Foreign Tax Frequently Asked Questions
- What is a stipend?
A stipend is an amount paid for the benefit of a student at an educational institution to aid in the pursuit of study or research. It may be paid as compensation for services or it may be paid to defray research or travel expenses which do not require receipts.
Stipend is not a tax term. A stipend may come under the name of a grant, fellowship, internship or scholarship. A stipend/grant/fellowship/internship/scholarship must be classified based on the facts and circumstances of each payment. It is not subject to withholding or reporting to US citizens and resident aliens due to IRS Notice 87-31. It is, however, subject to 14% withholding and reporting on a 1042-S form when paid to US non-resident aliens.
- Can Wesleyan pay compensation to a non-Weleyan sponsored H1B?
No. Wesleyan cannot pay compensation for services to an H1B visitor who is sponsored by someone other than Wesleyan. An H1B may only accept payment from their own visa sponsor. Non-compliance could potentially jeopardize an individual's visa status and/or furture travel to the US.
- Are reimbursements to Wesleyan-sponsored foreign students taxable?
Yes. Reimbursements to NRA foreign students are considered unqualified scholarships and subject to 14% federal income tax withholding and reporting. This requirement is mandated by the IRS.
Although the IRS does not formally state this, many universities, including Wesleyan, make an assumption that when a student travels to a conference for the purposes of presenting research or a paper, we may exempt some or all of the withholding based on proper documentation attached to a payment request. Reimbursements are evaluated on a case-by-case basis.
- Can Wesleyan reimburse a non-Wesleyan sponsored foreign student for travel expenses?
A non-Wesleyan foreign student may receive reimbursement for travel expenses, but written approval from their sponsoring institution is required.
If the student is NRA, the expenses are considered a non-qualified scholarship and are subject to 14% withholding and reporting. Foreign student reimbursements cannot fall under the accountable plan rules for business due to the nature of their non-immigrant status. Reimbursements must be considered non-qualified scholarships.
- Can a resident alien claim a tax treaty on a 1040 tax return?
Currently there are no IRS published instructions. However, a resident alien may submit the treaty claim on form 1040 using the following steps:
- Report worldwide income on the return.
- Report the treaty exempt income on the appropriate income lines so that the payer documents match in the IRS document match program.
- Record the treaty exempt income on the Other Income line as a negative amount and refer to an attached explanation.
- 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.
- 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.
- Write "Tax Treaty Claim Under U.S./(Treaty country name)" on the top of page 1 of the form 1040.
- Submit the form 1040 to the Philadelphia Service Center.
- 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.
- A copy of your visa.
- USCIS Form I-94.
- Form I-20 (if you have an F-1 visa).
- Form DS-2019 (if you have a J-1 visa).
- Form I-766 or I688B (if you are engaged in optional practical training.
- Statement from you or your employer.
- 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.
- 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 Individuals. A B-1 visitor that is reimbursed for travel expenses and has all of the expense receipts has no tax issues.
- Can Wesleyan pay an agent or intermediary on behalf of a non-US citizen?
Yes. A payment may be made payable to an agent or intermediary on behalf of a foreign person who provided services to Wesleyan. However, USCIS and IRS requires the payer to follow the same procedures and guidelines as if the payment were being made directly to the foreign visitor. Work authorization must be verified and respective documents collected. Payments are subject to 30% NRA federal income tax withholding and reporting.
- What is the 9/5/6 Rule?
The 9/5/6 rule states 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:
- The services are conducted for the benefit of the institution
- The activities last no longer than 9 days at any single institution
- The individual has not accepted such payment for expenses from more than 5 institutions or organizations in the previous 6-month period.
- 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.