By definition, an "alien" is an individual who is not a U.S. citizen. Aliens are classified as non-resident or resident aliens by the Bureau of Citizenship and Immigration Services.
Resident aliens generally are taxed on their worldwide income, similar to U.S. citizens. To be classified as a resident alien, the individual must meet one of two tests:
Green Card Test
A non-resident alien is a lawful permanent resident of the U.S. at any time if they have been given the privilege, according to the immigration laws, of residing permanently as an immigrant. This status usually exists if the Bureau of Citizenship and Immigration Services has issued a green card.
Substantial Presence Test
A non-resident alien is classified as a resident alien for tax purposes if they were physically present in the U.S. for 31 days during the current year and 183 days during a three-year period that includes the current year and the two years immediately before that.
If a person does not meet either the Green Card or Substantial Presence Test, then that person is classified as a non-resident alien. A new arrival on a J-1 or F-1 visa is generally a non-resident alien. Non-resident aliens are taxed only on their income from sources within the U.S. and on certain income connected with the conduct of a trade or business in the U.S.
General Information Regarding the Taxation of Non-resident Aliens
Non-resident aliens are taxed on earnings received while living in the U.S. Non-resident aliens (visa type F-1 and J-1) may be exempt from FICA (Social Security tax). If the visa type is F-1 or J-1, the non-resident alien may be exempt from federal taxes only if the country of residence has negotiated an income tax treaty and it covers the type of payment received while visiting the U.S.
In order to make this determination, all non-resident alien payees are required to provide immigration information to the Payroll Office, via our Foreign National Information System (FNIS). This website is completely secure, and all information provided will be kept securely by our staff here at CWM.
It is the responsibility of the hiring department and/or employee to notify the Payroll Office if they are in the US on a qualifying visa in order to ensure they receive the proper tax treatment. Contact our NRA representative at firstname.lastname@example.org indicating your visa status and provide your full name and email address. Once this is received, you will be contacted with log in information for the FNIS system in order to submit the data required to perform the tax analysis process.
Failure to complete and submit the required forms may result in Federal and State taxes being withheld from the employee’s paycheck. Refund of these taxes can be obtained by filing Form 1040NR after Form W-2 is issued, as CWM cannot refund taxes withheld due to failure to submit required documentation.
NRA Payment Overview
There are three ways in which payments are made to foreign nationals:
- As an employee via the Payroll process, student or non-student positions
- As a student recipient of a scholarship or fellowship via Accounts Payable or Student Financial Aid
- As a contractor via Accounts Payable
There are three parts to the tax analysis process for foreign nationals:
- completing paperwork with the department (depends of the type of activity: payroll, accounts payables, financial aid),
- completing data online in the Foreign National Information System (FNIS)
- submitting signed documents to the Payroll Office for the application of treaty benefits
All processes must be completed before treaty benefits can be applied, in order to ensure that CWM complies with Internal Revenue Service (IRS) regulations.
The IRS requires that WM apply U.S. withholding and reporting rules consistent with the U.S. tax status which can be as a Resident alien or Non-Resident alien (NRA). Resident aliens are taxed like U.S. citizens, while NRA’s are taxed under different withholding and reporting rules. U.S. tax status depends on the NRA’s U.S. immigration status and U.S. presence. Also, NRAs may be entitled to tax exemptions, applicable tax treaties, or both, depending on their U.S. tax status. Since the immigration actions and U.S. presence may change the way the NRA is taxed, we request that the NRA provide us with up-to-date information so that we may verify their status and any applicable tax exemptions.
Without this information, the NRA care team in the Payroll Office cannot provide the NRA with tax exemptions which might otherwise be applicable.
NRA Payment Processing
The discussion below will highlight three main components of the NRA payment process:
- Tax Analysis via the FNIS system
- Tracking of NRA Payments in AP and Financial Aid
- Annual Tax Documents
Tax Analysis via FNIS
A key part of the foreign national process is submitting data via the secure Foreign National Information System (FNIS) website, maintained by Thomson Reuters, Inc. FNIS is a web-based, data-entry software application for foreign national tax compliance and income tax treaty analysis that also prepares IRS tax form 1042-S.
Foreign nationals at CWM submit their personal and immigration status data using FNIS. The data is then analyzed to determine tax status and treaty eligibility. Foreign nationals are able to review updates, and print reports and completed IRS forms.
WM departments will send an email request to ForeignNationals@wm.edu to request that the Payroll Office begin the analysis process. The email must contain the name of the foreign national, Banner ID number if it exists, and foreign national email address. The Payroll Office will initiate contact with the foreign national via FNIS.
The Payroll Office processing schedule for FNIS requests:
- Department sends their request to ForeignNationals@wm.edu. Submission must include: NRA name, Banner ID, email, GROSS Payment amount.
- Student will be contacted by Payroll via the FNIS system with user name and password to enter required information for processing.
- Payroll will review NRA responses and follow up via email with any who have NOT completed FNIS. Those who may have errors in their information that will prevent the upload into Tax Navigator will also be contacted.
- Payroll will complete tax analysis for those who submitted information via FNIS, and tax documents will be prepared and uploaded into FNIS so the NRA can print, sign, and return to Payroll to complete the analysis.
- For those claiming treaty benefits, Form 8233 must have an original signature and will be faxed to the IRS for approval before benefits can be applied. This process takes 10 business days and must be completed to remain in compliance with Federal regulations.
- After approval to apply treaty benefits has been confirmed, tax letters will be prepared and a copy sent to Department. Spreadsheet will be sent to Financial Aid with updated amount to be paid to student. If payment is to be made by AP, the original tax letter will be attached to the Vendor Payment Request Form (VPRF) and submitted for payment to AP.
The Payroll Office will attempt to contact the NRA payee twice, if no response is received after the second attempt, the Payroll Office will prepare tax letters to the department and withhold the maximum allowable tax (14% for scholarships, 30% for services) for any who have failed to respond.
The foreign national will complete FNIS. Here is what they should expect:
- Before going to the FNIS website, the NRA should gather the following documents:
• Entry Visa
• Admission Record or I-94 card (this is electronic and can be printed at https://i94.cbp.dhs.gov/I94)
• Social Security Card (if you do not yet have one, you can still complete the data entry)
• Eligibility Document (I-20, DS-2019, I-797 or employment authorization card)
- NRA must use the website address, password and username given in the e-mail to enter the site. If this is the first time going to the website, they will be asked to change the password.
- Select “Data Entry” and complete the questions in as much detail as possible. There are help buttons to assist the NRA if they have any questions. They can save with errors if necessary, but must answer all of the required fields, including the visa information. At least one visit must be entered. If the NRA has not previously been to the U.S., they would only enter the program at WM. If they are entering information before they arrive at WM, they may use estimated arrival and departure dates. If a change occurs it can be updated after they arrive.
- Under “IRS Form”, they must select “Consent” and check the appropriate boxes to allow the Payroll Office to load the IRS forms on the FNIS website. When the forms are ready, the NRA will receive an email from Payroll indicating they are available. Note that data entry must be completed before the required forms can be loaded.
- When all information has been entered, they must check the confirmation box and then select “Finish”.
- For faster processing, select the option on the next page to create an e-mail notifying the Payroll Office that they have submitted the data.
- Payroll Office will review the data and either approve it or send an e-mail requesting additional information.
- Once approved, tax documents will be uploaded to FNIS for the NRA to print, sign and return to the Payroll Office.
Tracking of NRA Payments in AP and Financial Aid
Once the data in FNIS is approved and all required tax forms are signed by the NRA; the Payroll Office, will calculate withholding and generate the required tax letter that indicates any tax withholding rate and amount. The department must have this letter at hand BEFORE processing any payments to an NRA through the Financial Aid and Accounts Payable offices. Because of the nature of this analysis and the complexities brought about by the new vendor create process and the financial aid process, we would like to offer the following guidance to make NRA paperwork and payments process easier for you:
For Accounts Payable Payments:
- Send your request for NRA analysis (NRA name, banner ID number and email address to Payroll) to ForeignNationals@wm.edu.
- Send the original Vendor Payment Request Form (VPRF) to Payroll.
- Payroll will complete the FNIS process described above with the NRA.
- Department must provide Accounts Payable with the completed W-8BEN.
- Accounts Payable will create the NRA in Cardinal and Banner.
- Payroll will attach the original tax letter to the VPRF and email you a copy for your records.
- Accounts Payable will process the payment to the NRA.
- Tax is recorded appropriately through the AP process and tax is remitted to the IRS on behalf of the NRA by Payroll.
For Financial Aid Payments:
- Send your request for NRA analysis (NRA name, Banner ID and email address to payroll) to ForeignNationals@wm.edu.
- Send the original Financial Aid Spreadsheet as an attachment to the email noted in step 1.
- Payroll will complete the FNIS process described above with the NRA.
- After analysis is made; Payroll will email you with the tax analysis on the payment.
- If tax is applicable, the Payroll Office will reduce the amount on the Financial Aid Spreadsheet and forward to Financial Aid for payment and copy you on the email.
- Payroll will then complete a JV to charge the same index (Chart W) for the tax amount.
- Tax is recorded appropriately through the JV process and tax is remitted to the IRS on behalf of the NRA by Payroll.
Annual Tax Documents
The Payroll Office will prepare Form 1042-S for all qualifying NRA payments made by the Payroll, Accounts Payable and Financial Aid Offices. The NRA will receive an email alerting them when the documents have been uploaded into FNIS, where they can log in to securely obtain their tax documents.
The timeliness of this process is solely dependent upon the responsiveness of the NRA payee in completing the FNIS process, and submitting requested documents to the Payroll office. Failure by the NRA to complete the FNIS process may result in tax application on any proposed payment in accordance with IRS regulations.