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 which covers the type of payment received while visiting the U.S. For additional information and guidance on requesting payments to NRA's, please see Payments to Non-Resident Aliens.
In order to make this determination, all non-resident alien payees are required to provide immigration information to the Payroll Office, via the Tax Determination System (TDS) hosted by Sprintax. This website is completely secure, and all information provided will be kept securely by our staff here at WM.
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 to ensure they receive the proper tax treatment. Submit a completed Request For Tax Analysis - Non-Resident Aliens to initiate this process. Once this is received, you will be contacted with log in information for the TDS 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. WM 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 Tax Determination System (TDS)
- Uploading signed documents to TDS for the application of treaty benefits
All processes must be completed before treaty benefits can be applied to ensure that WM 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 NRAs 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 TDS system
- Tracking of NRA Payments in AP and Financial Aid
- Annual Tax Documents
Tax Analysis via TDS
A key part of the foreign national process is submitting data via the secure Tax Determination System hosted by Sprintax. TDS is a cloud-based, data-entry application for foreign national tax compliance and income tax treaty analysis that also prepares IRS tax form 1042-S.
Foreign nationals at WM submit their personal and immigration status data using TDS. 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 submit a Request For Tax Analysis - Non-Resident Aliens to initiate the analysis process. The Payroll Office will contact the foreign national via TDS.
The tax analysis process is outlined below:
- Department submits request for analysis via Request For Tax Analysis - Non-Resident Aliens. Department should forward payment request and supporting documentation to Payroll as soon as possible after initial request for analysis has been submitted.
- Student will be contacted by Payroll via the TDS system with username and password to enter required information for processing.
- Payroll will review NRA responses and follow up via email with any who have NOT completed TDS. Those who may have errors in their information that could impact the results of their tax analysis will also be contacted.
- The tax analysis is completed in real time, and required documents are automatically generated in the system for eSignatures. As soon as the payee completes TDS, electronically signs the required documents, and uploads the required immigration documents, the tax analysis process is complete. The payee should notify our office that they have completed the necessary steps by emailing us at email@example.com
- Payroll will review the tax analysis and follow up with payees if necessary.
- For those claiming treaty benefits, Form 8233 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 the Request for Tax Analysis will be finalized 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 Request for Tax Analysis will be attached to the payment request in buyW&M 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 complete the tax determination, withholding the maximum allowable tax (14% for scholarships, 30% for services) for any who have failed to respond.
The foreign national will complete TDS. Here is what they should expect:
- Before going to the TDS 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)
- Copies of immigration documents, as well as all other signed tax documents generated for the tax analysis must be uploaded to TDS.
- 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.
- Log in 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. Step-by-step instructions are available here.
- Payroll Office will review the data and either approve it or send an e-mail requesting additional information.
- Once approved, the Request for Tax Analysis will be completed, and Banner records will be updated as needed.
- Before going to the TDS website, the NRA should gather the following documents:
Tracking of NRA Payments in AP and Financial Aid
Once the data in TDS is approved and all required tax forms are signed by the NRA; the Payroll Office, will calculate withholding and complete the Request for Tax Analysis providing the tax withholding rate and amount. The Request for Tax Analysis must accompany any payment requests submitted to Financial Aid or Accounts Payable. 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:
- Department must provide Accounts Payable with the completed W-8BEN
- Accounts Payable will create the NRA in Cardinal and Banner
- Department submits request for tax analysis via Request For Tax Analysis - Non-Resident Aliens,
- Simultaneously submit payment request via buyW&M
- Payroll will complete the TDS process described above with the NRA
- Payroll will attach the completed Request for Tax Analysis to the payment in buyW&M 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 is remitted to the IRS on behalf of the NRA payee by Payroll
For Financial Aid Payments:
- Department submits request for tax analysis via Request For Tax Analysis - Non-Resident Aliens.
- Forward the original Financial Aid Spreadsheet to Foreignnationals@wm.edu.
- Payroll will complete the TDS 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 TDS, 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 TDS process, and submitting requested documents to the Payroll office. Failure by the NRA to complete the TDS process may result in tax application on any proposed payment in accordance with IRS regulations.