UC Santa Barbara Policy 5145
Policies
Issuing Unit: Administrative Services Date: May 1, 1985
Under Revision
Contact Accounting
PAYMENTS TO ALIENS
I. REFERENCES:
A. U.S. Tax Reform Act of 1984, Internal Revenue Service.
B. UCSB Policies Manual, Policy 5120, Payment of Honoraria
C. UCSB Policies Manual, Policy 5150, Payment to Aliens.
D. UCSB Policies Manual, Policy 5170, Reimbursement of Travel
Expenses.
II. POLICY:
It is extremely important to establish clearly the status of aliens
so that they may be paid correctly in terms of Federal withholding
tax requirements. Likewise, it is important that aliens who receive
payments from the University understand their tax status. Because of
special tax considerations, departments should seek information from
the UCSB International Students & Scholars Office and the Accounting
Office when they intend to employ an alien or when they plan to
offer aliens honoraria, lecture fees, or any other non-payroll
payments for personal services. Aliens should be referred to the
Accounting Office when they arrive and when they plan to depart if
they have any questions as to their tax status.
A. Classification of Resident and Nonresident Aliens:
As a general rule, an alien is classified as a resident alien
for Federal income purposes if his/her declared intention is to
stay in the United States for two years or more. A resident
alien may claim tax exemptions the same as a U.S. citizen. An
alien is classified as a nonresident alien if his/her intention
is to remain in the U.S. for less than two years. A nonresident
alien must be taxed as a single with one exemption. An alien
will be considered to be a U.S. resident for income tax
purposes if the individual is a lawful permanent resident of
the U.S. at any time during the calendar year and has a "green
card" or meets the requirements of the "substantial presence"
questionnaire. After two years, the department should send the
employee to the Accounting Office to establish the aliens
proper tax status.
The following types of employees are considered nonresident
aliens at the time of employment but may be eligible for
residency status at a later date:
1. Teachers and researchers with a J-l visa who are not
covered by a reciprocal tax agreement: After a two year
waiting period, the employee may qualify as a resident
alien under the "substantial presence" requirements.
2. Students with F-l or J-l visas: After a five year waiting
period, the student may qualify as a resident alien under
the "substantial presence" requirements.
B. Visas:
The type of visa held by every alien engaging in any form of
service to the University must be identified and treated
according to the terms of the visa. Attachment A is a list of
the various types of nonimmigrant visas.
The most common type of visas at the University are the "J"
(Exchange Visitor), "F" (Student), and "H" (Temporary Visitor
of Distinguished Merit and Ability) which permits the holder to
be paid compensation for services performed and be reimbursed
for expenses incurred. The "B-1" visa (Temporary Business
Visitor) permits the holder to receive reasonable reimbursement
for travel and subsistence only (e.g., University per diem rate
and air fare). The visitor is not permitted to receive salary,
honoraria or any other form of compensation for services. The
"B-2" visa (Temporary Visitor for Pleasure) does not permit the
holder to receive any form of salary, honoraria, or
compensation nor is the visitor permitted to receive any form
of reimbursement for travel or subsistence. Mexican visitors
who enter the United States without a formally issued visa are
deemed to be B-2 visa holders. Canadian and British Landed
immigrants residing in Canada entering the United States
without a formally issued visa are deemed to be B-l/B-2 visa
holders.
C. Taxpayer Identification Numbers:
It is imperative for all aliens employed at UC to have a
taxpayer identification number. Aliens applying for taxpayer
identification numbers (Social Security numbers) must furnish
evidence of age, identity, citizenship, and alien status. The
following document(s) are necessary to satisfy the law:
1. A foreign-born person who is now a citizen of the United
States (one of the following):
- U.S. passport
- Naturalization Certificate
- U.S. Citizen Identity Card
- Certificate of Citizenship
- Consular Report of Birth
- U.S. Military Discharge papers showing U.S. Citizenship
2. Aliens residing in or visiting the United States (one of
the following):
- Alien Registration Card (1-151 or 1-551)
- U.S. Immigration Form 1-94, 1-186, 1-185, SW-434, 1-95A,
1-184, or AR3A.
A representative of the Social Security Office is on
campus one day a month. Appointments and information may
be obtained by calling International Students & Scholars
Office. Documents may also be presented to the local
Social Security Office in person. Photocopies are not
acceptable.
D. Payments to Aliens:
Payments to aliens fall into four general categories:
1. Salary or Wages:
a. Resident aliens employed by the University are
subject to tax withholding on the same basis as
United States citizens.
b. Unless exempt by a reciprocal tax treaty (see
paragraph E. below), nonresident aliens are taxed at
the same rate as a single United States citizen. With
the exception of residents of Canada and Mexico,
these employees are allowed only one personal
exemption regardless of their marital status or the
number of dependents they may have either in the U.S.
or abroad. Residents of Canada and Mexico who do not
enter and leave the United States at frequent
intervals are allowed the same number of exemptions
for withholding purposes as for the computation of
tax liability.
c. Regardless of their Federal Income Tax status, all
aliens are subject to California State Tax on all
income earned in the State of California.
2. Scholarships and Fellowships:
a. Degree Candidates:
Aliens who are candidates for a degree and who are
receiving undergraduate or graduate scholarship or
fellowship payments are not subject to tax
withholding or tax reporting.
b. Non-Degree Candidates:
(1) Resident aliens receiving fellowships are not
subject to tax withholding, but payments will be
reported to the Internal Revenue Service.
Recipients may be eligible for a fellowship
exemption from tax when they file their tax
return at the end of the year. Recipients should
check with the Internal Revenue Service to
establish their tax liability.
(2) Nonresident aliens who hold "F" (Student) or "J"
(Exchange Visitor) visas are taxed at the rate
of 14 percent after allowing a $300 per month
fellowship exemption for a maximum period of 36
months, and one personal exemption of $2.74 per
day for the period during which the student or
scholar receives the fellowship payments.
(3) All nonresident aliens receiving fellowships are
taxed at the rate of 30 percent after allowing a
$300 per month fellowship exemption for a
maximum period of 36 months. No personal
exemption is allowed in computing the amount of
tax to be withheld. However, this personal
exemption is granted when the alien files his
tax return.
(4) In order to claim an exemption, the alien must
complete and sign alien's certificate to claim
Exemption from Withholding Tax on Scholarship or
Fellowship (Attachment B).
3. Honoraria, consulting fees, or other stipends paid by
Request for Issuance of Check (see Policy 5120, paragraph
C). The rate of tax withholding in each case depends upon
the alien's type of visa and length of stay in the United
States. In some instances aliens may be exempt from U.S.
Income tax under terms of a reciprocal tax treaty between
the United States and his/her country of residency; see
paragraph II.E. below.
a. Holders of B-l (Temporary Business Visitor) and B-2
(Temporary Visitor for Pleasure) visas are not
permitted to receive salary, honorary, or other forms
of compensation for services. Holders of B-1 visas
are permitted to receive reimbursement for travel
expenses and per diem (see paragraph D.4. below). A
Canadian visitor who enters the United States without
a formally issued visa is considered to be a B-1/B-2
visa holder. For advise or assistance, contact the
Immigration Counselor in International Students &
Scholars Office at UCSB.
b. Resident aliens receiving such payments are not
subject to tax withholding, but earnings will be
reported to the Internal Revenue Service.
c. Nonresident aliens receiving such payments may be
exempt from tax under a tax treaty. If they are not
tax exempt, tax must be withheld at the rate of 30
percent.
4. Reimbursement of Expenses (see UCSB Policy 5150):
For aliens only (if visa status permits), an honorarium
payment and reimbursement of travel/subsistence expenses
are allowed.
E. Tax Treaties:
Nonresident aliens from countries with which the United States
has an income tax treaty may be eligible for exemption from
Federal tax withholding if they meet the requirements of the
treaty. Explanations of the articles may be found in "Commerce
Clearing House, Inc., Tax Treaties," on file in the Accounting
Office. Accounting also has available Document 515 for
withholding of tax on nonresident aliens. Note that tax treaty
articles are based on permanent residence rather than
citizenship.
The teaching article generally provides that professors or
teachers who are residents of the tax treaty country and who
visit the United States for the purposes of teaching at an
educational institution for a period not exceeding two years
shall be exempt from U.S. income tax on compensation received
for such teaching.
F. Health Insurance:
Nonimmigrant aliens should be advised of The Regents'
requirement that health insurance coverage must be carried as a
condition of employment. Alien employees who are employed 50
percent time for one year or more, or 100 percent for three
months or more, are eligible to enroll in one of the health
plans in the University program, or they may show evidence of
other health plan coverage which will equal to or provide
greater benefits than the minimum standard of the University of
California Group Health Plan Regulations. The Regents' con
tribution will be applicable. Nonstudent alien employees who do
not qualify for eligibility for insurance are required to
obtain health coverage outside the University program. A
certification of coverage is required of all such employees and
should be forwarded with their Employment forms, or have the
certificate available at the time the employee completes the
Statement of Citizenship. Foreign students must enroll in a
special student health insurance plan as a condition of
registration (see UCSB Policy 4220).
G. Sailing Permits:
When an alien employee, including a student employee, is ready
to depart from the United States, he/she must obtain a tax
clearance from the Internal Revenue Service, which is called a
Sailing Permit. About three to four weeks before the alien is
to leave the University, the department should contact the
Accounting Office for a certification to request a Sailing
Permit from the local Internal Revenue Service.
III. ATTACHMENTS:
A. List of types of nonimmigrant visas.
B. Alien's Certificate to Claim Exemption from Withholding Tax on
Scholarship or Fellowship.
For questions or comments regarding the format of the above information, please contact webcontact@ucsbuxa.ucsb.edu.
Last Modified By: HMW, 5/21/97
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