Foreign Tax Frequently Asked Questions

Click on the following links for the answers:
1. Can a resident alien claim a tax treaty on a 1040 tax return?
2. What is a stipend?
3. Can Wesleyan pay an individual in H1B status from another institution?
4. What are the procedures for making a payment (including a reimbursement) to a student in F1 or J1 status?
5. Can Wesleyan reimburse an F-1 non resident alien attending another school for expenses?
6. What do I do if social security or Medicare taxes were withheld from my pay in error?
7. Are non resident alien individuals FICA exempt?
8. Can a B-1 visitor be reimbursed for per diem travel expenses?
9. Can Wesleyan pay an agent or intermediary on behalf of a non resident alien?
10. What is 9/5/6 Rule?
11. Can a J-1 Professor or Researcher participate in lectures and consultations outside the location of their exchange program?

1. Can a resident alien claim a tax treaty on a 1040 tax return?

Currently there are no published instructions; however a resident may submit the treaty claim on form 1040 using the following steps: 1. Report worldwide income on the return 2. Report the treaty exempt income on the appropriate income lines so that the payer documents match in the IRS document match program 3. Record the treaty exempt income on the Other Income line as a negative amount and refer to an attached explanation 4. Claim the standard deduction, any and all personal exemptions to which the resident is entitled and any and all credits to which the resident may be entitled 5. Attach a form 8833 or similar statement to explain the treaty benefit being claimed as well as the reliance on an exception to the Saving Clause of a treaty in order to qualify for the treaty benefit 6. Write “Tax Treaty Claim Under U.S./(Treaty country name) on the top of page 1 of the form 1040 7. Submit the form 1040 to the Philadelphia Service Center. Although the IRS routinely accepts treaty claims filed under these procedures, occasionally the Service Center rejects the claim because the reviewer lacks familiarity with the Saving Clause exceptions. A resident submitting a treaty claim, which is incorrectly rejected by the IRS, will have to seek assistance from the Taxpayer Advocate’s Office.
 

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2. What is a stipend?

A payment made to an individual for purposes of living or maintenance. If is most commonly associated with the educational activities of a student or scholar. A Wesleyan stipend requires the performance of services and the services are classified as compensation for tax purposes. A stipend is not excludable from tax.

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3. Can Wesleyan pay an individual in H1B status from another institution?

No. This may be an improper payment as well as improper for the employee to accept it. All you can do is develop policies and procedures to avoid such events in the future.

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4. What are the procedures for making a payment (including a reimbursement) to a student in F1 or J1 status?

Forward the AP voucher/Travel Expense Report to Christine Rodrigue in Financial Services.  Reimbursements and/or payments made to or on behalf of an F, J, M, or Q status individual continue to be subject to a 14% rate of withholding.  Many individuals incorrectly believe that the accountable plan rule applies for all reimbursements.  However, the accountable plan rule only applies to employees or individual contractors in a business relationship and not to students.  The purpose of a student visa is educational and not business related. 

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5. Can Wesleyan reimburse an F-1 non resident alien attending another school for expenses?

Yes, however if travel expenses/reimbursements are paid to a student who is studying and not performing services, the expenses are considered a scholarship or fellowship and not business expenses. Accountable Plan rules only apply to business expenses. The payments are subject to 14% withholding and reporting like any other taxable scholarship. Unless a student treaty article applies to exempt nonqualified scholarships from tax, and the individual submits a completed W-8BEN with a TIN on it, 14% federal tax must be withheld on even reimbursements to F-1s. Whomever makes the payment is responsible for withholding and reporting on a 1042-S. Wesleyan can reimburse an F1 student who is sponsored by another institution, however Wesleyan must withhold 14% and issue a 1042-S.

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6. What do I do if social security or Medicare taxes were withheld from my pay in error?

First, contact the employer who withheld the taxes for a refund. If you are unable to get a full refund of the amount from your employer, file a claim for refund with IRS on Form 843, Claim for Refund and Request for Abatement. Attach the following items to Form 843. 1. A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. 2. A copy of your visa. 3. USCIS Form I-94. 4. Form I-20 (if you have an F-1 visa). 5. Form DS-2019 (if you have a J-1 visa). 6. Form I-766 or I688B (if you are engaged in optional practical training. 7. Statement from you or your employer. File Form 843 (with attachments) with the IRS office where your employer’s returns were filed. If you do not know where your employer’s returns were filed, file Form 843 with the IRS, Philadelphia, PA 19255.

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7. Are non resident alien individuals FICA exempt?

A nonresident individual present in the United States in F-1, J-1, M-1, Q-1, or Q-2 status is exempt from social security and Medicare taxes under Section 3121(b)(19) of the Code if the services are performed to carry out the purpose for which the individual was admitted to the U.S.

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8. Can a B-1 visitor be reimbursed for per diem travel expenses?

Yes, as long as the reimbursement meets the requirements of the Accountable Plan Rules and is included in Wesleyan’s travel reimbursement policy. Payments made to, or on behalf of, nonresident alien individuals for the purpose of defraying or reimbursing the deductible travel and lodging expenses of such nonresident alien individuals are excludible from the gross income of such nonresident alien individuals and are not reportable to the IRS by Wesleyan, on the condition that the requirements of the accountable plan rules are met. The Accountable Plan Rules require that Wesleyan establish the business purpose and connection of the expenses. Reimbursements to employees, independent contractors, consultants and other non-employees conducting University business all require the same receipts and documentation and the guidelines are stated in Wesleyan’s Policy on Payments to Individual’s. A B-1 visitor that is reimbursed for travel expenses and has all of the expense receipts has no tax issues.

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9. Can Wesleyan pay an agent or intermediary on behalf of a non resident alien?

Yes. If making payment directly to a U.S. agent and it is known that the beneficial owner (the person performing the services) is a non resident, withholding of 30% is necessary, unless a tax treaty applies. If a tax treaty applies, it must be signed by the beneficial owner. This rule was included in the most recent regulations because foreign nationals have historically used U.S. agents as a simple way of evading U.S. income taxes on their U.S. earnings. The 1042-S is issued in the beneficial owners name, even though the payment is made to the agent/intermediary.

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10. What is 9/5/6 Rule?

An INS rule stating that under the B honoraria criteria, visitors entering the U.S. in B (visa waiver) status are authorized to accept an honorarium payment and incidental expenses for “usual academic activity or activities” paid by an institution of higher education, provided that the following conditions are met: 1. The services are conducted for the benefit of the institution 2. The activities last no longer than 9 days at any single institution; and 3. The individual has not accepted such payment for expenses from more than 5 institutions or organizations in the previous 6-month period. Wesleyan should not make an honorarium payment to a foreign individual who is believed to have not adhered to this rule. However, the more serious consequences of violating the 9/5/6 rule, fall to the payee, not the paying institution. By accepting such payment, the payee violates immigration law, which could complicate eligibility for future immigration benefits.

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11. Can a J-1 Professor or Researcher participate in lectures and consultations outside the location of their exchange program?

Professors and researchers may participate in occasional lectures and consultations outside the location of their exchange programs, as long as the lectures and consultations are related to the program objectives, incidental to their primary program activities, and not specifically disallowed by their sponsors. In order to participate in these occasional activities for wages or honoraria, the J-1 visitor must obtain a letter from the inviting institution, as well as a letter from the J-1 visitor’s supervisor or department head recommending the activity.

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