Payments to Foreign National Employees

United States immigration regulations govern the types of payments that can be made to individuals who are neither citizens nor permanent residents of the United States. The Internal Revenue Service and the Treasury Department rules govern the Federal Income and Social Security tax withholding and reporting rules related to payments made in accordance with United States Citizenship and Immigration Services (USICS) rules.

These guidelines are intended to provide guidance with respect to payments to individuals who are neither citizens nor permanent residents of the United States; promote compliance with USCIS rules regarding the types of payments that can be made to an individual based on his or her immigration status; and promote the compliance with the Internal Revenue Service (IRS) and State of Massachusetts income tax reporting and withholding rules.

These guidelines, along with the the accompanying UMMS procedures are also designed to provide department administrators with reference tools and resources in order to facilitate the process of paying an international visitor, student, scholar, faculty, staff member or other international individual who is permitted to receive payment.

The information below is taken directly from UMMS policy on payment to foreign nationals.

USCIS Rules regarding Payments to Individuals

USCIS regulations restrict the types of payments that can be made to persons who are neither citizens nor permanent residents of the United States.  Whether such payments are permissible is based on the current immigration status of each individual payee as stated on the individual’s Form I-94, (i.e. generally a white or green card attached to the passport that lists the visa status of a non-immigrant visitor at the U.S. port of entry. Some aliens may not possess this card.)  Depending on the current immigration status of an individual, an individual may be permitted to receive one of the following types of payments or a combination thereof:

• Wages
• Non-employee compensation (for example, consulting payments)• 
• Honoraria
• Substantiated expense reimbursements
• Scholarships/fellowships
• Prizes or awards

An expense reimbursement must be substantiated and paid in accordance with University Policies and must be the type of expense ordinarily paid by the University pursuant to University Policies.  Reimbursements to an individual include payments made on behalf of an individual (e.g., direct payment to an airline or hotel on behalf of the individual).  Travelers may be reimbursed at the per diem rate for personal meals and incidental expenses based on the location of travel. An individual may claim the per diem in lieu of the actual meals and incidental expenses incurred.

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Immigration Status and Allowable Payments

UMMS has provided the following tables as an overview of common categories of immigration status and the USCIS payment restrictions regarding payments to individuals in each of these categories. 

Chart 1 details the categories of immigration status that allow an individual to receive wages and related expense reimbursements in his or her capacity as a UMMS employee and /or receive a fellowship or scholarship from the University. These individuals would be under UMMS immigration sponsorship. 

Chart 2 sets forth the categories of immigration status that allow an individual to receive honoraria or other payments for independent personal services, related expense reimbursements and /or a fellowship or scholarship; these individuals may or may not be under UMMS sponsorship.  These charts do not address royalties paid for by the University to individuals, as royalties are not governed by these USCIS rules.

These charts should be used as a reference guide in order to assist in the determination of the type of payment, if any, that may be made to an individual holding a specific immigration status. Please contact the ISSO with any questions regarding any status described below or regarding any status that is not described in this policy.

Chart 1: International Payment Reference Guide for Employees under UMMS Sponsorship

An individual who does not have an appropriate immigration status is not allowed to receive any payment from the University, including service payments or reimbursements. The purpose of this chart is to describe the types of payments that can be made to UMMS employees and students who are neither citizens nor permanent residents of the United States.

(1) On campus employment is limited to 20 hours per week when school is in session and full time during school breaks. UMMS students are not permitted to engage in additional work outside of their respective lab.
(2) An individual may only receive service payments for services performed in the position, in his or her major field of study, specifically stated on the immigration document and pursuant to the conditions of the Optional Practical Training or Academic Training. An individual in this status may not receive payments for any work performed that is not specifically related to the field of study noted on the immigration document.
(3) These classifications are employer-specific. An individual may only receive service payments for services performed in the position and for the employer specifically stated on the immigration document or petition (H-1B, O-1, J-1, P, TN, etc.) Please not that J-1 students/scholars should consult with the ISSO concerning the limitations of their status as it pertains to their ability to provide services other than that which is indicated on their visa documents.
(4) An individual with J-2 immigration status is eligible to be employed only if the individual has a valid USCIS Employment Authorization Document.

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Chart 2: International Payment Reference Guide for Non-Employee of UMMS

The purpose of this chart is to set forth the types of payments that can be made to non-UMMS employees who are neither citizens non permanent residents of the United States. Payment for services includes honoraria or other payment for independent personal services.

   
Footnotes:
(1) B-1 Visitor for business, B-2 visitor for pleasure, WB and WT

• Visitors admitted to the U.S. in B-1 or WB status who are receiving an honorarium, or an honorarium plus expenses, may perform academic activity at UMMS for a maximum of nine days, as long as they have not accepted payment of expenses and/or honorarium from more than five U.S. institutions or organizations in the previous six months. If either of these conditions is exceeded the individual may not receive any honorarium or honorarium plus reimbursement for expenses.
• Visitors in B-1 or WB status, who are not receiving an honorarium or payment for independent personal services, have no limit on the number of days they can be reimbursed for expenses. Substantiated reasonable expenses, paid in accordance with University policy, can be reimbursed up to the expiration of their B-1 or WB status as stated on the I-94 card. This applies only to holders of B-1 or WB status; it does not apply to holders of B-2 or WT status.

(2) An individual may only receive service payments for services performed in the position, in his or her major field of study, specifically stated on the immigration document and pursuant to the conditions of the Practical or Academic training. An individual in this status may not receive payments for any work performed that is not specifically related to the field of study noted on the immigration document.
(3) An individual may only receive service payments for services performed in the position and for the employer specifically stated on the immigration document or petition (H-1B, O-1, J-1, TN, etc.) for the specified employer. An individual in this status may not receive payments for any work performed that is not specifically stated on the immigration document.
(4) An individual who is in H-1B status under UMMS sponsorship and who is receiving a fellowship as a postdoctoral fellow may also be paid for certain work consistent with University policy.
(5) An individual in J-1 status not under UMMS sponsorship must have the required written authorization from his or her sponsoring institution in order to be paid for services.
(6) An individual with a J-2 immigration status is eligible to be employed only if the individual has a valid USCIS employment authorization document.

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Special Notes for Citizens of Canada and Mexico

Citizens of Canada

Canadian citizens are exempt from the U.S. passport and visa requirements and may be in the U.S. without those documents and without an I-94 card. In this case, the USCIS considers them to have been admitted as visitors for pleasure or visitors for business. Canadian citizen visitors to UMMS should be advised to request an I-94 card from the U.S. Customs and Border Patrol inspectors in order to facilitate the reimbursement of expenses and/or the payment of honoraria. However, if a Canadian citizen does not have an I-94, but has evidence of his Canadian nationality and the purpose of the visit to UMMS, reimbursement or payment of honorarium can be made under the same provisions outlined above. Canadian nationals holding any other non-immigrant status must have an I-94 card with the proper endorsement to be eligible for the benefits of the particular status.

Citizens of Mexico

A visa and a passport are not required for a Mexican national who is in possession of a U.S. border crossing card and is applying for admission as a temporary visitor for business or pleasure from a contiguous territory. Mexican visitors to UMMS should be advised to request an I-94 card from the U.S. BCBP inspectors in order to facilitate the reimbursement of expenses and/or the payment of honoraria. However, if a Mexican citizen does not have an I-94, but has a U.S. border crossing card and evidence of the purpose of his visit to UMMS, reimbursement or payment of honorarium can be made under the same provisions outlined above. Mexican nationals holding any other non-immigrant status must have a valid visa and I-94 card with proper USCIS endorsement to be eligible for the benefits of the particular status.

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IRS Classification: Nonresident Alien versus Resident Alien

While the USCIS is responsible for determining the types of payments that can be made to individuals who are neither citizens nor permanent residents of the U.S., the IRS and the Treasury Department are responsible for federal income tax and social security tax withholding and reporting rules related to payments made to or on behalf of these individuals. The federal tax treatment of a non-U.S. citizen for tax reporting and withholding purposes is based on his or her classification as a nonresident alien or as a resident alien for tax purposes.

It is important to note that the residency status for tax purposes is separate and distinct from the residency tax status rules for immigration purposes.

In determining the tax residency status of an individual who is not a citizen of the U.S., the IRS employs two tests: the greencard test and the substantial presence test. If an individual qualifies as a resident under the greencard test or satisfies the substantial presence test, he or she is classified as a resident alien for tax purposes. If an individual does not satisfy the greencard test or the substantial presence test, he or she is classified as a nonresident alien for tax purposes.

Greencard Test

In order to qualify as a resident under the greencard test, an individual must at any point during the calendar year have been granted lawful permanent resident status. A lawful permanent resident is an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.

Substantial Presence Test

As a general rule, the substantial presence test is a calculation of the number of days that an individual has been physically present in the U.S. during the three most recent calendar years, including the current calendar year. Certain exceptions apply to the general rules of the substantial presence test for specific immigration statuses, as discussed below. The test is required to be completed for an individual each year on a prospective basis, always taking into account the current calendar year and the two preceding calendar years. The Foreign National Information Form should be completed by the alien employee in order for the ISSO to make a calculation of the substantial presence test.

• General Rule- An individual satisfies the substantial presence test if he or she is physically present in the U.S. for at least 31 days in the current calendar year and at least 183 days, taking into account:
  • All of the days present in the U.S. during the current calendar year plus 1/3 of the days present in the U.S. during the first preceding calendar year pluse 1/6 of the days present in the U.S. during the second preceding calendar year.
• Exceptions: The Exempt Individual Rules: The IRS provides an exception to the general rule above for individuals who enter the U.S. in specific immigration statuses. For purposes of the substantial presence test, the following immigration categories are considered exempt from applying the general rule during the specific exemption period:
  • An individual in J immigration status whose primary purpose is that of a teacher, researcher, or trainee and who is temporarily present in the U.S. for two calendar years or less;
  • An individual in F status whose primary purpose is that of a student and who is temporarily present in the U.S. for five calendar years or less;
  • An individual in F or J immigration status who satisfies any of the applicable exceptions described above is deemed to be a nonresident alien for tax purposes during the specific exemption period. If such an individual exceeds the applicable time limitation, the individual is subject to the general rule of the substantial presence test beginning with the first calendar year after the exemption period ends.
  • Note: The calculation of exempt years for an individual is relatively straightforward for individuals who are present in the U.S. for the first time. This calculation can be quite complex, however, with respect to an individual who has been in the U.S. prior to his or her current visit or with respect to an individual who has held different immigration  statuses or had different primary purposes in the past. The ISSO is responsible for determining an individual’s residency for tax purposes.

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Internal Revenue Service Reporting and Withholding

Federal tax reporting and withholding is based on an individual’s classification as a resident alien or as a nonresident alien for tax purposes:

Resident Alien: An individual who is a resident alien for tax purposes is generally subject to the same federal reporting and federal income and social security tax withholding rules as U.S. citizens.

Nonresident Alien: An individual who is a nonresident alien for tax purposes is subject to Federal reporting and Federal income and social security tax withholding only on income received from sources within the United States. Payment made to nonresident aliens are subject to separate reporting and Federal Income and social security tax withholding rules.

The following chart sets forth the general reporting and withholding rules applicable to nonresident aliens:

Footnotes:

1. Wages paid to a nonresident alien are subject to the same graduated federal income tax withholding rates as U.S. citizens and resident aliens. A nonresident alien is generally limited, however, with respect to the filing status and the number of personal exemptions he or she may claim on his or her Form W-4. A nonresident alien is required to claim “single” filing status and, with a few exceptions noted below, may only claim one personal exemption regardless of the individual’s marital status or number of dependents. In addition, an additional $7.60 per week must be withheld from the wages of nonresident aliens. Permanent Residents of Canada, Korea, Japan, Mexico, American Samoa, the Northern Mariana Islands, and students from India are exceptions to the general rule and are eligible to claim more than one personal exemption. Further, students from India are not required to have the additional $7.60 per week withheld from wages.
2. Wages paid to a nonresident alien who is on an F-1 or J-1 immigration status are not subject to social security tax withholding provided that such earnings are in payment for services performed to carry out the purpose for which the individual was admitted to the United States.
3. Wages paid to nonresident alien who holds other than an F-1 or J-1 immigration status are generally subject to Social Security withholding unless a specific exemption (i.e., student FICA exception) applies.
4. Nonresident students or grantees who receive U.S. source grants or scholarships may be entitled to claim the daily allowance, a prorated portion of allowable personal exemptions based on the projected numbers of days an individual will be in the United States. If the individual is elgible to claim the daily allowance, Federal income tax of 14% (F,J,Q, and M visa statuses) will be withheld on the amount of fellowship less the applicable daily allowance.
5. Income tax treaty exemptions are not generally applicable for prizes and awards.

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Income Tax Treaties

Income tax treaties between the United States and other countries may reduce or eliminate Federal income tax withholding on fellowship payments, royalty payments and on compensation payments received by students, trainees, teachers, researchers and independent contractors who are residents of the country with which the U.S. has a treaty in effect. Each treaty is distinct and may contain time and/or dollar limits. The existence of an income tax treaty between the U.S. and another country does not automatically exempt an individual from Federal income tax withholding; the individual must satisfy all of the qualifications as set forth in the treaty and must complete and submit all required tax treaty exemption forms to the ISSO for review and submission to the IRS, if applicable. 

List of countries that currently have an income tax treaty with the United States.

For updated tax treaty information, see the following website: http://www.irs.gov/businesses/international/article/0,,id=96739,00.html 

Resident Aliens: Although resident aliens are generally treated the same as U.S. citizens for federal income tax reporting and withholding purposes, resident aliens may, under certain circumstances, be eligible to claim a reduced Federal income tax withholding rate pursuant to a tax treaty. Any payments that are subject to a reduced Federal income tax withholding rate pursuant to a tax treaty are reported on a form 1042-S.

Nonresident Aliens: Nonresident aliens may be eligible to claim a reduced Federal income tax withholding rate pursuant to a tax treaty. See the list of tax treaty countries for a more complete description of tax treaty eligibility.

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Claiming a tax treaty benefit

In order to claim a tax treaty benefit, a treaty must be in effect between the U.S. and the individual’s country of residence, all of the requirements as set forth in the treaty must be satisfied, and all required tax treaty exemption forms must be completed with a valid SSN/ITIN.

Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual:  Form 8233 is required to be filed to reduce or eliminate Federal income tax withholding on compensation paid to a nonresident alien employee, independent contractor, guest lecturer, student or other international individual pursuant to a tax treaty between the U.S. and the individual’s country of residence.

Form 8233 is valid only for the calendar year in which it is filed. The exemption from withholding is effective for payments made 10 days from the date the ISSO mails the original form 8233 to the IRS. In addition to the 8233, a statement is required to be attached to the form by an individual who claims a tax treaty benefit as a teacher, researcher or student.

Form W-8BEN, Certificate of International Status of Beneficial Owner for United States Withholding:  Form W-8BEN is required to be filed to reduce or eliminate Federal income tax withholding, pursuant to a tax treaty between the U.S. and the individual’s country of residence, on non-compensatory payments (i.e. fellowship, royalty, etc.), made to a nonresident aliens. Form W-9 is required to be filed with an annotation on the form, by resident aliens to claim a tax treaty benefit.

Form W-8BEN, generally valid for three calendar years, is not required to be filed with the IRS but must be retained by the ISSO. In order to claim a tax treaty using the form W-8BEN, an individual must have a SSN or ITIN at the time of payment.

Form W-9, Request for ITIN:  Resident aliens, who qualify for tax treaty benefits, are required to claim tax treaty benefits using form W-9, along with an additional annotation on the form.

If an individual is eligible to claim a tax treaty benefit, but does not file the necessary paperwork with the ISSO in a timely manner, the individual may be eligible to claim the tax treaty benefit on his or her individual tax return at the end of the year.

Tax treaty eligibility is based on an individual’s immigration status, as well as his or her primary purpose and position at UMMS. If a person’s immigration status or position at UMMS changes, the individual must notify the ISSO.

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U.S. Taxpayer Identification Numbers

UMMS required that an individual who receives payment must provide either a SSN or an ITIN. The only exception to this requirement is the case of substantiated reimbursements. If the payee does not have a SSN or an ITIN, the individual may apply for a number using form SS-5 for a SSN or W-7 for an ITIN. Payment can be made to an individual once that person proves that the application for a SSN or ITIN has been accepted.

Social Security Number
Employees of UMMS are required to obtain a social security number in order to receive wages. Generally a non-U.S. citizen is eligible to obtain an SSN if he or she has been lawfully admitted to the U.S. as a permanent resident or holds an immigration status that permits employment. ITIN’s should not be used in place of SSN’s.

ITIN
An individual who is not eligible to obtain a SSN and will receive payment from UMMS must obtain an ITIN. In order to obtain an ITIN, the individual must be a non-U.S. citizen who will receive honoraria or other payments for independent personal services or who are recipients of scholarship or fellowship payments.

Applying for either a U.S. Social Security Number or ITIN.

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