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Nonresident Aliens - Contract Payments

Revised: 01/06
FSS/PPS No. 03.09.03
Issue No. 3
Reviewer: Tax Specialist
Effective Date: 08/01/00 (E2Y)
Review Date: 01/08

01. PURPOSE

01.01 To establish responsibility and policy regarding the payment of independent contractors who are classified as nonresident aliens.
01.02 To ensure that policy conforms to the Internal Revenue Code.

02. POLICY

02.01

Tax Identification Number
All individuals and business entities seeking payment for services rendered at Texas State must have a U.S. identification number (social security number, ITIN, or employer identification number).

If a nonresident alien (as set forth in IRC §7701(b)) does not have a U.S. identification number and is ineligible for a social security number, Texas State will provide assistance as an IRS authorized certifying Acceptance Agent.  The Tax Specialist will assist nonresident aliens who have proper documentary evidence in obtaining a U.S. identification number. The documentation required is a foreign passport or a foreign birth record.  If a foreign birth record is used, the applicant must provide one of the following documents:  a driver’s license, an identity card, a voter’s registration card, a school record, a medical record, a marriage record or a military registration card.  In order for the document to be relied upon, it must have a photograph of the individual and a foreign address.  The document must not be expired and not be older than three (3) years (regardless of whether it is still valid).  The Tax Specialist will accept only originals or properly certified copies.  In the case of a document issued by a person in a foreign country, the certification is proper only if it is certified by the agency that issued the document, by an embassy or consulate office of that country, by a U.S. embassy or consulate office or by a U.S. Notary Public.

 

02.02

Visa Status
All nonresident aliens requesting payment for services provided to the University must acquire a visa status which allows the nonresident alien to be employed and receive compensation in the U.S.  Visa status is assigned by U.S. Immigration prior to entering the U.S.  The hosting department must inform the foreign visitor prior to his or her entering the country of the importance of obtaining the proper visa status.

 

02.03

Income Tax Withholding
Texas State will withhold federal income tax from all payments made to nonresident aliens unless the payment is exempt from withholding under federal law and/or a tax treaty between the U.S. and the alien’s country of residence.  Unless otherwise provided by federal law and/or an applicable tax treaty, federal income tax will be withheld from independent contractor payments at the rate of 30%.

 

02.04

Tax Treaty Exemption
In order to claim a tax treaty exemption, the individual must complete the applicable tax treaty exemption form prior to payment.  The Tax Specialist will review (i) the information provided on the form, (ii) the information regarding the payment (type of payment, factors surrounding the payment such as primary purpose for visa sponsorship, length of payment relationship), and (iii) the criteria set forth in the income tax treaty for which the claim of exemption is being made.  If the Tax Specialist is satisfied that the individual meets the exemption, the exemption claim form will be submitted to the IRS.  After an IRS required ten-day waiting period, payment will be made.

 

03. RESPONSIBLE PARTIES

03.01

The account manager is responsible for notifying the Tax Specialist of the nonresident alien’s visit.  Notification must occur a minimum of 2 months prior to the nonresident alien’s arrival.  The account manager must provide the following information to the Tax Specialist:

(a) Nonresident alien’s country of residence;
(b) Nonresident alien’s U.S. identification number status (does the individual have a U.S. identification number?);
(c) Exact dates of visit;
(d) Amount and nature of payment (honorarium, expenses, etc.); and
(e) Department’s intentions if U.S. income tax withholding is required (Does the department intend to “gross-up” payment and in effect pay the taxes for the nonresident alien?).

The account manager is also responsible for assuring that adequate documentation is provided so as to comply with the Internal Revenue Code and Treasury Regulations.

 

03.02

The Tax Specialist is responsible for ensuring that payments are made in accordance with the Internal Revenue Code and Treasury Regulations.  The Tax Specialist is responsible for providing the nonresident alien with the appropriate IRS forms (Form 8233 – Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual, Form W-7 – Application for IRS Individual Taxpayer Identification Number, etc.) and for assisting him or her with the completion of those forms when necessary.

 

03.03

The Associate Vice President of Financial Services/Treasurer will be responsible for publicizing this policy.

04. DEFINITIONS

04.01
1. An alien is a person who is not a U.S. citizen.
2. A nonresident alien is an alien who does not meet either the Green Card Test or the Substantial Presence Test.
3. A resident alien is an alien who either meets the Green Card Test or the Substantial Presence Test.  The same tax withholding and payment rules that apply to a U.S. citizen also generally apply to a resident alien.
4. An Independent Contractor is an individual who does not have an employee-employer relationship with Texas State.
5. Green Card Test is satisfied if a nonresident alien individual has been granted lawful permanent resident status and an alien registration card (a “Green Card”) either has been issued or will be received by the individual.
6. Substantial Presence Test is satisfied when a non resident alien individual has been physically present in the U.S. (1) 31 days during the current calendar year and (2) 183 days during the three-year period that includes the current calendar year and the two preceding calendar years.

05. MAJOR RESPONSIBILITIES ASSOCIATED WITH THIS PPS

 

Major responsibilities for routine assignments associated with this PPS include the following:

Positions
Section
Date
Tax Specialist Review January (E2Y-00)

06. CERTIFICATION OF STATEMENT 

This FSS/PPS has been approved by the following individuals in their official capacities, and represents FSS policy and procedure from the date of this document until superseded.

Tax Specialist, Reviewer

Associate Vice President, Financial Services/Treasurer, Reviewer

Vice President for Finance and Support Services

Approved: ____________________________
Reviewer
Approved: ____________________________
Reviewer
Approved: ____________________________
Vice President for Finance
and Support Services