Payroll

Gross-Up of Nonresident Alien Income Tax Withholding

FORMULA:

NET TO PAYEE

=

CHARGE TO DEPARTMENT – (net to payee plus Federal and CA witthholding)

1.0 .30 (or .37, .07 )*

*Federal only =.30, State only =.07, Combined =.37

EXAMPLE:

1500

=

2380.95 CHARGE TO DEPARTMENT (PAYEE GETS 1500, FED: 714.28, CA: 166.67)

.63

More Gross-Up Examples

NET TO PAYEE

 

CHARGE TO DEPT

 

WITHHELD TAX

 

FED/CA W/H TAX %

 

CA ONLY

W/H TAX %*

                 

$100.00

 

$142.86

 

$42.86

 

30%+0%

 

0%

$250.00

 

$357.14

 

$107.14

 

30%+0%

 

0%

$500.00

 

$714.29

 

$214.29

 

30%+0%

 

0%

$1,000.00

 

$1,428.57

 

$428.57

 

30%+0%

 

0%

$1,050.00

 

$1,500.00

 

$450.00

 

30%+0%

 

0%

$1,050.01

 

$1,666.68

 

$616.67

 

30%+7%

 

0%

$1,250.00

 

$1,984.13

 

$734.13

 

30%+7%

 

0%

$1,500.00

 

$2,380.95

 

$880.95

 

30%+7%

 

0%

$1,500.01

 

$2,380.95

 

$880.95

 

30%+7%

 

7%

$2,000.00

 

$3,174.60

 

$1,174.60

 

30%+7%

 

7%

$2,500.00

 

$3,968.25

 

$1,468.25

 

30%+7%

 

7%

$3,000.00

 

$4,761.90

 

$1,761.90

 

30%+7%

 

7%

$5,000.00

 

$7,936.51

 

$2,936.51

 

30%+7%

 

7%

$10,000.00

 

$15,873.02

 

$5,873.02

 

30%+7%

 

7%

* Where Federal withholding is exempted by tax treaty

Why Gross-Up May Be a Face-Saving Option

THE IMPORTANCE OF A VALID U.S. SOCIAL SECURITY NUMBER (SSN) or INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN): If a nonresident alien payee is unable to provide a valid SSN or ITIN the University must withhold tax with respect to the payment and cannot fail to withhold in reliance on a tax treaty exemption. Also, without providing a valid SSN or ITIN, a subsequent claim for refund can not be filed. Contact Accounting at x3919 or x3929 to verify the validity of submitted SSN and ITIN.

INCOME TAX WITHHOLDING RULES on payments for independent personal services (includes honoraria):

·          Withholding applies to honoraria payments unless exempted by an applicable tax treaty provision.

·          Withholding applies to treaty-exempt honoraria if incorrect/incomplete documentation, or if no valid U.S. ITIN or SSN is provided.

·          For honoraria the Federal Income Tax withholding rate is 30%. Add the 7% California rate if the amount is over $1,500 per year.

·          If a host University department opts to pay the payee’s tax, the “gross-up” formula must be used.