Payments to Non-Resident Aliens
Contact Information: Tax Compliance, 309A Ingram Hall, 334-844-2447 (office), 334-844-2434 (fax), firstname.lastname@example.org
All payments made to individuals who are not US citizens or US companies are generally subject to withholding under Section 1441 of the Internal Revenue Code. The code section states that a withholding agent is required to withhold federal income tax from all payments made to or on- behalf of a non-resident alien, and Treasury Regulations 1.1461-2 requires all such payments to be reported to the IRS. Generally, the tax rate is 30%; however there are some exceptions to this rule.
In addition, federal immigration laws restrict what types of services an individual can legally provide. The law also limits what types of payments and/or reimbursements individuals can receive if they are not US Citizens or permanent residents.
If a withholding agent has any reason to believe an individual or company is not a US Citizen, permanent resident or resident alien for federal tax purposes, the payee must always be treated as a non-resident alien.
In order to determine if tax withholding is required the individual's tax status must be determined using the substantial presence test. The test is a mathematical calculation based on one's current and prior visits to the US. For information about the substantial presence test please refer to the most current issue of Publication 519 at www.irs.gov
Once the income type has been determined and the federal tax status has been determined, then the rate of withholding can be determined. The rate of withholding varies depending on the type of payment being made, where the services are being performed, the individual's immigration status and if there are any exemptions available through a tax treaty.
At Auburn University payments to these individuals can be made via:
- - Payments through payroll only
- - Payments can include honorarium, travel reimbursement, compensation for independent services, royalties, prizes and awards, purchase of software, purchase of tangible goods.
- - Athletic and academic scholarships and fellowships not related to employment. These payments are generally paid thru Student Financial Services.
The information contained in the non-resident alien tax policy was developed by Auburn University's Tax Compliance Office in connection with Auburn University's commitment to tax compliance. This policy does not intend to provide individual tax advice; individuals seeking assistance should consult a tax professional. The procedures and information in this guide are subject to change and will be updated when there is a change in tax laws, regulations or policy.