Payments to Foreign Nationals

Payments of honoraria or payments for services performed in the United States for nonresident aliens are subject to additional tax guidelines. Nonresident aliens who wish to claim tax treaty benefits and have a valid Individual Taxpayer Identification Number (ITIN) may complete Form 8233 for tax withholding exemption. Only those individuals who are eligible for tax treaty benefits and possess a valid ITIN need to complete this form. Individuals who do not meet the requirements for filing Form 8233 may still be paid; however, taxes will be withheld from the payment at the required rate of 35% (30% federal, 5% state). An associated W-8 form, typically the W-8BEN (individual) or W-8BEN-E (corporation), must be submitted with the payment to process payment.

How this type of payment is made:

• Step 1: Determine if the income is Foreign Source or U.S. Source Income
  • If the service is taking place within the United States, the payment is considered U.S. Source Income. All U.S. source income is subject to U.S. tax guidelines. To issue payments for honoraria or payments for services to nonresident aliens, please complete Step 2 and Step 3 below.
  • If the service is being performed in a country outside of the United States, it is considered Foreign Source Income. To make payment for this service, verify with the vendor that they do not have a U.S. tax identification number (U.S. tax presence) and submit a payment voucher noting the payment is for Foreign Source Income and the vendor does not have a U.S. tax ID.
• Step 2: Establish if the individual has an ITIN and whether he/she is eligible for tax treaty benefits
  Individuals who do not have a current ITIN, but wish to claim tax treaty benefits, must first complete the W-7 Application. The following documents must be completed and submitted during the W-7 Application process:

1. 1. IRS Form W-7 The majority of applicants will select either box a (to claim tax treaty benefits) or box h (other).
   2. IRS Form 8233
   3. Original or certified copy of current passport (must be current at time W-7 is submitted). A certified copy is a copy that has been certified by a Certified Acceptance Agent (CAA). Original documents submitted by the IRS will be returned by mail within 60 days. Documents will be mailed to the applicant at the address indicated on the W-7. A pre-paid Express Mail or courier envelope can be included with the application for faster return delivery of documents.
   4. A letter from the Social Security Administration (SSA), stating that individual is ineligible to receive a social security number. If individual is present in the United States and is receiving honoraria payments, you do not have to get a letter of denial from the SSA. A letter from the authorized school official stating the purpose of the visit and that the individual will be receiving payment in the form of an honoraria will be enough.

• Step 3: Select the method to pay the nonresident alien
  • Option A: Nonresident alien HAS an ITIN and resides in a country that has a U.S. income tax treaty

1. 1. 1. The individual completes IRS Form 8233.
      2. Once you receive IRS Form 8233 (may be scanned or faxed from the individual), verify the form is complete (applicable boxes completed, signed, dated). Make a copy to return to the nonresident alien, make a copy for your department records, and immediately forward this form to the Assistant Director of Accounts Payable, Unger Complex, Suite 500. This form must be received by Division of Financial Services and postmarked to the IRS within five days of the nonresident alien providing it for verification.
      3. Complete the payment voucher, attaching a copy of the IRS Form 8233 to the voucher, and submit to Division of Financial Services.

• • Option B: Nonresident alien DOES NOT HAVE an ITIN and resides in a country that has a U.S. income tax treaty

1. 1. 1. Individual must first apply to receive an ITIN (see Step 1 above for additional information). This process may take 6-8 weeks to complete, so begin as soon as possible to reduce the amount of wait time for the individual.
      2. Once the individual has received the ITIN, he/she will need to provide IRS Form 8233 to your department.
      3. Once you receive IRS Form 8233 (may be scanned or faxed from the individual), verify the form is complete (applicable boxes completed, signed, dated). Make a copy to return to the nonresident alien, make a copy for your department records, and immediately forward this form to the Assistant Director of Accounts Payable, Unger Complex, Suite 500. This form must be received by Division of Financial Services and postmarked to the IRS within five days of the nonresident alien providing it for verification.
      4. Complete the payment voucher, attaching a copy of the IRS Form 8233 to the voucher, and submit to Division of Financial Services.

• • Option C: Nonresident alien DOES NOT HAVE an ITIN and resides in a country that has a U.S. income tax treaty, but DOES NOT wish to claim tax treaty benefits (the individual has the option of filing a U.S. Tax Return at the end of the calendar year to request a refund)

1. 1. 1. The individual DOES NOT need to complete IRS Form 8233. Choosing this option obligates KSU to withhold taxes at a rate of 35% (30% federal, 5% state) from his/her payment.
      2. Departments have two options for withholding of the 35% tax amount:
         1. The department may reduce the payment by 35% and pay the individual the remaining 65%.
            Example: If you submit a $500 professional services payment request, you will pay the individual $325 (65% of $500) and withhold $175 (35% of $500).
         2. The department may choose to gross up the payment (seek departmental approval) to net the desired amount agreed upon for the professional services.
            Example: If you wish for the individual to receive (net) $500, the gross (total) payment will be $769.23 ($500/65%). The payment voucher for the individual will be for $500 and the amount withheld will be $269.23.
      3. Once the method of calculating the payment has been determined, submit a voucher payable to the individual for the amount, after taxes are withheld. In the description field reference the document number the payment to the vendor was made on and your calculation used in determining the tax withholding.
      4. Submit a second voucher payable to Kansas State University, Unger Complex, Suite 500 to submit to the state and IRS on the nonresident alien's behalf. In the description field reference the document number the payment to the vendor was made on and your calculation used in determining the tax withholding.

• • Option D: Nonresident alien DOES NOT HAVE and ITIN and DOES NOT reside in a country that has a U.S. income tax treaty

1. 1. 1. The individual DOES NOT need to complete IRS Form 8233. Choosing this option obligates KSU to withhold taxes at a rate of 35% (30% federal, 5% state) from his/her payment.
      2. Departments have two options for withholding of the 35% tax amount:
         1. The department may reduce the payment by 35% and pay the individual the remaining 65%.
            Example: If you submit a $500 professional services payment request, you will pay the individual $325 (65% of $500) and withhold $175 (35% of $500).
         2. The department may choose to gross up the payment (seek departmental approval) to net the desired amount agreed upon for the professional services.
            Example: If you wish for the individual to receive (net) $500, the gross (total) payment will be $769.23 ($500/65%). The payment voucher for the individual will be for $500 and the amount withheld will be $269.23.
      3. Once the method of calculating the payment has been determined, submit a voucher payable to the individual for the amount, after taxes are withheld. In the description field reference the document number the payment to the vendor was made on and your calculation used in determining the tax withholding.
      4. Submit a second voucher payable to Kansas State University, Unger Complex, Suite 500, to submit to the state and IRS on the nonresident alien's behalf. In the description field reference the document number the payment to the vendor was made on and your calculation used in determining the tax withholding.

• Qualified Education Expenses (tuition, fees, books, supplies): Scholarship/fellowship grants to nonresident aliens who are a candidate for degree for qualified educational expenses are NOT subject to withholding (U.S. Source).
• Nonqualified Education Expenses (room and board): Scholarship/fellowship grants to nonresident aliens who are a candidate for degree for nonqualified educational expenses ARE subject to withholding unless the individual chooses to claim tax treaty benefits (if eligible).
  
  Form W-8BEN must be submitted with the payment to process payment.

How this type of payment is made:

1. If the recipient has eligible tax treaty and an ITIN, the individual may claim withholding exemption by completing Form W-4 and the Certification of U.S. Tax Return Filing. The individual may also claim personal exemption rates at the daily prorated rate for the number of days in the U.S. during the year.
2. If the recipient DOES NOT have an eligible tax treaty, the individual may still claim a personal exemption at the daily prorated rate for the number of days in the U.S. during the year by completing Form W-4 and Certification of U.S. Tax Return Filing. The remaining grant is subject to 19% tax withholding (14% Federal, 5% State). Submit 19% withholding to KSU Division of Financial Services.
3. If the recipient does not wish to claim a tax treaty benefit or a personal exemption, withholding of 19% of the gross scholarship/fellowship will apply.

Foreign National

A foreign national is an individual who is not a citizen of the United States. For tax purposes, a foreign national may be classified as either a resident alien or a nonresident alien. To be considered a resident alien, the individual must meet the green card test or the substantial presence test. A nonresident alien is an individual who is not a U.S. citizen and has not met the green card test or the substantial presence test.

Resident Alien

An individual who is not a citizen of the United States but meets the green card test or substantial presence test. Resident aliens are taxed on their worldwide income. In general, resident aliens are subject to the same tax treatment as U.S. citizens.

Nonresident Alien

An individual who is not a U.S. citizen and has not met the green card test or substantial presence test to be considered a resident alien

Individual Taxpayer Identification Number (ITIN)

The ITIN is a tax processing number issued by the Internal Revenue Service. A foreign individual may apply for an Individual Taxpayer Identification Number when not eligible to receive a social security number for purposes of claiming a tax treaty exemption or filing a U.S. tax return.

A nonresident alien individual who is not eligible for a social security number but is required to file a U.S. tax return in order to claim a refund of tax under the provisions of a U.S. Income Tax Treaty needs an ITIN. In addition, a nonresident alien required to file a U.S. tax return or a U.S. resident alien filing a U.S. tax return will need an ITIN.

Foreign Entity

A foreign entity is an business, organization or entity that is not incorporated or organized to do business in the United States, including international organizations and offices of foreign governments. Foreign entities providing services in the United States may claim tax withholding exemption if their country of incorporation has a tax treaty with United States. They must complete and submit form W-8BEN-E to claim this exemption.

IRS Form W-7

IRS Form W-7, Application for IRS Individual Taxpayer Identification Number, is used by Foreign Nationals to apply for an ITIN if the individual wishes to claim U.S. Income Tax Treaty benefits or is required to file a U.S. Income Tax Return. Individuals wishing to claim tax treaty benefits for an honorarium payment or payment for independent services must submit the W-7 Application in advance of the payment. Please see additional instruction below for completing the W-7 Application. Individuals wishing to obtain an ITIN for purposes of filing a U.S. Income Tax Return (not tax treaty benefits), may submit the W-7 Application with their annual U.S. Income Tax Return.

IRS Form 8233

IRS Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual must be filled out by any nonresident wishing to claim tax treaty benefits (if eligible) for honorarium or independent service payment. The individuals must have a valid ITIN.

IRS Form W-8BEN

IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, should be completed by foreign vendors to verify foreign status. This form is also completed by students receiving taxable scholarships in order to claim tax treaty benefits.

IRS Form W-8BEN-E

IRS Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), must be completed by foreign entities providing services in the United States in order to claim exemption from withholding under a U.S. Income Tax Treaty. An ITIN is not required if foreign entity provides their home country foreign Tax Identification Number (TIN).

U.S. Income Tax Treaty

The United States has income tax treaties with a number of foreign countries under which residents of those countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain income received from within the United States.

Certified Acceptance Agent (CAA)

CAAs are approved designated agencies available to certify identification documents. The CAA certification is restricted to originals or copies certified by the issuing agency for passports or birth certificates. All other identity documents must be submitted as original or a copy certified by the issuing agency with the Form W-7. CAAs are required to personally review and certify identification documents.

Certified Document

An identification document that the original issuing agency provides and certifies as an exact copy of the original document and contains an official stamped seal from the agency. If an original passport is submitted, no additional certification or supporting documentation is required.

Most travel expenses of international visitors are covered under KSU's accountable plan and reimbursement for these expenses are generally neither taxable nor reportable provided the expenses are substantiated with adequate documentation.

When reimbursing an international visitor for travel related expenses (airfare, lodging, meals), an ITIN is not needed. Per diem (up to the state set rate) may be reimbursed to the international visitor as a nontaxable, nonreportable reimbursement provided the visitor is covered under KSU's accountable plan, up to the amount of expense the individual incurred (not to exceed the state set rate). Any unused per diem should either be returned to KSU or should be treated as taxable compensation.

• Certification of U.S. Tax Return Filing
• Publication 515-Withholding of Tax on Nonresident Aliens and Foreign Entities
• Publication 519-U.S. Tax Guide for Aliens
• Publication 901-U.S. Tax Treaties
• Publication 1915-Understanding Your IRS ITIN
• U.S. Income Tax Treaty Table

Tax Treaty Table.pdf (k-state.edu)