Nonresident Alien Documentation & Income Tax Withholding Scenarios
The following two forms are required of nonresident alien B-1, B-2, WB and WT visa holders receiving honoraria and/or associated expense reimbursement for usual academic activity during a brief visit to the U.S. (depending on the scenario, other forms may also be required):
University of California Certificate of Foreign Status for Federal Tax Withholding (UC W-8BEN) which replaces the former Statement of Citizenship
University of California Certification of Academic Activity
SCENARIO REQUIRING NO U.S. TIN AND NO INCOME TAX WITHHOLDING:
A. Paid ONLY reasonable, associated travel and incidental expenses: Submit required forms along with receipts for travel voucher processing. Policy compliant expense reimbursements are not subject to taxation.
Professor A from Argentina receives $500 for participating in an Anthropology symposium. The department and the visitor agree the payment be reimbursement of associated transportation, lodging and subsistence expenses and A submits receipts for travel voucher processing. There is no withholding and U.S. TIN is not required.
SCENARIOS REQUIRING VALID U.S. TIN TO OBTAIN POSSIBLE EXEMPTION FROM WITHHOLDING
B. Paid travel and/or honorarium only, submits incomplete or incorrect documentation: The honorarium is subject to non-refundable income tax withholding. Gross-up of the tax withholding is optional*.
Professor B from Belgium is promised a $500 honorarium in addition to any expenses associated with adding UCSB to B’s current U.S. visit. B fails to supply a valid U.S. SSN or ITIN on the mandatory forms, fails to complete the Form W-7, the Form 8233, and forgets to bring alien documentation to campus. Any one of these documentation failures is fatal to tax treaty relief and Biology volunteers to absorb the resulting mandatory tax withholding. The department submits a ”grossed-up*” Form-5 for $714.29, allowing Accounting to withhold $214.29 in federal income tax and still issue B a check for $500. No tax refund is possible unless subsequent documentation efforts are successfully pursued.
C. Paid travel and/or honorarium only, not previously issued valid U.S. TIN (SSN or ITIN): Submits additional IRS Form W-7, Application for ITIN. Subject to withholding until ITIN is issued. Refund possible upon issuance of ITIN if 1) tax treaty applies and IRS Form 8233, Exemption from Withholding, is submitted; and if 2) annual 1042 report not is yet filed. Otherwise, refund only possible upon filing U.S. income tax return.
Professor C from Canada is offered the same package as B above, but C is better prepared. The hosting Computer department gets all the needed forms fully completed. As the professor did not have a valid U.S. TIN, Accounting deducts $150 leaving C with a check for $350. Accounting can refund the $150 when an ITIN is received from the IRS, because there is a tax treaty with Canada that allows C exemption from withholding as claimed on Form 8233.
D. Paid travel and/or honorarium only, provides valid U.S. TIN (SSN or ITIN) and no tax treaty applies: Subject to withholding and eligible for possible refund only upon filing of U.S. income tax return.
Professor D from Dominica provides a valid U.S. TIN on completed documents, but there is no tax treaty with D so the $1,250 honorarium portion is subject to Federal income tax withholding of $375, leaving D with $875. Any refund can be claimed upon filing a U.S. tax return. If grossed up* the total charge would be $1,984.13: $734.13 withholding, $1,250 to D.
E. Paid travel and/or honorarium only, provides valid U.S. TIN (SSN or ITIN) and requests applicable tax treaty benefit: Submits additional IRS Form 8233, Exemption from Withholding. Subject to California withholding if over $1,500 as the State does not recognize tax treaties.
Professor E from England is promised a $2,000 honorarium. He provides full documentation with a valid U.S. TIN. The desire to take advantage of tax treaty benefits under the treaty with the United Kingdom is documented on Form 8233. The honorarium is not subject to federal withholding, but California does not recognize such treaties, so $140 is deducted. If grossed up* the calculation is 2,000/.93=2,150.53: $150.53 income tax withholding, $2,000 to E.
*See the Gross-Up of NRA Income Tax Withholding document for formulas and rules.