.

• A foreign national may apply for an ITIN when not eligible to receive a social security number for purposes of claiming a tax treaty exemption or filing a U.S. tax return.

TAXING SCHOLARSHIP PAYMENTS – NRAS

Determine if scholarship income being provided is Foreign Source or U.S. Source.

LOCATION OF

ACTIVITY

U.S. Outside U.S.

OF PAYOR

U.S. U.S. Source

IncomeForeignSourceIncome

LOCATION

Outside U.S.

ForeignSourceIncome

ForeignSourceIncome

TAXABLE SCHOLARSHIPS (CONT.)

• Foreign Source Income (Scholarships) are NOT TAXABLE.

• U.S. Source Income (Scholarships) are TAXABLE if they are Nonqualified.1. Student must complete W-8BEN to claim benefits of eligible tax

treaty and possess an ITIN.2. If no eligible tax treaty present, 19% tax withholding on nonqualified

aid applies.3. Scholarships provided through SFA are reviewed for taxability and

the withholding charge is posted to the student account.4. Fellowships with applicable tax withholdings must be withheld prior

to the disbursement of the payment through General Accounting.

TAXING SERVICES/HONORARIA– NRAS

Determine if income is Foreign Source or U.S. Source.

LOCATION OF

ACTIVITY

U.S. Outside U.S.

OF PAYOR

U.S. U.S. Source

IncomeForeignSourceIncome

LOCATION

Outside U.S.

U.S. Source Income

ForeignSourceIncome

TAXABLE SERVICES/HONORARIA (CONT.)

• Foreign Source Income payments must have statement “All services provided outside the U.S.”.

• U.S. Source Income payments are TAXABLE.1. Companies must provide W-8BEN-E to claim tax treaty exemption

(may use Foreign Tax ID in lieu of ITIN).2. Individuals must provide W-8BEN and Form 8233 and have ITIN to

claim tax treaty exemption.3. If not eligible for tax treaty or if not claiming, 35% withholding

applies.4. It is best practice to collect a W-8BEN-E or W-8BEN for all foreign

individuals providing services or being paid honoraria to establish they have no U.S. presence.

REIMBURSEMENT OF TRAVEL• Honorarium or Independent Contractor travel

reimbursement may be nontaxable if:

1. Travel expenses are in line with KSU’s Accountable Plan (i.e. established per diem, airfare and lodging).

2. Itemized receipts are provided.

• It DOES NOT require individual to have an eligible tax treaty or ITIN.

VISA TYPES/ELIGIBILITYVISA

CLASSIFICATION DEFINITION OF VISA

KSU

EMPLOYMENT

INDEPENDENT

CONTRACTOR

HONORARIUMKSU SCHOLARSHIP &

FELLOWSHIP

KSU PRIZE OR

AWARD

TRAVEL

REIMBURSEMENT

B-1

Visitor for Business

NO NO YES WITH RESTRICTIONS1

NO YES WITH RESTRICTIONS2

YES

Visa Waiver Business

Visa Waiver for Business (VWB)



YES WITH RESTRICTIONS1

B-2

Visitor for Tourism




Visa Waiver Tourism

Visa Waiver for Tourism (VWT)




F-1 Sponsored by KSU

Student

YES RESTRICTIONS OFF-

CAMPUS3


YES YES YES

F-1Non-KSU

Student



YES YES YES

H1-B, O-1 & E-3Sponsored by KSU

Temporary Worker in Specialty Occupation

YES, ONLY AT KSU NO YES WITH RESTRICTIONS5

NO YES YES

H1-B, O-1 & E-3Non-KSU

Temporary Worker in Specialty Occupation

NO NO NO NO NO YES

J-1 ScholarSponsored by KSU

Exchange Visitor

(Scholar)

YES YES WITH RESTRICTIONS3


NO YES YES

J-1 ScholarNon-KSU

Exchange Visitor

(Scholar)

YES WITH RESTRICTIONS3,4



NO YES YES

J-1 StudentSponsored by KSU

Exchange Visitor

(Student)

YES NO YES WITH RESTRICTIONS3

YES YES YES

J-1 StudentNon-KSU

Exchange Visitor

(Student)





YES

INFORMATION TO GATHER1. Determine if any amount being paid to individual could be

taxable.

2. Establish in advance if individual/company receiving income is a U.S. citizen/resident or nonresident alien for tax purposes.

3. If a nonresident alien is receiving income determine what type of Visa they will hold while present at KSU.

4. If taxable, determine the country of residence/presence and if there is an associated tax treaty.

5. Have individual complete form W-8BEN and Form 8233 if eligible to claim tax treaty benefits and ITIN.

APPLYING FOR AN ITIN

STUDENTS (SCHOLARSHIP)

• The International Student Center can assist students who are tax treaty eligible to obtain an ITIN.

• Student will complete W-7 application, noting Exception 2(c) and attaching required information.

INDIVIDUALS (VENDORS)

• General Accounting is a Certified Acceptance Agent and can assist vendors in obtaining an ITIN if they have an eligible tax treaty.

• Requires a 30-45 minute in-person interview with agent in General Accounting.

• Individual must show current passport/visa and complete W-7 with agent who will submit on his/her behalf.

WITHHOLDING TAXESNONQUALIFIED SCHOLARSHIP/FELLOWSHIPS

• Tax withholding rate of 19% (14% federal, 5% state)

• Reduce payment by 19% or gross up payment to net agreed upon amount.

• Example: $1000 scholarship

1. Reduce 19%: $1000 – (1000x.19)=

$810 Payment, $190 taxes

2. Gross Up: $1000 / 0.81 = $1234.57 =

$1000 payment, $234.57 taxes

SERVICES/HONORARIA

• Tax withholding rate of 35% (30% federal, 5% state)

• Reduce payment by 35% or gross up payment to net agreed upon amount.

• Example: $1000 payment

1. Reduce 35%: $1000 – (1000x.35)=

$650 Payment, $350 taxes

2. Gross Up: $1000 / 0.65 = $1538.46 =

$1000 payment, $538.46 taxes

SUBMITTING TAXES1. Submit all tax withholdings on a separate APV payable to

Kansas State University, 220 Anderson Hall.

2. Place an “A” in the payment indicator.

3. Include vendor name and address as well as withholding calculation in the description of the document.

4. The object code will be the same code as the payment, i.e. E2690, E2620, E5620, etc.

PUT IT INTO PRACTICE• Each group will be provided examples that you might

encounter in your department.

Part 1: Determine what initial information you should gather.

Part 2: Given the additional information, what process should you follow?

WEBSITE INFORMATION• Additional examples and information may be found at:

http://www.k-state.edu/finsvcs/generalaccounting/paymentstoforeignnationals.htm

• Publicationshttp://www.k-state.edu/finsvcs/generalaccounting/nraassociatedforms.html

• Formshttp://www.k-state.edu/finsvcs/generalaccounting/Vendoring.html

QUESTIONS?

CONTACT INFORMATION

Memory Buffington

KSU Division of Financial Services

General Accounting

220 Anderson Hall

[email protected]

785.532.1845

PAYMENTS OF SCHOLARSHIP, HONORARIA AND SERVICES TO FOREIGN NATIONALS Memory Buffington KSU Division...

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