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					TAXATION/RECONCILIATIONS                                              NRA TABLE OF CONTENTS

                                    NONRESIDENT ALIEN TAXATION
                                        TABLE OF CONTENTS
SECTION

1.   TABLE OF CONTENTS

2.   OVERVIEW

3.   WORK AUTHORIZATION VERIFICATION
      A. EMPLOYEES

          1.        Form I-9 Employment Eligibility Verification

          2.        Changes Since 11/91

          3.        Receipt Rule

          4.        Information Verification

          5.        Work Authorization


      B. INDEPENDENT CONTRACTORS

          1.        Employee or Independent Contractor

          2.        Forms for Eligibility Verification


      C. VISAS

           1.         Immigrant Visa

               2.. Non-Immigrant Visa

               3.     Visa Types and Working Privileges

               4.     Visa Waiver Program (VWP)

               5.     United States-Canada Free Trade Agreement

               6.     North American Free-Trade Agreement (NAFTA)

      D. FOREIGN CORPORATIONS

4. TAX RESIDENCY RULES
      A. GREEN CARD TEST

      B. SUBSTANTIAL PRESENCE TEST

      C. DUAL RESIDENCY STATUS

      D. TAX TREATY IMPACT

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TAXATION/RECONCILIATIONS                                                         NRA TABLE OF CONTENTS


      E. CLAIMING RESIDENT STATUS

5.   INCOME SUBJECT TO WITHHOLDING
      A. SOURCE OF INCOME

            1.   Personal Service Income

            2.   Scholarship and Fellowship Grants (non-service)

            3.   Royalties

            4.   Prizes, Awards, and Other Grants

      B. TYPE OF INCOME

            1.   Dependent Compensation

            2.   Independent Compensation

            3.   Scholarship or Fellowship Grant

            4.   Royalties

            5.   Prize or Award

      C. EFFECTIVELY CONNECTED INCOME

      D. WITHHOLDING ON SPECIFIC INCOME

            1.   Scholarship and Fellowship Grants (Income Code 15)

            2.   Industrial Royalties – Patents, Trademarks, etc. (Income Code 11)

            3.   Other Royalties – Copyright, Recording, Publishing (Income Dode 12)

            4.   Independent Personal Services (Income Code 16)

            5.   Dependent Personal Services (Income Code 17)

            6.   Pay for Teaching (Income Code 18)

            7.   Pay During Studying and Training (Income Code 19)

            8.   Prizes, Awards, and Other Grants (Income Code 50)

6. REDUCED OR EXEMPT INCOME
      A. FOREIGN SOURCE INCOME EXCLUSION

      B. QUALIFIED SCHOLARSHIP EXCLUSION (IRC SECTION 117)

      C. COMPENSATION INCOME EXCLUSIONS

            1.   IRC Section 125 – Cafeteria Plan Exclusion



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TAXATION/RECONCILIATIONS                                                        NRA TABLE OF CONTENTS

               2.   IRC Section 872(b)(3) – Foreign Employee Exclusion

               3.   Per Diem Payments Made Under USAID Contracts

               4.   Reimbursement of Travel and Living Expenses

      D.   U.S. CITIZENS AND RESIDENT ALIENS WORKING ABROAD

      E.   U.S. CITIZENS WORKING IN U.S. POSSESSIONS

      F. CITIZENS OF U.S. POSSESSIONS AND TERRITORIES

               1.   American Samoa

               2.   Guam

               3.   Northern Mariana Islands

               4.   Puerto Rico

               5.   Virgin Islands

      G. NONRESIDENT ALIENS PERFORMING SERVICES OUTSIDE THE U.S.

      H. EXEMPTION UNDER A TAX TREATY

               1.   Form W-9 – Request for Taxpayer Identification Number

               2.   Form 8233 – Exemption From Withholding on Compensation…

               3.   Form W-8BEN – Certificate of Foreign Status of Beneficial Owner…

7.   WITHHOLDING TAX RATES
      A. WAGES PAID TO EMPLOYEES – GRADUATED WITHHOLDING

               1.   Special Instructions for Form W-4

               2.   Special Rules for Residents of Certain Countries

      B. STUDENTS/FELLOWS RECEIVING COMPENSATION

C. SCHOLARSHIP AND FELLOWSHIP GRANTS – REDUCED WITHHOLING

D. INDEPENDENT CONTRACTORS

E. ROYALTIES

      F. PRIZES, AWARDS, OR OTHER GRANTS

8.   TAXPAYER IDENTIFICATION NUMBERS
A. SOCIAL SECURITY NUMBER

      B. INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER

C. EMPLOYER ASSIGNED IDENTIFICATION NUMBER (TEMPORARY)

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TAXATION/RECONCILIATIONS                                                        NRA TABLE OF CONTENTS


9.   TAX TREATY BENEFITS
A. ELIGIBILITY FOR TREATY BENEFITS

             1.   Residency

             2.   Primary Purpose

             3.   Type of Income

             4.   Length of Stay

             5.   Other Specific Qualifications

      B. EMPLOYEE COMPENSATION

             1.   Income Code 17 – Dependent Personal Services

             2.   Income Code 19 – Students and Trainees

             3.   Income Code 18 – Teachers and Researchers

      C. SCHOLARSHIP AND FELLOWSHIP RECIPIENTS (Income Code 15)

      D. INDEPENDENT CONTRACTORS (Income Code 16)

      E. OTHER TAX TREATY ISSUES

             1.   U.S - U.S.S.R. Tax Treaty Applications

             2. U.S. - U.S.S.R. Exemption for Students

             3.   Students and Researchers – Kazakhstan, Russia and Ukraine Tax Treaties

             4.   India Tax Treaty Student Provisions

             5.   Hungary, Barbados, and Jamaica – Special Provisions

      F. FORMS REQUIRED FOR INCOME TREATY EXEMPTION

             1.   Form W-9 – Request for Taxpayer Identification Number and Certification

             2. Form 8233 – Exemption From Withholding on Compensation…

             3. Form W-8BEN – Certificate of Foreign Status of Beneficial Owner…

      G. INDIVIDUALS WITHOUT SSN OR ITIN

      H. TECHNICAL EXPLANATIONS

10. FICA TAX EXEMPTIONS
      A. IRC 3121(b)(19) – F, J, M, AND Q VISA STATUS EXEMPTION

      B. IRC 3121(b)(10) – STUDENT FICA EXEMPTION




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TAXATION/RECONCILIATIONS                                                     NRA TABLE OF CONTENTS

           1.   School, College, or University

           2.   Student Status Standard – General Rule


     C. APPLICATION OF TAX TREATIES TO FICA WITHHOLDING

     D.   SOCIAL SECURITY “TOTALIZATION” AGREEMENTS

     E.   NONRESIDENT ALIEN FICA REFUND REQUESTS

11. FEDERAL TAX REPORTING
12. PAYMENTS FROM LOCAL FUNDS
13. TAX PAID BY EMPLOYER
14. NRA PAYMENT PROCESSING PROCEDURES
     A. EMPLOYEES

           1.   Canada, Mexico, and U.S. Nationals

           2.   India

           3.   Japan and Korea

     B.   INDEPENDENT CONTRACTORS

           1.   Foreign Source Payments Object Codes and Documentation

           2.   Payments Exempt Under a Tax Treaty Object Codes and Documentation

           3. Taxable Payments Object Codes and Documentation

     C. SCHOLARSHIP AND FELLOWSHIP GRANTS

           1.   Cash Payments – F001 Payroll Requisition File

           2.   Cash Payments – Per Diem Under The Mutual Security Act of 1954

           3.   Cash Payments – Paid Through the Voucher Audit System

           4.   Non-Cash Payments

     D. ROYALTY PAYMENTS

     E.   PRIZES AND AWARDS

15. VIEW PAYROLL SYSTEM – EMPLOYEE EXCLUDED INFORMATION


16. TAX TREATY ARTICLES
     A. TAX TREATY OVERVIEW



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TAXATION/RECONCILIATIONS                                          NRA TABLE OF CONTENTS

     B. RESEARCHING TAX TREATIES

          1. IRS Publication 901, U.S. Tax Treaties

          2. IRS - Income Tax Treaties

          3. Other Links – Treaty Information

17. RESOURCES
     A. TELEPHONE CONTACTS

     B.   LINKS

     C.   FORMS AND PUBLICATIONS

     D.   GLOSSARY




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TAXATION RECONCILIATION                                                               NRA OVERVIEW
                                              OVERVIEW
This overview is to provide a quick and basic guideline for handling nonresident alien payments in a
step-by-step format. The information in this overview is not all inclusive of every detail involved in the
process; however, the NRA Handbook is divided into sections that offer more extensive details on
processing payments to nonresident aliens. Please refer to the Table of Contents to locate sections that
contain more in depth information on each subject if further clarification and explanation is needed.
Also note that Immigration tax laws are subject to change, so it is important to refer to other sources,
such as those listed in the Resource section of this handbook, to stay informed to ensure proper
processing and compliance.
This overview will provide the steps for determining, verification of work authorization, residency
status, type of payment being made, source of income, whether or not the payment is subject to
withholding tax, as well as FICA tax, and lastly tax reporting.
A. Step One – Verification of Work Authorization
   1. It is prohibited by federal law to knowingly hire or continue employing any foreign national that
      is not authorized to work in the U.S. The Immigration Reform and Control Act is the authority
      that requires employers verify not only employment eligibility, but also the identity, of all
      employees hired to work in the U.S. This is accomplished by requiring employers complete a
      Form I-9, Employment Eligibility Verification.
           a. I-9’s are not filed with the U.S. Government.
           b. I-9’s are to be retained by the employers for 3 years after date of hire, or 1 year after
               termination, which ever is later.
   2. Citizens and nationals of the U.S. have to prove to the employers that they have work eligibility.
   3. Form I-9 is not required to be completed for independent contractors, but proof of work
      authorization is required. Independent contractors also need to furnish their correct taxpayer
      identification number. Forms that should be completed include:
          a. DFS-A3-53, State of Florida, Chief Financial Officer, Taxpayer Identification Number
              Request
          b. IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States
              Tax Withholding\
          c. Foreign National Information Form
   4. References
         a. U.S. Citizenship and Immigration Services: http://uscis.gov/graphics/howdoi/EEV.htm
         b. Social Security Administration: http://www.ssa.gov/employer/hiring.htm
         c. NRA Handbook Section 3, Verification of Work Authorization
         d. Handbook for Employers by USCIS Booklet M-274
         e. USCIS Office of Business Liaison, whose purpose is to:
                i. Educate U.S. public on immigration related employment, investment, and school
                   issues.
               ii. Provide information of the employment eligibility verification process
              iii. Provide information on opportunities available to employers to hire and/or
                   sponsor foreign workers in accordance with U.S. Government
              iv.  Internet web address:
                   http://uscis.gov/graphics/services/employerinfo/oblhome.htm


FEBRUARY 2006                                 SECTION 2                                    PAGE 1 of 10
TAXATION RECONCILIATION                                                                  NRA OVERVIEW



B. Step Two – Determination of Tax Status
   1. It is important to note that the definition of nonresident alien for tax purposes differ from that for
      immigration purposes. The special rules to determine whether or not an individual is a
      nonresident alien for tax purposes are included in SECTION 4 of this handbook.
           a. Alien: An individual who is not a U.S. national or U.S. citizen.
           b. U.S. National: An individual who owes his sole allegiance to the U.S., including all U.S.
              citizens, and including some individuals who are not U.S. citizens.
   2.   Tax Concepts of Residency under U.S. Immigration Laws
          a. Immigrants: A foreign-born person who has been approved for lawful permanent
              residence in the U.S. Immigrants have permanent, unrestricted eligibility for
              employment authorization.
          b. Nonimmigrant: An alien who seeks temporary entry to the U.S. for a specific purpose.
              A nonimmigrant status may or may not permit employment.
          c. Illegal aliens: Undocumented Alien. Person present in the U.S. in violation of the
              immigration laws, and subject to deportation by the DBTS (Directorate of Border and
              Transportation Security).
   3. Tax Concepts of Residency under U.S. Tax Laws. There are four categories of individuals.
         a. U.S. Citizen: An individual born in the United States; An individual whose parent is a
            U.S. citizen; A former alien who has been naturalized as an U.S. citizen; An individual
            born in Puerto Rico; An individual born in Guam.
         b. Permanent resident alien (immigrant): An alien admitted to the U.S. as a lawful
            permanent resident. A green card holder.
         c. Resident Alien: An immigrant to the U.S., or nonimmigrant who meets certain residency
            requirements or makes a special election to be taxed as a resident.
         d. Nonresident Alien: For federal income tax purposes, a person in considered a
            nonresident if they are not a U.S. citizen and they do not meet the test to be considered a
            resident alien.
   4. Appropriate Forms to have completed: If an individual is not a U.S. citizen or permanent
      resident alien, the withholding agency should have the individual complete a standard
      information form, and submit needed documentation for verification.
          a. Foreign National Information Form is available in SECTION 17 (FORMS).
          b. Form I-94: Departure Record
          c. DS-2019: Certificate of Eligibility for Exchange Visitor Status (formerly IAP-66)
          d. and/or I-20: Certificate of Eligibility for Nonimmigrant (F-1) Student Status
   5. There are two tests for determining whether a non-U.S. citizen should be treated as a U.S.
      resident for tax purposes. If an individual satisfies or passes either test, he is a U.S. resident for
      tax purposes; if he satisfies neither test, he is taxed as a nonresident alien.




FEBRUARY 2006                                  SECTION 2                                     PAGE 2 of 10
TAXATION RECONCILIATION                                                            NRA OVERVIEW

        a. Green Card Test: Individual will pass if he or she has been granted lawful permanent
           resident status, and he or she has been issued or will receive an alien registration card by
           the U.S. Citizenship and Immigration Services.
        b. Substantial Presence Test: This test is a calculation of all the days an individual has been
           physically present in the U.S. over a period of 3 years. To meet the substantial presence
           test, and be considered a resident alien for tax purposes, and alien must at least:
               i. Be physically present for 31 days in the current year, and
               ii. Be physically present for 183 days during the 3-year period consisting of the
                    current year and 2 immediate prior years. The 183 days are calculated as follows:
                        All days of presence in the current year;
                        1/3 of days of presence in the year immediately before the current year; and
                        1/6 of days of presence in the year before that
        c. There are certain individuals that may be exempt from the substantial presence test. The
           time spent in exempt status does not count toward the 183 days in the U.S. that normally
           will convert a nonresident alien into a resident alien. The two categories to be concerned
           with at this time that will temporarily exempt a person from the substantial presence test
           are:
               i. Students: Anyone who is temporarily in the U.S. on an “F”, “J”, “M”, or “Q” visa
                    and substantially complies with the requirements of that visa. A person is
                    considered to be substantially complying if he has not engaged in activities
                    prohibited by the immigration law. Students are exempt from the substantial
                    presence test for 5 years.
               ii. Teachers, Trainers, Researchers: A non-student in the U.S. on a “J”, or “Q” visa
                    and substantially complies with the requirements of that visa. A person is
                    considered to be substantially complying if he has not engaged in activities
                    prohibited by the immigration law. These individuals are exempt from the
                    substantial presence test only if they have been in the U.S. no more than 2 out of
                    the last 6 years.
               iii. Closer Connection Exception: When an alien passes the substantial presence test,
                    they may still be classified as a nonresident alien for tax purposes if they can
                    show a closer connection to a foreign tax home than to the U.S.
               iv. Dual Resident Status: When an alien is a nonresident and resident alien within the
                    same year, usually resulting from their status changing during their stay in the
                    U.S.
  6. References:
        a. IRS Publication 519, U.S. Tax Guide for Aliens
        b. IRS Publication 678-FS, Foreign Students and Scholars Text
        c. IRS Publication 15-A, Employer’s Supplemental Tax Guide
        d. NRA Handbook Section 4, NRA Determination of Tax Status




FEBRUARY 2006                              SECTION 2                                   PAGE 3 of 10
TAXATION RECONCILIATION                                                             NRA OVERVIEW
C. Step Three – Employee, Independent Contractor, or Scholarship Payment
   1. It is important to determine the classification between worker and employer. The worker may be
      classified as either an employee or and independent contractor based on certain control factors
      and a “common law test”. For purposes of making payments to nonresident aliens, there may be
      employee payments, such as wages; scholarship, fellowship, or grant payments; or nonresident
      alien independent contractor payments. All nonresident alien employees, independent
      contractors, and scholarship recipients must be identified.
   2. Employees: If the employer has the right to control what work will be done and how that work
      will be done, then and employer-employee relationship exist and the worker is a common law
      employee.

          a. The aliens must be divided into two groups “Resident Aliens” and “Nonresident Aliens”
             as defined by Internal Revenue Code 7701(b), or by a tax treaty.
          b. For withholding tax purposes, treat resident aliens the same as U.S. citizens.
          c. For withholding tax purposes, treat nonresident aliens according to the special
             withholding rules that apply to nonresidents.
          d. Nonresident aliens who refuse to file a proper W-4 as required by IRS regulations shall
             have federal income taxes withheld at the rates pertaining to single status, zero
             exemptions allowed.
          e. Some nonresident aliens are eligible for exemptions from federal income tax withholding
             because of tax treaties if they file IRS Form 8233 accompanied by the required
             statement.
          f. The Bureau of State Payrolls reports wages paid to nonresident aliens, which are exempt
             under a tax treaty on forms 1042-S. Any additional wages paid to a nonresident alien
             over and above the exempt amount are reported on form W-2.
   3. Nonresident Alien Independent Contractor
         a. Amounts paid to nonresident aliens who temporarily visit the campus for the purpose of
            giving lectures, giving live performances, doing research, and performing other services,
            on a short-term, contract basis, or royalties paid to nonresident aliens, are reportable on
            Form 1042-S, and are subject to withholding of federal income tax at the rate of 30%.
         b. Any nonresident aliens who claims that all or part of their compensation for personal
            services is exempt from taxation under a tax treaty should file IRS Form 8233, which is
            valid for one calendar year.
         c. Any nonresident alien who claims that all or part of the royalties paid to them are exempt
            from taxation because of tax treaty should file IRS Form W-8BEN.
   4. Scholarship, Fellowship, and Grant Recipients
         a. The payment of a qualified scholarship to a nonresident alien is not reportable and is not
             taxable. However, the portion of a scholarship or fellowship paid to a nonresident alien
             which does not constitute a qualified scholarship is reportable on Form 1042-S and
             subject to NRA withholding. If the grant is from sources outside the United States, the
             grant is neither reportable not subject to withholding




FEBRUARY 2006                               SECTION 2                                   PAGE 4 of 10
TAXATION RECONCILIATION                                                               NRA OVERVIEW


          b. Payees who are temporarily present in the U.S. holding F-1, J-1, M-1, or Q-1 visas are
             subject to withholding at 14% of the taxable portion of the grant. These individuals are
             considered to be engaged in a U.S. trade or business.
          c. Some nonresident aliens are eligible for exemptions from federal income tax withholding
             because of tax treaties if they file IRS Form W-8BEN.
          d. In general, those portions of a scholarship, fellowship, or grant that are used to pay
             tuition, fees, books, supplies, or required equipment are not taxable under IRC 117 if the
             recipient is a candidate for a degree. Any portion of the scholarship, fellowship, or grant
             over and above the five items mentioned above is taxable. For non-degree candidates the
             entire grant is taxable.
          e. Stipends, tuition waivers, or other financial aid paid to or on behalf of nonresident aliens,
             which require the recipient perform services in exchange for the financial aid are taxable
             as wages, reportable to the IRS.
   5. References:
         a. IRS Publication 678-FS, Foreign Students and Scholars Text
         b. Internal Revenue Code 7701(b)
         c. Internal Revenue Code 117
         d. Section 12, Nonresident Alien Payment Processing Procedures
         e. IRS Form 8233
         f. IRS Form W-8BEN

D. Step Four – Determination of the Type of Payment Being Made
   1. Compensation: Any payment that is made in consideration of a past, present, or future activity.
         a. Dependent: wages, salary
         b. Independent – consulting fees, speaker’s fees, payments made to independent contractors,
             honoraria.
   2. Scholarship or Fellowship Grant
         a. Scholarship defined by IRC Section 117: an amount paid or allowed to, or for the benefit
             of a student, whether an undergraduate or graduate, to aid such individual in pursuing his
             studies.
         b. Fellowship defined by IRC Section 117: an amount paid or allowed to, or for the benefit
             of, an individual to aid him in pursuit of study or research.
         c. Qualified Scholarship: amount paid as a scholarship grant, but only to the extent that it is
             used for either tuition and fees required for enrollment or attendance at the education
             institution or fees, books, supplies and equipment required for course of instruction at the
             education institution.
         d. Non-Qualified Scholarship: Amounts paid as a scholarship grant for the expenses such
             as room, board, travel, and clerical help – as well as equipment and other expenses not
             required wither for enrollment or attendance at that educational institution.
         e. General Rule: A scholarship or fellowship grant will be treated as compensatory if it is
             paid in consideration of past, present, or future services.




FEBRUARY 2006                                SECTION 2                                    PAGE 5 of 10
TAXATION RECONCILIATION                                                                            NRA OVERVIEW


E. Step Five – Determination of Source of Income Paid to the Alien
  1. The general rule of income taxation is that income is taxable where the economic activity occurs.
     U.S. tax law classifies all types of income as either U.S. source or foreign source.
        a. To see the “TEN RULES OF U.S. TAXATION” by Paula N. Singer, Esq., or Windstar
             Technologies, Inc., click on: http://www.windstartech.com/public/article/10_Rules.htm
        b. Here is a chart that will assist with U.S. Sourcing Rules:

                                        Location of Payor      Location or Activity      Location or Activity
                                                                      U.S.                  Outside U.S.
        Compensation             U.S.                       U.S. Source Income        Foreign Source Income
        Dependent or
        Independent Services     Outside U.S.               U.S. Source Income        Foreign Source Income
        Scholarship/Fellowship   U.S.                       U.S. Source Income        Foreign Source Income
        (Non-Service)
                                 Outside U.S.               Foreign Source Income     Foreign Source Income


   2. U.S. tax law classifies all types of income as either U.S. source or foreign source.
         a. Foreign source: Not subject to U.S. tax
         b. U.S. source: Potentially subject to U.S. tax. It is only potentially subject to tax because
              such income, although U.S. source, may not ultimately be taxable due to an exclusion
              contained either in the Internal Revenue Code or an income tax treaty.
F. Step Six – Reduced or Exempt Income
   1. Now it is time to decide if the payment is subject to tax withholding, and if so at what rate. The
      general rule is that all income paid to a nonresident alien or to a third party on his or her behalf is
      taxable unless otherwise excluded. There are three ways to exclude income:
          a. Foreign source
          b. Internal Revenue Code
          c. Income Tax Treaty
   2. Foreign source payments
         a. All foreign source payments made to nonresident aliens are not subject to IRS
             withholding and reporting requirements.
         b. These payments do not have to be reviewed by BOSP.
   3. Internal Revenue Code Section 117 exclusion.
          a. A student who is a candidate for a degree may be able to exclude from income some or
              all amount received under a qualified scholarship.
   4. Description of applicable tax treaties on major income codes. Many countries have tax treaties
      with the U.S. that allow their residents to earn some money while temporarily in the U.S. without
      being subject to income tax on those earnings in both countries. Each type of income that an
      alien can earn is identified by a numeric code. These codes assist with determining the treaty
      benefit.




FEBRUARY 2006                                           SECTION 2                                       PAGE 6 of 10
TAXATION RECONCILIATION                                                            NRA OVERVIEW
       a. The codes that may be most useful are income codes 15, 16, 18, and 19
            i. Income code 15: Scholarship and Fellowship Grants
                      Nonqualified Fellowships/Scholarships
                      Qualified Fellowships/Scholarships
                      Money received on condition that the recipient performs services such as
                      teaching or research. This money is treated as wages and is considered code
                      18 or 19 income
           ii. Income code 16: Independent Contractors
                      Students and scholars sometimes try to make use of the treaty benefits for
                      independent personal service income. This is an incorrect interpretation of
                      the treaties. Treaties often do not permit students and scholars to earn those
                      types of income. The USCIS does not usually allow a student to engage in
                      independent personal services in the U.S.
          iii. Income code 18: Compensation for Teaching and Researching
                      Pay of professors and teachers may be exempt form U.S income taxes for
                      wither 2 or 3 years if they are temporarily in the U.S. to teach or do research.

                          The treaty exemption for teaching or research income is counted from the
                          day of arrival in the U.S.

                            NOTE: Germany, India, Netherlands, Thailand, and the United Kingdom
                            have retroactive treaty clauses, stating that if the maximum years of presence
                            are exceeded, the entire treaty benefit is lost. This could require the teacher
                            to file amended returns and pay tax on past years. Therefore, a taxpayer who
                            expects to stay more than the limit on years of presence should avoid
                            claiming the treaty benefit for any years.
              iv. Income code 19: Compensation During Studying and Training
                            Students and trainees from many countries are allowed to earn some money
                            tax-free in the U.S. The amounts vary from country to country.
                            Immigration restrictions usually bar students from working off-campus
                            during their first year in the U.S. Even after that year special USCIS
                            permission is needed to work off-campus. Majority of students earn money
                            from the university or college they attend.
                            Sometimes students earn more wages than their benefit. If that happens, the
                            excess must be reported on their tax return. In this case, this type of excess
                            earnings is reported as W-2 gross and is taxed.
          b. The tax treaty limits for the income codes listed above are available in the IRS
             publication 901. By using the tables provided in this publication, it is easy to research
             the tax treaties for the different countries. However, if the country is not listed in the
             table at all, then there are not treaty benefits for that specific country. IRS Publications
             that specifically address tax treaties are:
               i. IRS Publication 515: Withholding of Tax on Nonresident Aliens and Foreign
                   Entities




FEBRUARY 2006                                SECTION 2                                     PAGE 7 of 10
TAXATION RECONCILIATION                                                             NRA OVERVIEW
           ii. IRS Publication 901: U.S. Tax Treaties
          iii. IRS Publication 678 – FS: Foreign Student and Scholar Text
          c. Forms to be completed by an NRA Independent Contractor claiming tax treaty
             exemption.
               i. Foreign National Information Form
              ii. IRS Form 8233: Exemption from Withholding on Compensation for Independent
                  Personal Services of a Nonresident Alien Individual
             iii. IRS Form W-8BEN: Certificate of Foreign Status of Beneficial Owner for United
                  States Tax Withholding
             iv. Copy of the Form I-94: Arrival and Departure Record
              v. Copy of contractor’s U.S. visa from passport
             vi. Copy of DS-2019: Certificate of Eligibility for Exchange Visitor Status (formerly
                  IAP-66)

          d. Forms to be completed by an NRA Fellowship/Scholarship recipients claiming tax treaty
             exemption.
               i. Foreign National Information Form
              ii. Copy of SSN/ITIN
             iii. W-8BEN: Certificate of Foreign Status of Beneficial Owner for United States Tax
                  Withholding
             iv. Copy of the Form I-94: Arrival and Departure Record
              v. Copy of scholarship recipient’s U.S. visa from passport

   5. Withholding Rates when there is no exemption
         a. Wages/Salaries/Tips
               i. Wages are generally subject to tax withholding by the employer unless they are
                  claiming a tax treaty.
              ii. International students and scholars can claim a personal exemption, but they cannot
                  normally use the standard deduction or take exemptions for dependents.
             iii. India is the only country whose international students are allowed to use the standard
                  deduction in the U.S.
             iv. Upon being hired, an employee files Form W-4 to advise the employer of the
                  employee’s status for withholding.
                          Check “Single” box even if married
                          Claim only 1 withholding allowance (Unless NRA is from Canada, Mexico,
                          Japan, South Korea, or India)
                          Additional withholding tax amounts for Biweekly paid employees $15.30
                          Additional withholding tax amounts for Monthly paid employees $33.10
         b. Independent Contractors
               i. Withholding taxes rate for nonresident alien independent contractor is 30%
         c. Scholarship/Fellowship
               i. Withholding taxes rate for NRA fellowship scholarship is 14%




FEBRUARY 2006                               SECTION 2                                   PAGE 8 of 10
TAXATION RECONCILIATION                                                              NRA OVERVIEW


G. Step Seven – Determination if Income is Subject to FICA taxes
   1. A separate set of rules applies to determine if a nonresident alien individual is subject to FICA
      taxes. Exemption from Social Security and Medicare taxes applies only to the following who are
      temporarily present in the U.S. in F-1, J-1, M-1, or Q-1 nonimmigrant status:
          a. Students
          b. Scholars
          c. Teachers
          d. Researcher
          e. Trainees
   2. Foreign students in F-1, J-1, M-1, or Q-1 nonimmigrant status who have been in the U.S. over 5
      years and foreign scholars, teachers, researchers, and trainees are considered resident aliens.
      Therefore, they must pay Social Security and Medicare Taxes.
   3. Non-students in J-1 or Q-1 nonimmigrant status who have been in the U.S. over 2 years are
      considered resident aliens. Therefore, they must pay Social Security and Medicare taxes.
   4. Spouses and dependents or alien student, scholars, trainees, teacher, or researchers, temporarily
      in the U.S. are not exempt for Social Security and Medicare taxes.
   5. Alien students, scholars, trainees, teachers, or researchers in F-1, J-1, M-1, or Q-1 nonimmigrant
      status who change to a nonimmigrant status other than F-1, J-1, M-1, or Q-1 will become liable
      to pay Social Security and Medicare taxes, in most cases, on the day they change status.
   6. Teachers, trainees, and researchers in H1-B status are liable for Social Security and Medicare
      taxes from the first day of the U.S. employment regardless of whether they are non-resident or
      resident aliens, and whether or not their wages may be exempt form federal income tax under an
      income tax treaty.
   7. Refunds for nonresident alien employees that had FICA contributions erroneously withheld may
      be requested from BOSP using form DFS-A3-NRA-Refund, Nonresident Alien FICA Refund
      Request Form
H. Step Eight – Federal Tax Reporting

  1. Forms for reporting income paid to nonresident aliens
        a. 1042-S : The Bureau of State Payrolls Reports on IRS Form 1042-S, Foreign Person’s
            U.S. Source Income Subject to Withholding, amounts qualified and nonqualified
            fellowships, independent contractor payments and compensation paid to a nonresident
            alien employee under a tax treaty exemption.
        b. W-2: All other employee compensation is reported on Form W-2.
        c. 1042-S and W-2: Nonresident alien individuals may receive a Form W-2 as was as Form
            1042-S if they claim the benefits of a tax treaty, but their income exceeds the maximum
            dollar limit or time limit of the treaty.
  2. Authority that requires institutions to withhold and report income paid to nonresident aliens
        a. Section 1441 of the Internal Revenue Code states that a withholding agent is required to
            withhold federal income tax from all income payments made to or on behalf of
            nonresident alien.
        b. Treasury Regulation Sec. 1.1461-2 requires that all such payments be reported to the IRS
FEBRUARY 2006                                SECTION 2                                   PAGE 9 of 10
TAXATION RECONCILIATION                                                             NRA OVERVIEW



  3. Nonresident Aliens Paid from Local Fund
        a. Universities and agencies that pay nonresident aliens through their local funds are
           responsible for withholding the required amount of tax, and reporting these transactions to
           the Internal Revenue Service. The university or agency must use their own federal
           identification number for this purpose.
        b. Payments and reporting should be made in accordance with applicable sections of the
           Internal Revenue Code, Treasury Regulations, and Immigration Law. Documentation
           supporting these payments should be retained by the university and should be available to
           the Department of Financial Services upon request for audit purposes.
  4. Federal Income Tax Withholding Paid by Employer

         a. When an agency or university elects to pay the individual’s tax liability (assuming that the
            agency or university has a discretionary fund for this purpose) under U.S. tax law, the
            payment constitutes addition income to that individual and the “tax on tax” problem
            occurs. The fact that an agency/university may not be able to withhold tax from a
            particular payment does not alleviate the agency’s/university’s responsibility to withhold
            or the liability for the tax required to be withheld.
         b. Example: If a university pays a nonresident alien independent contractor $1000 for giving
            a lecture, it must withhold 30% of that amount, or $300. However, if the university has
            discretionary funds available and elects to pay the IRS on behalf of the individual, the
            amount may be “grossed up.” Then $300 withholding would constitute addition income
            to the nonresident alien and is therefore subject to addition taxation. Consequently, the
            university must pay addition withholding to the IRS. This “grossed-up” amount is
            calculated as follows:
            $1000/[1-(.30)] = $1,428.57
            Total withholding remitted to the IRS would be $428.57.
            Net amount is $1000.
         c. Formula: Net Amount/[1-(tax rate)] = Gross amount to be paid




FEBRUARY 2006                               SECTION 2                                   PAGE 10 of 10
TAXATION/RECONCILIATION                           NRA WORK AUTHORIZATION VERIFICATION


                         WORK AUTHORIZATION VERIFICATION
A. EMPLOYEES
  Federal law prohibits employers from knowingly hiring or continuing to employ any foreign national
  not authorized to work in the United States. The 1986 Immigration Reform and Control Act made
  all U.S. employers responsible for verifying the employment eligibility and identity of all employees
  hired to work in the United States after November 6, 1986. To implement the law, employers are
  required to complete Form I-9, Employment Eligibility Verification for all employees,
  including U.S. citizens. There are civil penalties for violation of the prohibitions on hiring
  unauthorized aliens. There are also criminal penalties for “patterns of practice” violations.
  1. Form I-9 Employment Eligibility Verification
     Form I-9, included in SECTION 17 (Forms), has two parts that must be completed. The first
     part is to be completed by the employee at the time of hire and reviewed by the employer to
     ensure it is completed correctly. The second part is to be completed by the employer after he/she
     has reviewed and verified the employee's identity and work authorization documents.
     An employer’s obligation to review Form I-9 documents is not triggered until a person has been
     hired, whereupon the new employee is entitled to submit a document or combination of
     documents of his choice (from List A or a combination of List B and C documents on the reverse
     side of Form I-9) to verify his identity and work eligibility. The employee must complete
     Section 1 by the date of hire (i.e., no later than the date on which employment starts).
  2. Changes Since 11/91
     The current versions of Form I-9 and the Handbook for Employers (Form M-274) are dated
     11/21/91. Both documents are undergoing revision to reflect changes in U.S. immigration law
     since they were issued, but the publication date has not been established. The proposed changes
     and Form I-9 published in 1998 are not currently in effect.
     The following changes are not reflected on the current 1991 version of Form I-9 or Form M-
     274 since the changes occurred after 1991.

         •   Form I-151 has been withdrawn from circulation and is no longer a valid List A
             document.

         •   Form I-766 was introduced in January 1997 as an Employment Authorization Document
             (EAD). It should be recorded on the Form I-9 under List A. A previous version of the
             EAD is Form I-688B, which continues to be an acceptable List A document.

         •   Form I-551, the Permanent Resident Card (new version of Form I-551) was introduced in
             1990 as documentation issued to lawful permanent residents of the U.S. Older versions
             of Form I-551 remain valid until expiration, if any. Form I-551 should be recorded on
             the Form I-9 under List A.




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TAXATION/RECONCILIATION                            NRA WORK AUTHORIZATION VERIFICATION

     Effective September 30, 1997 via interim rule published at 61 Fed. Reg. 51001-51006, the
     following documents were removed from the list of acceptable identity and work authorization
     documents (listed on the 11/91 version of Form I-9) to comply with the Illegal Immigration
     Reform and Alien Responsibility of 1996 (IIRIRA):
         • Certificate of U.S. Citizenship (List A #2)
         • Certificate of Naturalization (List A #3)
         • Unexpired Reentry Permit (List A #8)
         • Unexpired Refugee Travel Document (List A #9)
     In addition, the acceptability of an unexpired foreign passport with Form I-94 indicating
     unexpired work authorization (List A #4) was made more limiting. Such combination of
     documents is only acceptable where the individual is employment authorized incident to status
     for a specific employer.
     An interim rule (8 CFR Part 274A) was published in the Federal Register on September 30,
     1997, designating documents acceptable for the employment eligibility verification (Form I-9)
     process. The rule, which took effect immediately, affects only the list of documents that
     employees may present to establish both identity and eligibility to work ("List A") and the
     "receipt rule.” The rule makes no changes to List B or List C. Its goal is to maintain the status
     quo to the extent permitted under the new law until the Service has completed a more extensive
     document reduction effort. Employers should continue to use the existing Form I-9 (11/21/91
     version) under the interim rule. The interim rule is available at the U.S. Immigration and
     Naturalization Service (USCIS) web site, http://uscis.gov/graphics/lawsregs/8cfr.htm.
     The USCIS will withhold enforcement of civil penalties associated with these changes until a
     final rule is in place. Employers will not be penalized if, while the interim rule is in effect, they
     mistakenly accept documents that were previously acceptable but were deleted from the list
     other enforcement activities will continue. Once the reduction of the number of documents to be
     used to verify the USCIS finalizes work eligibility, an entire new handbook will be available.
     The USCIS will be publishing its final rule on their web site as soon as it is approved.
  3. Receipt Rule
     The employer must personally review original document(s) that demonstrate an employee’s
     identity and eligibility to work in the U.S. Only original documents (not necessarily the first
     document of its kind ever issued to the employee, but an actual document issued by the issuing
     authority) are satisfactory, with the single exception of a certified copy of a birth certificate.
     Originally effective September 30, 1997, amended by interim rule of February 9, 1999; the rule
     explaining when receipts may be used in lieu of original documents in the I-9 process (receipt
     rule) now provides that:

        •   If an individual’s document has been lost, stolen, or damaged, then he/she can present a
            receipt for the application for a replacement document. The replacement document needs
            to be presented to the employer within 90 days of hire, or in the case of reverification, the
            date the employment authorization expires.




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TAXATION/RECONCILIATION                          NRA WORK AUTHORIZATION VERIFICATION


        •   If the individual presents as a receipt, the arrival portion of the Form I-94 containing an
            unexpired temporary I-551 stamp (indicating temporary evidence of permanent resident
            status) and photograph of the individual, such document satisfies the I-9 documentation
            presentation requirement until the expiration date on the Form I-94. If no expiration date
            is indicated, an employer may accept the receipt for one year from the issue of the Form
            I-94.

        •   Form I-94 with refugee admission stamp is acceptable as a receipt for 90 days, within
            which time the employee must present an unrestricted Social Security card together with
            a List B identity document, or an Employment Authorization Document (EAD) Form I-
            688B or I-766.
     The receipt rule stated in the Form I-9 instructions and the Handbook for Employers (Form M-
     274) is not the current rule. See Employer Information Bulletin 102 or 107 at
     http://www.uscis.gov/index.htm.
  4. Information Verification
     Employers must ensure that Section 1 (Form I-9) is completed by the employee upon date of
     hire (i.e., 1st day of paid work). The signature and attestation under penalty of perjury portions
     of Section 1 are very important, and employers should take special care to ensure that employees
     complete these in full.

        •   Note: An employee’s signature and attestation of status under penalty of perjury are
            particularly important. If a given employee refuses to provide his/her signature or
            attestation, there is no reason for the employer to proceed to complete Section 2, and the
            employer should not continue to employ the individual.

        •   Note: An employee may not be able to provide a social security number if the Social
            Security Administration has not yet issued the individual a social security card.
            Therefore, an employer cannot require an employee to complete it. Advise the workers
            that they are required to apply for a Social Security number and card. If a worker applied
            for but has not yet received a SSN, you should get the following information as complete
            as possible: The workers full name, address, date of birth, father’s full name, mother full
            maiden name, gender, and date he or she applied for a Social Security number.
  5. Work Authorization
     Form I-94 is for used for most individuals that enter the country on a nonimmigrant status. A
     student should have a Form I-20 Student ID in addition to the I-94 endorsed with employment
     authorization by the Designated School Official for off campus employment or curricular
     practical training. USCIS will issue Form I-688B (Employment Authorization Document) to all
     students (F-1 and M-1) authorized for post-completion practical training periods.
     Nonimmigrant exchange visitors (J-1) must have an I-94 accompanied by an unexpired DS-2019
     (formerly IAP-66), specifying the sponsor and issued by the United States Information Agency
     (USIA). J-1 students working outside the program indicated on the DS-2019 also need a letter
     from their responsible school officer.



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TAXATION/RECONCILIATION                          NRA WORK AUTHORIZATION VERIFICATION




     Information concerning employer and employee responsibilities is available at the United States
     Citizenship and Immigration Services, Office of Business Liaison, telephone 1-800-357-2099;
     and internet address http://www.uscis.gov/index.htm.
B. INDEPENDENT CONTRACTORS
  Although independent contractors are exempt from the Form I-9 employment eligibility verification
  process, a newly hired worker’s self-declaration as an independent contractor is not sufficient in
  itself to waive the requirement for completing and retaining a Form I-9. The U.S. Citizenship and
  Immigration Services (USCIS) interprets the guidelines for distinguishing independent contractors
  from employees more strictly than does the IRS. That is, an independent contractor for federal tax
  purposes may be considered an employee for employment eligibility verification purposes.

  To determine whether a worker is an independent contractor or an employee under common law,
  you must examine the relationship between the worker and the business. In general, someone who
  performs services for you is your employee if you can control what will be done and how it will be
  done.
  1. Employee or Independent Contractor
     Most of the problems employers have in regard to worker classification arise when determining
     whether a worker is an employee or independent contractor. Because misclassification of
     workers as independent contractors rather than employees has led to substantial losses for the
     federal government and the failure to properly credit earnings for social security and
     unemployment benefit purposes, the IRS has focused more resources on payroll tax audits for
     worker misclassification.
     While there is no uniform definition of an employee under all payroll laws, most workers can be
     classified as either employees or independent contractors once the “common law test” has been
     applied. The IRS, for example, relies on the common law test in making worker status
     determinations for the purpose of federal income tax withholding and the withholding of
     employment (social security, Medicare, and federal unemployment) taxes.
     Right to control is the key. Under the common law test, if the employer has the right to control
     what work will be done and how that work will be done, then an employer-employee
     relationship exists and the worker is a common law employee. This is true regardless of whether
     or not the employer actually exercises the right on a regular basis. However, if an individual is
     subject to the control and direction of another only as to the results to be accomplished, and not
     as to the details by which those results are accomplished, the individual would not be an
     employee under the common law test. It makes no difference what the worker is called by the
     employer. An “agent” or “contractor” is still an employee if the employer controls the work to
     be done.
     IRS looks to identify key control factors. The IRS has sought to streamline the process for
     determining whether a worker is an employee or independent contractor by identifying those



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TAXATION/RECONCILIATION                            NRA WORK AUTHORIZATION VERIFICATION

      factors that most clearly indicate the degree of control or independence in the relationship of the
      worker and the business. Evidence of the degree of control and independence can be grouped
      into three general types or categories: behavioral control, financial control, and the type of
      relationship between the parties.

           •   Behavioral Control.
                  a. Level of instructions the business gives the worker.
                  b. Level of training provided to the worker.

           •   Financial Control.
                  a. Whether worker has un-reimbursed business expenses.
                  b. Whether the worker has a substantial investment in the work.
                  c. Whether the worker’s services are available to the public.
                  d. How the worker is paid.
                  e. Whether the worker can realize a profit or incur a loss.
           •   Relationship
                  a. Type of (see Section 17 – Resources).
                  b. Whether employee-type benefits are provided.
                  c. The term of the relationship.
                  d. Whether the worker’s services are in important aspect of the business’s regular
                      operations.
      IRS Publication 15-A, Employer's Supplemental Tax Guide contains useful information to use
      in making a determination of whether the worker is an employee or an independent contractor.
      An employer can get a definitive ruling from the IRS as to a newly hired worker’s status as an
      employee or independent contractor by completing Form SS-8, Determination of Worker Status
      for Purposes of Federal Employment Taxes and Income Tax Withholding. Call 1-800-829-3676
      to order a copy of the form or go to the IRS Web site at www.irs.gov.
   2. Forms for Eligibility Verification
      Independent Contractors must complete the following forms:

           •   U.S. citizens and resident aliens must complete Form DFS-A3-53 (Substitute for IRS
               Form W-9), request for taxpayer identification number.

           •   Nonresident aliens should complete IRS Form 8233 and Foreign National Information
               Form (see SECTION 17 – RESOURCES).
      These forms will assist in determining the tax residency status of the independent contractor and
      provide their taxpayer identification number. The IRS requires all independent contractors
      receiving compensation to furnish their correct taxpayer identification number. For additional
      information on Taxpayer Identification Numbers refer to SECTION 8 of this manual, or IRC
      Section 3406, IRS Reg. Section 301.6109-1.

C. VISAS
   The U.S. Department of State is responsible for the issuance of U.S. passports and immigrant visas


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TAXATION/RECONCILIATION                           NRA WORK AUTHORIZATION VERIFICATION

  to the United States. There are basically two types of visas for foreign nationals seeking admission
  to the U.S. – immigrant visas and nonimmigrant visas. Individuals who wish to become lawful
  permanent residents of the U.S. seek immigrant visas; those who are in the country for a more
  temporary reasons seek nonimmigrant visas. This section will provide a brief explanation of most of
  the different types of visas an employer should be familiar with. The type of visa that an employee
  or independent contractor holds determines the types of payment remuneration that an individual
  may receive. Certain visas are not eligible to receive any type of payments.


  1. Immigrant Visas
     Immigrant visas, or “green cards” are issued to foreign nationals entering the U.S. as lawful
     permanent residents or who become lawful permanent residents. An immigrant visa is an I-551
     Permanent Resident Card, formerly called the Alien Registration Receipt Card or Resident Alien
     Card. Forms I-551 with these earlier names are valid until their expiration date. When presented
     by a newly hired employee, it proves both identity and authorization to work under the
     Immigration Reform and Control Act.
     Note. Old green cards (Form I-151) are no longer valid proof of immigrant status, identity, and
     employment eligibility. Lawful permanent resident aliens should have Form I-551, which has
     the bearer’s photograph, signature, and fingerprint.
     Foreign nationals holding green cards - those foreign nationals admitted under immigrant visas -
     are classified as resident aliens for U.S. taxation purposes. However, foreign nationals admitted
     under nonimmigrant visas are not necessarily nonresident aliens for tax purposes. Non-
     immigrants will be considered resident aliens if they satisfy the "substantial presence test." See
     SECTION 4 – TAX RESIDENCY.
  2. Non-Immigrant Visas
     A non-immigrant visa authorizes foreign nationals to proceed to the United States; where, if
     admitted, are issued a Form I-94 indicating the length of the period they are authorized to remain
     in the United States. Non-immigrant or temporary visas are issued to foreign nationals who wish
     to enter the U.S. for a specific purpose and will not be in the country indefinitely. They may,
     however qualify as resident aliens under the substantial presence test, so employers should not
     assume they are nonresident aliens for tax purposes.
  3. Visa Types and Working Privileges
     The green card granted to a foreign national entering the United States with an immigrant visa
     conveys to its holder full civil rights to work in the United States. However, foreign nationals
     entering the United States with nonimmigrant visas, if granted any working privileges at all, may
     work within the United States only under the specific conditions set for the visa they hold.
     Beginning July 16, 2004, holders of C, E, H, I, L, O, and P visas must renew through the U.S.
     consulate office in their home countries. The State Department will no longer process renewals
     of temporary business visas.
     Some of the common types of nonimmigrant visas that give holders limited privileges to work


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TAXATION/RECONCILIATION                            NRA WORK AUTHORIZATION VERIFICATION

     within the United States are shown below. For additional information, see USCIS website
     www.uscis.gov/graphics/services/employerinfo/eibulletin.htm.
     B-1 Visitor for Business
     Individual in the United States for a short time to engage in business activities such as
     negotiating contracts for overseas employees, consulting with business associates, attending
     professional conferences, or conducting independent research.
     Not permitted to be employed in the United States. Academic institutions are permitted to pay
     an individual admitted in B-1 status “an honorarium payment and associated incidental expenses
     for a usual academic activity or activities (lasting no more than 9 days at a single institution), as
     defined by the Secretary of Education, if such payment is offered by an institution or
     organization described in subsection (p)(1) and is made for services conducted for the benefit of
     that institution or entity and if the alien has not accepted such payment or expenses from more
     then 5 institutions or organizations in the previous six-month period.” Must present a valid visa
     and Form I-95, Record of Arrival and Departure, as verification of status.
     B-2 Visitor for Tourism
     May also be issued visas as “prospective students” if they show an intention to switch to
     student/exchange visitor status: “prospective student” noted on visa.
     Not permitted to be employed in the United States. Effective October 21, 1998, any individual
     admitted in B-2 status “may accept an honorarium payment and associated incidental expenses
     for a usual academic activity or activities (lasting no more than 9 days at a single institution), as
     defined by the Secretary of Education, if such payment is offered by an institution or
     organization described in subsection (p)(1) and is made for services conducted for the benefit of
     that institution or entity and if the alien has not accepted such payment or expenses from more
     then 5 institutions or organizations in the previous six-month period.” Must present a valid visa
     and Form I-95, Record of Arrival and Departure, as verification of status.
     F-1 Foreign Academic Student (except Border Commuters from Canada or Mexico
     Individuals in the United States in a full course of academic study in an accredited educational
     program. May include elementary school, high school, college/university, conservatory, or
     language training. (Students enrolled in vocational training are given M-1 visas.)
     a. May be employed on the campus of the school they are authorized to attend for a maximum
        of 20 hours per week while classes are in session. The school authorizes part-time on-
        campus employment, prior USCIS approval not needed. During school vacations students
        may work for a maximum of 40 hours per week, if eligible and intending to enroll for the
        next term.
     b. While enrolled, visa holders in circumstances of “economic hardship” may work off campus
        is so recommended by DSO on Form I-20 and approved by USCIS. In such cases, EAD is
        required.
     c. May participate in employment directly related to field of study. This employment may take
        the form of: Curricular Practical Training (requires DSO approval on Form I-20ID, EAD
        not required, employment is employer specific; Optional Practical Training (employment
        during or after completion of studies, total employment period may not exceed 12 months,
        DSO recommendation and USCIS approval needed, EAD required.


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TAXATION/RECONCILIATION                           NRA WORK AUTHORIZATION VERIFICATION



     F-1/F-3 Border Commuter Academic Students from Canada and Mexico
     Must apply for employment authorization for curricular practical training or post-completion
     optional practical training.
     F-2 Dependent of F-1 Visa Holder
     Not permitted to work in the U.S. under any circumstances.
     H-1B Temporary Professional Worker in a Specialty Occupation
     Individuals in the U.S. to perform professional services for a sponsoring employer in a specific
     position for a fixed period of time. Employment authorization is granted for an initial period of
     up to 3 years. Extensions for and additional 3 years are possible. Maximum is 6 years.
     Employment permitted only with the sponsoring institution that obtained USCIS approval for the
     visa classification. Prohibited from receiving payments from other organizations. Individuals
     may receive USCIS approval to work in H-1B status for more than one employer. Each
     employer must petition USCIS and receive approval for the employment. INS Form I-797A
     authorizes employment. EAD not required.
     H-1C Registered Nurse Serving in Underserved Area
     Employment authorized only for sponsoring employer.
     H-3 Trainee
     Individuals in the U.S. for a temporary period to participate in a training program provided by a
     specific employer. May be employed by petitioning employer for a specified period of time, as
     approved by the USCIS. INS Form I-797A authorizes employment. EAD not required.
     H-4 Dependent of H Visa Holder
     Not eligible for employment.
     J-1 Exchange Visitor (Student)
     Individuals in the U.S. as exchange visitors for the primary purpose of studying at an academic
     institution under the auspices of the United States Information Agency (USIA) and a designated
     program sponsor.
     J-1 students may work 20 hours per week on campus or off campus in limited circumstances.
     Employment does not require additional permission from USCIS or an EAD. Eligible for up to
     18 months of academic training following completion of their program (36 months for
     postdoctoral training).
     J-1 Exchange Visitor (short term scholar, professor, researcher, or specialist)
     Individuals in the U.S. as visiting researchers, professors, short-term scholars, or specialists
     under the auspices of the United States Information Agency (USIA) and a designated program
     sponsor.
     May be employed only by the designated program sponsor or appropriate designee, and within
     the guidelines of the program approved by USIA for the period of validity as stated on the IAP-
     66. Under limited circumstances, may receive compensation from other institutions provided
     prior written authorization form the Responsible Officer of their designated program has been


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TAXATION/RECONCILIATION                            NRA WORK AUTHORIZATION VERIFICATION

     secured. J-1 professors and researchers may give occasional talks at institutions other than the
     program sponsor and for those talks, receive honoraria.
     J-2 Dependent of J-1 Visa Holder
     Eligible to apply to USCIS for work authorization. With EAD issued by USCIS, may work for
     any employer. Employer must re-verify employment authorization by the expiration date on the
     EAD.
     O-1 Alien with Extraordinary Ability in sciences, arts, education, business, or athletics
     Employment authorized only with sponsoring employer or through sponsoring agency. INS
     Form I-797A authorizes employment. EAD not required.
     O-2 Aliens accompanying/assisting O-1 Visa Holder
     Employment authorized only with sponsoring employer or through sponsoring agency. INS
     Form I-797A authorizes employment. EAD not required.
     Q-1 Participant in an International Cultural Exchange Program
     Individuals in the U.S. as participants in an international cultural exchange visitor program
     approved by the Attorney General to provide practical training, employment, and the sharing of
     the history, culture, and traditions of the foreign national’s country (“Disney Visa”).
     May be employed and compensated only by the petitioning employer or agency through whom
     the status was obtained. INS Form I-797A authorizes employment. EAD not required.
     TN-1 Canadian Holder of Trade NAFTA Visa, working in occupation listed in NAFTA
     May be employed and compensated only by the sponsoring employer through whom the status
     was obtained in activity in accordance with the provisions of the treaty. Canadians require only
     an I-94 card as employment authorization.
     TN-2 Mexican Holder of Trade NAFTA Visa, working in occupation listed in NAFTA
     May be employed and compensated only by the sponsoring employer through whom the status
     was obtained in activity in accordance with the provisions of the treaty. Mexicans require INS
     Form I-797A; EAD is not required.
     VWT Visa Waiver for Business
     VWT Visa Waiver for Tourism
     Visitors to U.S. who are nationals of countries on the Visa Waiver list may visit U.S. for 90 days
     for business or pleasure/tourism.
     No employment authorization: VWB/VWT visitors may not receive compensation for services
     performed in the U.S. except for honoraria from academic institutions for certain academic
     activities. (Individuals entering the U.S. under a visa waiver project should be treated as if they
     had entered with a temporary visitor visa, either B-1 or B-2 according to the nature of the visit.


  4. Visa Waiver Program (VWP)
     Aliens from certain countries may travel to the U.S. without visas under the VWP, presenting
     only their unexpired foreign passports and proof, such as a roundtrip ticket, of intention to depart
     from the U.S. within 90 days. For admission purposes, most foreign passports must be valid for



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TAXATION/RECONCILIATION                            NRA WORK AUTHORIZATION VERIFICATION

     at least six months beyond the authorized period of stay. Visa waiver travelers are issued green
     Forms I-94 marked WB (Waiver-Business) or WT (Waiver –Tourist), which correspond to B-1
     and B-2 classification, respectively. Although travel without a visa represents a convenience, it
     has several limitations of which the traveler must be aware.

     Currently, 27 countries participate in the Visa Waiver Program, as shown below.
      Andorra                          Iceland                           Norway
      Australia                        Ireland                           Portugal
      Austria                          Italy                             San Marino
      Belgium                          Japan                             Singapore
      Brunei                           Lichtenstein                      Slovenia
      Denmark                          Luxembourg                        Spain
      Finland                          Monaco                            Sweden
      France                           The Netherlands                   Switzerland
      Germany                          New Zealand                       United Kingdom
     To obtain the latest list of countries see U.S. Department of State, web site
     http://travel.state.gov.
  5. United States-Canada Free Trade Agreement
     Public Law 100-449 (Act of 9/28/88) established a special reciprocal trading relationship
     between the United States and Canada. It provided two new classes of nonimmigrant admission
     to Canadian citizen businesspersons and their spouses and unmarried minor children for
     temporary visitors to the United States. Entry is facilitated for visitors seeking classification as
     visitors for business, treaty traders or investors, intra-company transferees, or other business
     people engaging in activities at a professional level. Such visitors are not required to obtain
     nonimmigrant visas, prior petitions, labor certifications, or prior approval; but must satisfy the
     inspecting officer they are seeking entry to engage in activities at a professional level and that
     they are so qualified. The North American Free Trade Agreement (NAFTA) as of 1/1/94
     superseded the United States-Canada Free Trade Agreement. See North American Free-Trade
     Agreement below.

  6. North American Free-Trade Agreement (NAFTA)

     The 1994 North American Free Trade Agreement (Public Law 103-182, Act of 12/8/93)
     supersedes the United States-Canada Free-Trade Agreement (FTA) as of 1/1/94. NAFTA
     continues the special, reciprocal trading relationship between the United States and Canada and
     establishes a similar relationship with Mexico.
     NAFTA facilitates travel to and employment in the United States of certain Canadian and
     Mexican workers. NAFTA created a new visa category “TN” for eligible Canadian and Mexican
     professional workers and also affected terms of admission of Canadians’ admissions to the U.S.
     under other nonimmigrant classifications.




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     A TN position must require services of a NAFTA professional whose profession is noted in U.S.
     Citizenship and Immigration Services (USCIS), Employer Information Bulletin 11, December 2,
     2003, Appendix 1603.D.1. See: http://uscis.gov/graphics/services/employerinfo/EIB11.pdf.
     The employee must possess the credentials required as well as proof of qualifying citizenship.
     TN status allows unlimited multiple entries to the U.S. for the period of service required by the
     U.S. employer (includes foreign employers), up to a maximum of one year, extendible
     indefinitely so long as the temporary purposes of the employment continues.
     Self-Employment in the U.S. is Not Permitted
     TN: Members of Appendix 1603.D.1 professions who are self-employed outside the U.S. may
     pursue business relationships from outside the U.S. (e.g., contracts for services) with U.S. based
     companies and obtain TN status to engage in these prearranged activities in the U.S. However,
     under TN classification an alien is not permitted to come to the United States to engage in self-
     employment in the United States, nor to render services to a corporation or other entity in which
     he/she is a controlling owner or shareholder.
     Other NAFTA Admissions Categories
     Canada and Mexico nationals may also seek admission as B-1 (business visitor), E-1 (treaty
     trader), E-2 (treaty investor), or L-1 (intra-company transferee) non-immigrants under NAFTA.
     TN Processing and Admissions Procedure
     Canadians may apply for TN-1 classification directly at a U.S. Class “A” port-of-entry, at a
     U.S. airport handling international traffic, or at a U.S. pre-flight/pre-clearance station in Canada.
     A Canadian citizen who enters the U.S. more than twice per year in B, E, L, or TN status may be
     eligible for automated border inspections via the INSpass program.
     Documentation must include:
         • Proof of Canadian citizenship,
         • $50 filing fee,
         • Proof of required Appendix 1603.D credentials; and
         • Letter from U.S. employer (or a sending employer in Canada) describing nature and
             duration of professional employment and salary/wages in the U.S. The employer letter
             should include a job description including professional activities and duties, duration of
             TN alien’s services in the U.S., requirements for position to be filled (training, license,
             experience, etc.), alien’s credentials, and salary/benefits.
     Canadian citizens are visa exempt and do not need consular visas to travel or apply for admission
     to the U.S. TN-1 applicants at land ports-of-entry must also pay a modest Form I-94 fee.
     TN-2 non-immigrants from Mexico must be approved beneficiaries of Form I-129 petitions
     filed by prospective U.S. employers and approved by the Department of Homeland Security,
     U.S. Citizenship and Immigration Services’ Nebraska Service Center. Documentation must
     include:


        •   Proof of Mexican citizenship,
        •   $130 filing fee,
        •   Proof of the purpose for entry, and proof of participation in a permitted NAFTA


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             professional activity.

     Mexicans applying for admission to the U.S. under TN-2 classification must file the necessary
     paperwork with a Department of State Consulate in Mexico in order to receive a TN visa. Visit
     the Department of State website for more information on the procedures Mexican citizens must
     follow in order to obtain a TN visa.
     Family Members
     Spouses and unmarried children under 21 of Canadian and Mexican professionals obtain TD
     status. They can be included on the application of the TN principal (no separate filing fees) and
     admitted for the same duration of stay. TD non-immigrants may study in the U.S. under this
     classification, but are not authorized for employment. Canadian dependents’ eligibility may be
     adjudicated at a U.S. port-of-entry. Although Mexican family members are automatically
     included in TN petitions filed at the Nebraska Service Center, they must file separate application
     for TD visas at U.S. consulates. Note: Dependents are not required to be Canadian or Mexican
     citizens.
     Additional information about verification of work authorization may be obtained at
     http://www.uscis.gov/index.htm.
D. FOREIGN CORPORATIONS
  This section is authored by An Issue Specialist, IRS Foreign Payments Branch, Washington, DC.
  "The matter of withholding taxes on payments to foreign corporations is not quite as simple as it
  might seem. Basically, four questions have to be answered about the income you are paying to a
  foreign corporation: (1) does U.S. law consider this income to be foreign--sourced, (2) does U.S. law
  consider this income to be effectively connected with a U.S. trade or business, (3) is the foreign
  corporation a personal holding company under U.S. law, and (4) is there any tax treaty provision
  which applies to this payment?
  The income of a foreign corporation that is effectively connected with a U.S. trade or business is
  subject to U.S. tax at the same rates applicable to U.S. taxpayers. This income should be reported on
  a U.S. income tax return form 1120F for foreign corporations. This income is not usually reportable
  to IRS by a withholding agent and is not subject to withholding if the foreign corporation gives to
  the withholding agent form 4224 Exemption From Withholding of Tax on Income Effectively
  Connected With the Conduct of a Trade or Business in the United States. (Please note that form
  4224 is being replaced during 1999 by the new form W-8ECI).
  Income that is effectively connected with a U.S. trade or business is often connected with the fact
  that the foreign corporation has a "fixed base" or "permanent establishment" in the USA. That is, it
  has some sort of permanent office, factory, base of operations, etc. in the USA from which it
  generates its U.S. income. Income of a foreign corporation that is not effectively connected with a
  U.S. trade or business is classified as "Fixed, Determinable, Annual, or Periodical" (called FDAP for
  short). FDAP income that is considered to be U.S.-- sourced income is subject to 30% withholding,
  or withholding at a lower tax treaty rate, and is reportable on forms 1042 and 1042-S. However,
  FDAP income that is not U.S. -- sourced income is not reportable by the U.S. withholding agent, and
  is not subject to any withholding tax. The sourcing rules about payments made to foreign entities


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  are found in sections 861- 865 of the Internal Revenue Code; and you will find a brief summary of
  them on page 7 of the 1998 edition of IRS Publication 515 Withholding of Tax on Nonresident
  Aliens and Foreign Corporations.
  Payments made to a foreign corporation to purchase personal property items which are produced
  outside of the USA by a foreign corporation which has no fixed base or permanent establishment in
  the USA are usually considered to be foreign--sourced income of the foreign corporation and are not
  subject to U.S. reporting or withholding.
  Payments made to a foreign corporation in exchange for the personal services of nonresident alien
  individuals performed outside of the U.S. are considered to be foreign--sourced income, and are not
  reportable to the IRS and are not subject to U.S. withholding tax.
  On the other hand, payments to a foreign corporation in exchange for personal services performed in
  the USA by either U.S. citizens or aliens is considered to be U.S.-- sourced income and is usually
  subject to withholding. The type of withholding will depend on the employment relationship
  between the workers and the U.S. payer or the foreign corporation.
  If the U.S. payer or the foreign corporation is considered to be an "employer" under U.S. law, then
  such employer will have to file forms 941, W-2, etc. and withhold U.S. taxes at the graduated rates
  on the wages paid to the employees. (Please consult Revenue Ruling 92-106). If no employment
  relationship exists between the workers and the U.S. payer or the foreign corporation, then the
  payments are probably in the nature of self-employment income paid to independent contractors
  (independent personal services), and will be reported on forms 1042 and 1042-S if paid to
  nonresident aliens, and will be subject to 30% withholding, or withholding at a lower tax treaty rate.
  If the payment to the foreign corporation consists partially of remuneration for personal services
  performed in the USA and partially of payment for personal property items purchased from overseas
  or of some other kind of income which is foreign-sourced, then the U.S. payer will have to
  determine what percentage of the payment to the foreign corporation is U.S.--sourced and report that
  portion and withhold tax on it.
  If the U.S. payer cannot determine which portion of the payment is taxable or nontaxable, then the
  U.S. payer will withhold 30% on the entire payment. The reporting will usually be on forms 1042
  and 1042-S (showing the foreign corporation as payee) and the withholding will usually be at 30%
  or lower tax treaty rate which may apply, unless the foreign corporation can show the U.S. payer that
  it has already reported the income and paid U.S. tax on it.
  One further complication exists under U.S. law for payments made to foreign corporations. Some
  individuals (especially foreign athletes and entertainers) form foreign corporations to act as the
  recipients of their income in order to take advantage of the sometimes more favorable tax treatment
  given to corporations than to individuals.
  Under U.S. law a corporation 60% of whose gross income comes from contracts for the personal
  services of specified individuals, and such specified individuals own at least 25% of the outstanding
  stock of such corporation, is known as a "personal holding company".
  The exemption from 30% withholding tax that might otherwise be given to a foreign corporation
  whose income is effectively connected with a U.S. trade or business will not apply to any payment to


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TAXATION/RECONCILIATION                             NRA WORK AUTHORIZATION VERIFICATION

  a foreign corporation if the following conditions exist:
         1) The foreign corporation is a personal holding company;
         2) The foreign corporation receives amounts under a contract for personal services of an
            individual whom the corporation has no right to designate (i.e., the individual himself or
            his agent have the sole right to contract for the personal services of the individual); and
         3) 25% or more in value of the outstanding stock of the foreign corporation at some time
            during the tax year is owned, directly or indirectly, by or for an individual who has
            performed, is to perform, or may be designated as the one to perform, the services called
            for under the contract.
  Thus, before allowing an exemption from withholding claimed by a foreign corporation on form
  4224 or form W-8ECI for the personal services of a specified individual or individuals, the
  withholding agent must determine whether the three conditions named above exist. If such three
  conditions do exist, then the withholding exemption does not apply, and the withholding agent must
  withhold 30% income tax on the payments.
  If the foreign corporation will not give the withholding agent sufficient information about whether
  these three conditions exist, then the withholding agent must withhold 30%. If the foreign
  corporation demonstrates that the three conditions named above do not exist, and that the income is
  really effectively connected with the conduct of an U.S. trade or business, then a withholding
  exemption claimed on form 4224 or W-8ECI may be allowed.
  Once you have determined that a payment to a foreign corporation is taxable and subject to
  withholding under U.S. law, then you must consider the question of whether the payment might be
  exempt or taxable at a lower tax rate under a tax treaty. You should consult IRS Publication 901
  U.S. Tax Treaties to determine whether a tax treaty exists with the country of which the foreign
  country is a resident. If no tax treaty exists with that country, then simply treat the payment as it
  should be treated under U.S. law.
  If a tax treaty does exist with that country, then you will usually need to read the tax treaty articles
  on "Business Profits" and "Permanent Establishments" (the article titles may vary from treaty to
  treaty) in order to discover how the treaty determines the taxation of the business profits of a
  corporation resident in one country which earns profits from business in the other country.
  In addition, most tax treaties have separate articles dealing with the income of "artistes,” athletes,
  and entertainers. These separate articles usually supersede the other articles of the treaty that might
  apply to the income of athletes and entertainers.
  IRS Publication 901 does not contain the actual text of all the tax treaties, and so you will need to
  consult a commercial publishing service (usually found in a law library or other university library)
  that publishes the actual text of the tax treaties.
  When in doubt about whether a payment is taxable under U.S. law, or whether a tax treaty provision
  applies, the U.S. withholding agent should withhold the 30% tax and report the income and
  withholding on forms 1042 and 1042-S. If the foreign corporation later demonstrates that
  withholding should not have taken place, then the U.S. withholding agent can refund the withheld
  tax within the same calendar year as it was withheld.



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  However, if the end of the calendar year arrives, and the withheld tax has not been refunded to the
  foreign corporation by the U.S. payer, and the payment and withholding have already been reported
  on forms 1042 and 1042-S, then the withholding agent cannot refund the withheld taxes and the
  foreign corporation will have to file form 1120F with IRS to get its refund.
  The U.S. withholding agent cannot refund tax withheld in a prior calendar year after forms 1042 and
  1042-s have been filed. If the withholding was erroneous because of a tax treaty, then the foreign
  corporation may file form 1001 with the U.S. withholding agent before the end of the calendar year
  to ask for a refund of its withheld taxes.
  However, please be aware that IRS form 1001 will expire on 12-31-99 and will be replaced by IRS
  form W-8BEN. In fact, IRS has already printed and issued the new forms W-8BEN, W-8ECI, W-
  8EXP, and W-8IMY. These new forms are intended to replace the old IRS forms W-8, 1001, and
  4224. The new forms should be used immediately; and the old forms W-8, 1001, and 4224 should
  no longer be used.”




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                                         TAX RESIDENCY RULES
A separate set of tax rules and regulations are carved out under IRC Sections 871(a) and 881(a) for
individuals, and entities deemed to be “foreign persons.” The tax withholding requirements with respect
to the liability imposed on withholding agents are set forth under IRC Sections 1441 and 1442. As such,
institutions are required to determine the residency status of any entity to which payment is made, that
is, determine whether the payee, or the beneficiary of the payment, is a “U.S. person” or “foreign
person” as defined in the new regulations (IRS Reg. 1.1441-1(c)(2)). Payments made to “nonresident
aliens” are subject to different tax withholding, reporting, and liability requirements than payments
made to U.S. citizens.
There are two tests that are used to determine whether a non-U.S. citizen should be treated as a U.S.
resident for tax purposes: 1) the “green card” test, and 2) the “substantial presence” test. If the non-U.S.
citizen satisfies (or “passes”) either test, he is a U.S. resident for tax purposes; if he satisfies neither test,
he is taxed as a nonresident alien.
A. GREEN CARD TEST
    Under the “green card” or lawful permanent resident test, aliens who are lawful permanent resident
    of the U.S. at any time during the calendar year are considered residents for income tax purposes.
    This is known as the green card test because these aliens hold immigrant visas (also known green
    cards), Form I-551, Alien Registration Card, issued by the United States Citizenship and
    Immigration Services.
    Because the lawful permanent resident test is based on the alien’s legal right to be in the U.S., not on
    the alien’s physical presence in the U.S., a green card holder is treated as a U.S. resident until that
    status is revoked or abandoned. This holds true for “commuter” green card holders from Canada and
    Mexico who work in the U.S., even though they reside in Canada or Mexico. Resident aliens are
    taxed on their worldwide income in much the same way as U.S. citizens.
B. SUBSTANTIAL PRESENCE TEST
    An alien is considered a U.S. resident for tax purposes if the individual meets the substantial
    presence test for the calendar year. The substantial presence test is comprised of two parts. To meet
    this test, the individual must be physically present in the United States on at least:
        1. 31 days during the current calendar year, and
        2. 183 days during the 3 year period that includes the current year and 2 years immediately
           before that, counting:
            a. All days of physical presence in the current year, and
            b. Only 1/3 of the days of presence in the first year before the current year, and
            c. Only 1/6 of the days of presence in the second year before the current year.
    Example. Individual was physically present in the United States for 120 days in each of the years
    2001, 2002, and 2003. To determine if they meet the substantial presence test for 2003, count the
    full 120 days of presence in 2003, 40 days in 2002 (1/3 of 120), and 20 days of 2001 (1/6 of 120).
    Since the total for the 3-year period is 180 days, the individual is not considered a resident alien


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TAXATION/RECONCILIATION                                                NRA TAX RESIDENCY RULES

  under the substantial presence test for 2003.
  This test must be applied each calendar year, taking into account the current calendar year (the year
  being tested) and the two preceding calendar years. It is suggested that the withholding agent
  calculate the earliest future date on which he expects the individual to pass the test. This estimate of
  the individual’s residence change date is based on the withholding agent’s knowledge of any future
  changes to the calculation of the substantial presence test (e.g., immigration status change). .
  Individuals should be treated as resident aliens retroactively from the beginning of the year when
  they satisfy the substantial presence test.

                                Calculating the Substantial Presence Test
             (Individuals Who Change From One Exempt Individual Status to Another
                                        Exempt Individual Status)
       •   Use the Current Exempt Individual Rule: Always apply the exempt individual rule
           applicable to the individual’s current immigration status at the time the test is calculated;

       •   Use All Exempt Individual Years: All of the years of exempt individual status should be
           applied for the rule in question, regardless of whether the year was a student or non-student
           exempt individual year;

       •   Don’t Go Over Five: The total number of exempt individual years used in the current
           calculation may not exceed five, regardless of the rule currently applicable; and

       •   Don’t Change History: The withholding agent should not change the way exempt
           individual years were applied in past years, as doing so would presumably change the way
           in which the individual should have been taxed in previous years.

  What is Presence? For the purpose of applying the substantial presence test, an alien is present in
  the U.S. on any day in which he or she is physically present in the U.S. for any part of that day. For
  example, if an alien employee arrived in the U.S. at 9:00 p.m. on September 13, 2004, his or her
  days of physical presence in the U.S. would be 110 (18 – September, 31 – October, 30 – November,
  31 – December).
  Some days do not count. For purposes of calculating the days an individual is physically present in
  the U.S. for the substantial presence test, those days the individual qualifies as an “exempt
  individual” are not counted. The following days spent by an alien in the U.S. do not count when
  determining residency under the substantial presence test:
      • Days spent in the full-time employ of an international organization or with diplomatic status;
      • Days spent in the U.S. as a teacher or trainee under a “J” or “Q” visa, unless the teacher or
         trainee has been exempt from the substantial presence test as a teacher or trainee for any part
         of 2 of preceding calendar years (any part of 4 of the preceding 6 calendar years if the
         teacher or trainee is being paid by a foreign employer);
      • Days spent in the U.S. as a student under an “F,” “J,” “M,” or “Q” visa, unless the student
         has been exempt from the substantial presence test for any part of more than 5 calendar years
         and the student has not convincingly demonstrated that he or she does not intend to live
         permanently and has not complied with all student visa requirements;
      • Days spent in the U.S. because of a medical condition that arose in the U.S.;
      • Days spent by a professional athlete in the U.S. to compete in a charitable sporting event;


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TAXATION/RECONCILIATION                                                NRA TAX RESIDENCY RULES

     •   Days on which residents of Mexico or Canada regularly commute to the U.S. to work and
         then return home; and
     •   Days spent in transit between two points in foreign countries during which the alien spends
         less than 24 hours in the U.S.
  A "calendar" year is used for purposes of both the two-year and five-year limitation rules - the
  period from January 1 through December 31. A "calendar" year is not twelve consecutive months.
  Thus, if an individual is exempt for any part of a calendar year, that year will count as a full calendar
  year when determining exempt individual years.
  Example. An F-1 student visa holder subject to the five-year rule, who arrives in the U.S. on
  December 15, 2002, will cease being an exempt individual on January 1, 2007. The visa holder’s
  first "calendar" year will be 2002, even though he/she was only in the U.S. for 17 days of the year,
  and his/her second calendar year will be 2003. On January 1, 2007, the visa holder must begin to
  count the days of presence in the U.S. for purposes of the substantial presence test; if he/she leaves
  the U.S. before the test is met, he/she is not considered a U.S. resident. If, however, the visa holder
  stays in the U.S. for at least 183 days in 2007, he/she will meet the substantial presence test and be
  treated as a U.S. resident retroactively to January 1, 2007, and therefore, retroactively subject to
  FICA.
  IRS Publication 519, U.S. Tax Guide for Aliens, identifies other exceptions for days present in the
  U.S. that are not counted toward meeting the "substantial presence test."
  Exempt individual. The term “exempt individual” is a tax term that refers only to an individual’s
  requirement that he not include days of actual presence in the U.S. when calculating the substantial
  presence test – days that would otherwise have to count toward the test were he not an exempt
  individual. Treasury Reg. Section 301.7701(b) states that “exempt individuals” are those individuals
  who are present in the U.S. for the primary purpose of being: (i) a teacher or trainee (generally, a
  teacher or trainee in the U.S. under a “J” immigration status); (ii) a student (generally, a student is
  present in the U.S. under an “F” or “J” immigration status); (iii) a “foreign government-related”
  individual (generally, a foreign diplomat or consular officer is present in the U.S. under an “A” or
  “G” immigration status); and (iv) a professional athlete (generally present in the U.S. under a “P”
  immigration status).
  The only way to properly determine the immigration status of the individual is to review his
  documentation (generally, Form I-94/94W (Arrival and Departure Record) and Forms DS-2019 (for
  “J” status individuals) or I-20 for “F” status individuals)). The individual’s primary purpose for his
  visit to the U.S. is the basis for determining whether the individual will be treated as an “exempt
  individual” and under which category the individual will be included. The individual’s primary
  purpose is determined by the individual’s immigration documentation, not the individual’s primary
  activity.
  To qualify for exempt individual status, a “teacher or trainee” must be temporarily present in the
  U.S. under a J or Q non-student immigration status, and a “student” must be temporarily present in
  the U.S. under an F, J, M, or Q student immigration status. Each of these exempt individual
  categories is also subject to certain time requirements. Generally, the J or Q non-student
  immigration status will not qualify for “exempt individual” status if he was exempt as a teacher,
  trainee, non-student or student for any two of the current and past six calendar years. Generally, the


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TAXATION/RECONCILIATION                                                 NRA TAX RESIDENCY RULES

  F, J, M, or Q student immigration status individual will not be treated as an exempt individual if he
  has had that status for any part of more than five calendar years.
  Closer connection exception. Aliens that qualify under the substantial presence test may still be
  deemed to be nonresident aliens if they can show that they have a closer connection to a foreign tax
  home than to the U.S. An alien meets the closer connection exception if the alien:
     • Is present in the U.S. for fewer than 183 days during the calendar year;
     • Has a tax home in a foreign country during the current year (e.g., permanent residence,
         family, personal property, bank accounts, driver’s license, etc., are there); and
     • Has not applied for lawful permanent resident status.
C. DUAL RESIDENCY STATUS
  An employee may be a resident alien and a nonresident alien in the same year, a situation normally
  occurring in the year of arrival and departure from the U.S. Employers must treat such individuals
  appropriately according to their status for each part of the year. Aliens who qualify as residents
  under the green card test are considered to be residents from the first day of the calendar year during
  which they qualify. Their resident status ends when they are officially no longer lawful permanent
  residents. Aliens who qualify as residents under the substantial presence test are generally
  considered to be residents from the first day through the last day they are physically present in the
  U.S.
  A dual status alien may choose to be treated as a U.S. resident for the entire year if (i) he was a
  nonresident alien at the beginning of the year, (ii) he was a resident alien or U.S. citizen at the end of
  the year, and (iii) his spouse was a U.S. citizen or resident alien at the end of the year. If the
  individual makes this election, he and his spouse will both be treated as U.S. residents for the entire
  year for income tax purposes.
D. TAX TREATY IMPACT
  The Internal Revenue Code rules for determining U.S. residency do not supersede income tax
  treaties between the U.S. and foreign countries. Therefore, if an alien employee meets one of the
  residency tests and is also considered a resident of a foreign country under certain “tie-breaker”
  provisions of an income tax treaty, the alien may choose to be treated as a nonresident for tax
  matters covered by the treaty.
E. CLAIMING RESIDENT STATUS
  An alien can claim resident status by giving the employer a written statement stating that he or she is
  a resident of the U.S. or by completing and submitting to the employer Form W-9, Request for
  Taxpayer Identification Number and Certification. The employer should keep such documentation
  on file rather than sending it to the IRS. If an alien does not claim resident status in writing or on
  Form W-9, the employer may treat the employee as a nonresident alien.
  If the individual represents that he or she meets the "substantial presence test" or the agency has
  reason to believe that the individual meets the test, the agency should tax the individual as a resident
  alien.




REVISED: JANUARY 2005                         SECTION 4                                 PAGE 4 OF 4
TAXATION/RECONCILIATION                                 NRA INCOME SUBJECT TO WITHHOLDING

                            INCOME SUBJECT TO NRA WITHHOLDING
NRA withholding applies only to payments made to a payee that is a foreign person. It does not apply
to payments made to U.S. persons.
After determining the residency status for U.S. tax purposes, the withholding agent must determine the
source of the income (U.S. or foreign source) and the type of income that is being paid. In most cases
this will involve determining whether the payment represents “compensation” income to the recipient,
and, if so, whether it is dependent (wages or salary paid to an employee) or independent income
(consulting or speaking fees paid to an independent contractor), or whether the payment is instead a
“scholarship or fellowship” grant for which no services are required to be performed.
The type of income and source of the payment will affect whether tax has to be withheld, and if so, how
much tax has to be withheld. A payment is subject to NRA withholding if:

   •   It is from sources within the United States, and it is either;
   •   Fixed or determinable annual or periodical (FADP) income; or, certain gains from the
       disposition of timber, coal, and iron ore, or from the sale or exchange of patents, copyrights, and
       similar intangible property.
In addition, a payment is subject to NRA withholding if withholding is specifically required, even
though it may not constitute U.S. source income or FDAP income. For example, corporate distributions
may be subject to NRA withholding even though a portion of the distribution may be a return of capital
or capital gain not otherwise subject to NRA withholding.
A. SOURCE OF INCOME
   U.S. tax law classifies all types of income as either “U.S. source” or “foreign source” based on
   multiple criteria. Different sourcing rules apply to each income category. If income received by a
   nonresident alien is classified as “foreign source,” it is not subject to U.S. tax. Generally, income is
   from U.S. sources if it is paid by domestic corporations, U.S. citizens or resident aliens, or entities
   formed under the laws of the United States, or a state. Income is also from U.S. sources if the
   property that produces the income is located in the United States or the services for which the
   income is paid were performed in the United States. A payment is treated as being from sources
   within the United States if the source of the payment cannot be determined at the time of payment.
   1. Personal Service Income
      Compensation for personal services (employee or independent contractor) performed in the
      United States, is considered U.S. source (refer to IRC 861(a)(3)). The place where the services
      are performed determines the source of the income, regardless of where the contract was made,
      the place of payment, or the residence of the payor. If the compensation is for personal services
      performed partly in the U.S. and partly outside the U.S., Treasury Regulation 1.861- 4(b)
      requires that an allocation be made of income for services performed in the U.S. Usually this
      allocation is on a time basis. U.S. source income is the amount that results from multiplying the
      total amount of income by the following fraction:




REVISED: FEBRUARY 2006                             SECTION 5                                PAGE 1 OF 8
TAXATION/RECONCILIATION                               NRA INCOME SUBJECT TO WITHHOLDING


                             Number of days services are performed in the U.S.
                    Total number of days of service for which the income is paid

     Generally, 240 is the total number of business days in a year that the IRS allows for this
     computation. If employees actually work more than 240 days in a year, a higher number for the
     total number of business days may be used. However, the employee should keep records
     indicating the number of and the location for the days actually worked to support the claim.
     Refer to Internal Revenue Publication 515 for a detailed explanation of the allocation of U.S.
     and foreign source income.
     There is a limited exception to the “location of the performance of the services” sourcing rule.
     This exception provides that even though the services are performed in the U.S., the income
     received by the nonresident alien will not be treated as U.S. source income if:

         •   The nonresident alien was not present in the U.S. for more than 90 days;
         •   The income does not exceed $3,000; and
         •   The services are performed for (i) a nonresident alien, foreign partnership or foreign
             corporation not engaged in a U.S. trade or business, (ii) the foreign office of a U.S.
             citizen, partnership, or corporation, or (iii) the U.S, government.
  2. Scholarship and Fellowship Grants (non-service)
     Scholarships, fellowships, and grants are sourced according to the residence of the payer. Those
     made by entities created or domiciled in the United States are generally treated as income form
     sources within the U.S. However, see activities performed outside the U.S. next. Those made
     by entities created or domiciled in a foreign country are treated as income from foreign sources.
     In effect, a scholarship or fellowship grant paid to or on behalf of a nonresident alien is only
     considered U.S. source income if both the payer and the location of the educational activity are
     in the U.S.
     For example, payments for research or study in the United States made by the United States, a
     non-corporate U.S. resident, or a domestic corporation, are from U.S. sources. Similar payments
     from a foreign government or foreign corporation are foreign source payments even though the
     funds may be disbursed through a U.S. agent. Payments made by an entity designated as a
     public international organization under the International Organizations Immunities Act are from
     foreign sources.
     Activities to be performed outside the United States. Scholarships, fellowship grants,
     targeted grants, and achievement awards received by nonresident aliens for activities performed,
     or to be performed, outside the United States is treated as foreign source income.




REVISED: FEBRUARY 2006                           SECTION 5                               PAGE 2 OF 8
TAXATION/RECONCILIATION                               NRA INCOME SUBJECT TO WITHHOLDING

     The sourcing rule for scholarship and fellowship grants has been changed several times over the
     past few years. In late 1995, the IRS issued final regulations under section 861 that eliminated
     the adverse impact of the previous “residence of the payer” sourcing rule that had been in place
     since 1989. These regulations retain the basic “residence of the payer” sourcing rule, in that if
     payments are made by a foreign payer (or directly on behalf of a foreign payer), the payment will
     be treated as foreign source. The regulations also carve out an exception for scholarship and
     fellowship payments made by a U.S. payer to a nonresident alien studying outside the U.S. The
     regulations provide that such payments for educational activity that takes place outside the U.S.
     will be treated as “foreign source” income.
     The sourcing rule does not apply to scholarships and fellowships awarded in connection with the
     performance of service. For these payments, the withholding agent should look to the sourcing
     rules for compensation.
  3. Royalties
     In general, you must withhold tax on the payment of royalties from sources in the United States.
      However, certain types of royalties are given reduced rates or exemptions under some tax
     treaties.
  4. Prizes, Awards, and Other Grants
     Other grants, prizes, and awards made by grantors that reside in the United States are treated as
     income from sources within the United States. Those made for activities conducted outside the
     U.S. or by grantors that reside outside the U.S. are treated as income from foreign sources.
                       Summary of Income Sourcing Rules for FDAP Income
              Type of Income:                            Source Determined by:
   Pay for Personal Service              Where services are performed
   Royalties – Patents, copyrights, etc. Where property is used
   Scholarships, Grants, Prizes, and     Combination of location of the payer and the location
   Awards                                of the activity. Generally, residence of payor

B. TYPE OF INCOME
  Determining the type of income paid is one of the two most critical components in any tax
  compliance program – all tax withholding and reporting is based on two factors: residency status
  and income type. The combination of the two factors determines:

     •   whether the payment is taxable income.
     •   the appropriate rate of tax withholding,
     •   if any applicable exclusions or exemptions from tax withholding exists, and
     •   the method by which the income must be reported.
  Although there are many types of income that may be paid to individuals, only the following Fixed
  or Determinable Annual or Periodical Income (FADP) are discussed here. See IRS Pub. 515for
  a more comprehensive list.
  1. Dependent Compensation
     All cash and noncash remuneration given to an employee in consideration of services (past,
     present, or future) performed for the employer.


REVISED: FEBRUARY 2006                           SECTION 5                               PAGE 3 OF 8
TAXATION/RECONCILIATION                                NRA INCOME SUBJECT TO WITHHOLDING

  2. Independent Compensation
     Payments to a non-employee for contracted service such as consulting fees, speaker fees,
     payments to an independent contractor, and honoraria.
  3. Scholarship or Fellowship Grant
      IRC Section 117 sets forth the requirements for determining a scholarship or fellowship grant.
      These terms are defined broadly in the corresponding regulations, which state that a
      “scholarship” is an amount paid or allowed to, or for the benefit of, a student, whether
      undergraduate or graduate, and to aid such individual in pursuing his studies.” A “fellowship” is
      defined as “an amount paid or allowed to, or for the benefit of, an individual to aid him in the
      pursuit of study or research.”
  4. Royalties
     A royalty is the payment for the right to use some type of intangible property (e.g., patent, or
     copyrighted item). Royalties are most often paid when a “work of art” such as a manuscript is
     copied and distributed, thus creating a royalty for the author or creator of the work. It is
     important to distinguish whether the “work of art” is created at the request of the institution and
     will be the property of the institution upon its completion, in which case, any associated
     payments are generally compensation. Or, if the work already exists or will remain the property
     of the creator and the institution is merely paying for the right to use (or view) the results, in
     which case, any associated payments are generally royalties.
  5. Prize or Award
     In basic terms, if the payment is based on past accomplishment or activity, it will generally be
     considered a prize or award. If, instead, the payment is for a future or continuing educational
     activity that does not require the performance of a service, it will generally be considered a
     scholarship or fellowship.
C. EFFECTIVELY CONNECTED INCOME
  Generally, when a foreign person engages in a trade or business in the U.S., all income from sources
  in the U.S. connected with the conduct of that trade or business is considered effectively connected
  with a U.S. business. FDAP income may or may not be effectively connected with a U.S. business.
   For example, effectively connected income includes rents from real property if the alien chooses to
  treat that income as effectively connected with a U.S. trade or business.
  The factors to be considered in establishing whether the FDAP income and similar amounts are
  effectively connected with a U.S. trade or business include:
     1) Whether the income is from assets used in, or held for use in, the conduct of that trade or
        business, or
     2) Whether the activities of that trade or business were a material factor in the realization of the
        income.
  Withholding exemption. Generally, you do not need to withhold tax on income if you receive a
  Form W-ECI on which a foreign payee represents that:
     1) The foreign payee is the beneficial owner of the income,
     2) The income is effectively connected with the conduct of a trade or business in the U.S., and
     3) The income is includible in the payee’s gross income.


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TAXATION/RECONCILIATION                                NRA INCOME SUBJECT TO WITHHOLDING

  This withholding exemption does not apply to:
     1)   Pay for personal services performed by an individual,
     2)   Effectively connected taxable income of a partnership that is allocable to its foreign partners.
     3)   Income from the disposition of a U.S. real property interest.
     4)   Payments to a foreign corporation for personal services if all of the following apply:
              a) The foreign corporation otherwise qualifies as a personal holding company for
                  income tax purposes,
              b) The foreign corporation receives amounts under a contract for personal services of an
                  individual whom the corporation has no right to designate, and
              c) 25% or more ownership of the corporation, directly or indirectly, by the individual
                  performing the contract.
D. WITHHOLDING ON SPECIFIC INCOME
  Income Not Effectively Connected (subject to NRA withholding) – This section discusses the
  specific types of income that are subject to NRA withholding. The income codes shown correspond
  to those used on Form 1042-S. You must withhold tax at the statutory rates unless a reduced rate or
  exemption under a tax treaty applies. For U.S. source gross income that is not effectively connected
  with a U.S. trade or business, the rate is usually 30%. Generally you must withhold the tax at the
  time you pay the income to the foreign person.
  1. Scholarships and Fellowship Grants (Income Code 15)
     Candidate for a degree. The payment of a qualified scholarship to a nonresident alien is not
     reportable and is not subject to NRA withholding. However, the portion of a scholarship or
     fellowship paid to a nonresident alien which does not constitute a qualified scholarship is
     reportable on Form 1042-S and is subject to NRA withholding. For example, those portions of a
     scholarship devoted to travel, room, and board are subject to NRA withholding and are reported
     on Form 1042-S. The withholding rate is 14% on taxable scholarship and fellowship grants paid
     to nonresident aliens temporarily present in the U.S. in F, J, M or Q nonimmigrant status.
     Payments made to nonresident alien individuals in any other immigration status are subject to
     30% withholding.
     Nondegree candidate. If the person receiving the scholarship or fellowship grant is not a
     candidate for a degree, and is present in the U.S. in F, J, M, or Q nonimmigrant status, you must
     withhold tax at 14% on the total amount of the grant that is from U.S. sources if the following
     requirements are met.

          a) The grant must be for study, training, or research at an educational organization in the
             United States.
          b) The grant must be made by:
                i) A tax-exempt organization operated for charitable, religious, educational, etc.
                     purposes.
                ii) A foreign government.
                iii) A federal, state, or local government agency, or
                iv) An international organization, or a binational or multinational educational or
                     cultural organization created or continued by the Mutual Educational and Cultural
                     Exchange Act of 1961 (known as the Fulbright-Hays Act).

REVISED: FEBRUARY 2006                            SECTION 5                                PAGE 5 OF 8
TAXATION/RECONCILIATION                                NRA INCOME SUBJECT TO WITHHOLDING


     Tax Treaties. Many treaties contain exemptions from U.S. taxation for scholarships and
     fellowships. Although usually found in the student articles, many of these exemptions also apply
     to research grants received by researchers who are not students. See IRS Publication 515 for
     those treaties which have such an exemption.
     An alien student, trainee, or researcher may claim a treaty exemption for a scholarship or
     fellowship by submitting Form W-8BEN to the payer of the grant. However, a scholarship or
     fellowship recipient who receives both wages and a scholarship or fellowship from the same
     institution can claim treaty exemptions on both kinds of income on Form 8233.
     The scholarship or fellowship recipient who is claiming the treaty exemption must provide you
     with his or her TIN on Form W-8BEN or Form 8233 or you cannot allow the treaty exemption.
     A completed Form W-7 showing that a TIN has been applied for, can be given to you with a
     Form 8233.
     Pay for Services Rendered. Pay for services rendered as an employee by an alien who is also
     the recipient of a scholarship or fellowship grant usually is subject to graduated withholding.
     Grants to students, trainees, or researchers which require the performance of personal services as
     a necessary condition for disbursing the grant do not qualify as scholarship or fellowship grants.
      It does not matter what term is used to describe the grant (e.g., stipend, scholarship, fellowship,
     etc.).
  2. Industrial Royalties – Patents, Trademarks, etc. (Income Code 11)
      This category of income includes royalties for the use of, or the right to use, patents, trademarks,
      secret processes and formulas, goodwill, franchises, know-how, and similar rights. It may also
      include rents for the use or lease of personal property. Under certain tax treaties, different rates
      may apply to royalties for information concerning industrial, commercial, and scientific know-
      how.
  3. Other Royalties – Copyright, Recording, Publishing (Income Code 12)
     This category refers to the royalties paid for the use of copyrights on books, periodicals, articles,
     etc., except motion picture and television copyrights. In general, you must withhold tax on the
     payment of royalties from sources in the U.S. However, certain types of royalties are given
     reduced rates or exemptions under some tax treaties.
  4. Independent Personal Services (Income Code 16)
      This category of pay includes payments for professional services, such as fees of an attorney,
      physician, or accountant made directly to the person performing the services. It also includes
      honoraria paid by colleges and universities to visiting teachers, lecturers, and researchers.
     Pay for independent personal services is subject to NRA withholding and reporting as follows:
     30% Rate. You must withhold at the statutory rate of 30% on all payments unless the alien
     enters into a withholding agreement or receives a final payment exemption. The amount subject
     to the 30% withholding may be reduced by the personal exemption amount ($3,200 for 2005) if
     the alien gives you a properly complete Form 8233. A nonresident alien is allowed only one
     personal exemption. However, individuals who are residents of Canada, Mexico, Japan, or
     South Korea, or are U.S. nationals are generally entitled to the same exemptions as U.S. citizens.
     See IRS Publication 515 for more information.

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TAXATION/RECONCILIATION                               NRA INCOME SUBJECT TO WITHHOLDING


  5. Dependent Personal Services (Income Code 17)
     Dependent personal services are personal services performed in the U.S. by a nonresident alien
     individual as an employee rather than as an independent contractor. Any wages paid to a
     nonresident alien for personal services performed as an employee for an employer are generally
     exempt from the 30% withholding if the wages are subject to graduated withholding. A
     nonresident alien subject to withholding must give the employer a completed Form W-4. The
     amount of wages subject to withholding may be reduced by the personal exemption. When
     completing Form W-4, nonresident aliens must use the special instructions in IRS Publication
     515 instead of the instructions on the Form W-4.
     Compensation for services performed outside the U.S. is not considered wages and is not subject
     to withholding.
     The employer must report the amount of wages and deposits of withheld income and social
     security and Medicare taxes by filing Form 941. The employer must also report on Form W-2
     the wages subject to NRA withholding and the taxes withheld. You must give copies of this
     form to the employee. Wages exempt under a tax treaty are reported on Form 1042-S and not in
     box 1 of Form W-2.
  6. Pay for Teaching (Income Code 18)
     This category is given a separate income code number because some tax treaties provide at lease
     partial exemption from withholding and from U.S. tax. Pay for teaching means payments to a
     nonresident alien professor, teacher, or researcher by a U.S. university or other accredited
     educational institution for teaching or research at the institution. Graduated withholding usually
     applies to all wages, salaries and other pay for teaching and research.

     A nonresident alien temporarily in the U.S. on an F-1, J-1, M-1, or Q-1 visa is not subject to
     social security and Medicare tax on pay for services performed to carry out the purpose for
     which the alien was admitted to the U.S. However, if an alien is considered a resident alien, that
     pay is subject to social security and Medicare taxes even though the alien is still in one of the
     nonimmigrant statuses mentioned above. The Social Security Administration publishes the
     complete texts and explanatory pamphlets of the totalization agreements which are available by
     calling 1-800-772-1213 or by visiting the website at:
     www.ssa.gov/international/inter_intro.html.
  7. Pay During Studying and Training (Income Code 19)
     This category refers to pay (as contrasted with remittances, allowances, or other forms of
     scholarships or fellowship grants) for personal services performed while a nonresident alien is
     temporarily in the U.S. as a student, trainee, or apprentice, or while acquiring technical,
     professional, or business experience. Graduated withholding usually applies to all wages,
     salaries, or other compensation paid to a nonresident alien student, trainee, or apprentice for
     personal services performed in the U.S.
     A nonresident alien temporarily in the U.S. on an F-1, J-1, M-1, or Q-1 visa is not subject to
     social security and Medicare tax on pay for services performed to carry out the purpose for
     which the alien was admitted to the U.S. This exemption from social security and Medicare
     taxes also applies to employment performed under Curricular Practical Training and Optional
     Practical Training, on or off campus as long as the employment is authorized by the U.S.

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TAXATION/RECONCILIATION                                NRA INCOME SUBJECT TO WITHHOLDING

     Citizenship and Immigration Services. However, if an alien is considered a resident alien, that
     pay is subject to social security and Medicare taxes even though the alien is still in one of the
     nonimmigrant statuses mentioned above. The Social Security Administration publishes the
     complete texts and explanatory pamphlets of the totalization agreements which are available by
     calling 1-800-772-1213 or by visiting the website at:
     www.ssa.gov/international/inter_intro.html.
  8. Prizes, Awards, and Other Grants (Income Code 50) Other Grants.
     The purpose of a grant must be to achieve a specific objective, produce a report or other similar
     product, or improve or enhance a literary, artistic, musical, scientific, teaching, or other similar
     capacity, skill, or talent of the grantee. A grant must also be an amount which does not qualify
     as a scholarship or fellowship. The grantor must not intend the amount to be given to the grantee
     for the purpose of aiding the grantee to perform study, training, or research.
     Prizes and Awards. Prizes and awards are amounts received primarily in recognition of
     religious, charitable, scientific, educational, artistic, literary, or civic achievement, or are
     received as the result of entering a contest. A prize or award is taxable to the recipient unless all
     of the following conditions are met:
         a) The recipient was selected without any action on his or her part to enter the contest or
            proceeding,
         b) The recipient is not required to render substantial future services as a condition to receive
            the prize or award, and
         c) The prize or award is transferred by the payer to a governmental unit or tax-exempt
            charitable organization as designated by the recipient.
     Targeted grants and achievement awards received by nonresident aliens for activities conducted
     outside the U.S. are treated as income from foreign sources.




REVISED: FEBRUARY 2006                            SECTION 5                                PAGE 8 OF 8
TAXATION/RECONCILIATION                                     NRA REDUCED OR EXEMPT INCOME

                                 REDUCED OR EXEMPT INCOME
  Once the residency status, type of payment, and source of income are known the withholding agent
  can determine whether the payment is taxable. Beginning with the concept that every payment is
  taxable unless otherwise excluded from taxation, the following develops a list of items that may be
  excluded from taxation. The applicable tax rates will vary significantly depending on the type of
  payment.
  Some or all of U.S. source income may be excluded from the recipient’s U.S. taxable income under
  certain specific income exclusion provisions contained in the Internal Revenue Code or exempt from
  tax under an income tax treaty. Certain provisions of the IRC operate to exclude portions of
  compensation or scholarship/fellowship payments from a nonresident alien’s taxable income. If, and
  to the extent, one of these exclusion provisions is applicable, the withholding agent is not required to
  withhold tax.
  For scholarship/fellowship payments, the potentially applicable IRC exclusion is Section 117
  “qualified scholarship” exclusion. For compensation payments: (i) Section 125 “cafeteria plan”
  exclusions, (ii) the Section 872(b)(3) “foreign employee,” and (iii) Section 893 “foreign
  government/international organization employee” exclusion.
A. FOREIGN SOURCE INCOME EXCLUSION
  Tax withholding is required only if the payment constitutes U.S. source income as discussed in
  SECTION 5. Therefore, if a payment made to a nonresident alien is classified as foreign source
  income, no U.S. tax withholding is required. The withholding agent should have documentation
  supporting the justification for the foreign source classification.
B. QUALIFIED SCHOLARSHIP EXCLUSION – IRC SECTION 117
  The amounts you pay for a qualified scholarship to a candidate for a degree may be excluded from
  the recipient's gross income. A qualified scholarship is one granted to an individual who is a
  candidate for a degree at a qualified educational institution and is excludable only to the extent that
  it is used for tuition and course-related expenses (e.g., books, supplies, and equipment). Amounts
  paid under a scholarship for room, board, or other incidental expenses are includible in gross income
  and, therefore, taxable. Also includible is the full amount of a scholarship or fellowship received by
  an individual who is not a degree candidate. This exclusion applies to both cash and non-cash
  scholarship payments. Effective January 1, 2000 under Treasury Regulation 1.1461-1(i) qualified
  scholarships are no longer required to be reported on IRS Form 1042-S. The exclusion from
  reporting does not apply to scholarships that are exempt under an income tax treaty.
  A "candidate for a degree" is a student who receives a scholarship for study at an educational
  institution that (1) provides an educational program that is acceptable for full credit toward a
  bachelor's or higher degree, or offers a program of training to prepare students for gainful
  employment in a recognized occupation, and (2) is authorized under federal or state law to provide
  such a program, and is accredited by a nationally recognized accreditation agency.




REVISED: FEBRUARY 2006                            SECTION 6                             PAGE 1 OF 8
TAXATION/RECONCILIATION                                      NRA REDUCED OR EXEMPT INCOME


  Example. A student attends a university under a fellowship program that does not grant degrees.
  Although the student is not eligible to receive a degree as a result of his/her study, the university
  he/she attends meets the other two requirements. Therefore, the student is a "candidate for degree"
  for purposes of section 117.
  If teaching, research, or other service is required as a condition for receiving the grant or the degree,
  the portion of the scholarship or grant that represents compensation paid for these services is
  taxable. Also see Internal Revenue Code 117, 3401(a)(20), Regulation 1.117Β3, 4(c), and IRS
  Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
  Example. A student receives a qualified scholarship from a university. In order to receive the
  scholarship the student must teach a class or perform research. These services are required of all
  candidates for the degree. Therefore, the scholarship payment represents payment for services
  rendered and the student should be compensated and taxed as an employee of the university.
C. COMPENSATION INCOME EXCLUSIONS
  Nonresident aliens who earn compensation income from performance of personal services are
  eligible for the limited income exclusions described below.
  1. IRC Section 125 – Cafeteria Plan Exclusion
     Under IRC Section 125 (cafeteria plans), certain amounts deducted from gross income under
     qualified deduction plans will serve to reduce taxes. Generally, there are no restrictions that
     would serve to eliminate the inherent tax reduction nature of these plans for participation by
     nonresident aliens.
  2. IRC Section 872(b)(3) – Foreign Employee Exclusion
     Under IRC Section 872(b)(3), compensation paid by a foreign employer to a nonresident alien
     employee during the period that the employee is temporarily present in the U.S. under an F, J, or
     Q immigration status can be excluded from gross income. The conditions that must be met in
     order to qualify under section 872(b)(3) are as follows:

         •   The individual must be a participant in an exchange or training program;
         •   The individual must be temporarily present in the U.S. in F, J, or Q immigration status;
             and
         •   The amount must be paid to the individual by the individual’s “foreign employer,” which
             includes another nonresident alien individual, a foreign partnership, a foreign
             corporation, or a foreign office (or foreign campus) of a U.S. employer. It should be
             noted that a foreign government is specifically not considered to be a “foreign employer”
             for purposes of section 8972(b)(3).
  3. Per Diem Payments Made Under USAID Contracts
     IRC Section 1441(c)(6) provides that no tax withholding is required by a withholding agent for
     payments made to a nonresident alien scholarship or fellowship recipient if the payment
     constitutes “per diem of subsistence” made in connection with a U.S. Agency for International
     Development (USAID) training-program grant; the payment may be made directly by USAID or
     its contractor. This exception applies only if the grantee is involved in a USAID training

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TAXATION/RECONCILIATION                                    NRA REDUCED OR EXEMPT INCOME

     program in the U.S.; it would not apply for a program sponsored by an agency other than USAID
     or conducted outside the U.S. Although withholding is not required at the time of payment, if
     the grantee chooses to claim this exclusion, the grantee must instead fulfill the tax liability when
     filing his U.S. tax return.
  4. Reimbursement of Travel and Living Expenses
     In October 1998 the IRS reversed its informal position on the application of the “accountable
     plan” rules for travel payments made to or on behalf of nonresident alien independent
     contractors. This position reversal means that payments made to or on behalf of a nonresident
     alien independent contractor are not subject to tax withholding if the accountable plan rules are
     met. In addition, travel and lodging expenses may qualify as working condition fringe benefits.
     Because these payments are excluded from gross income, there is no reporting requirement for
     these types of travel payments and reimbursements.
D. U.S. CITIZENS AND RESIDENT ALIENS WORKING ABROAD
  U.S. citizens and resident aliens are taxed by the United States on their worldwide income.
  Therefore, such individuals working in a foreign country could be taxed twice, once by the foreign
  government where they are posted and once by the U.S. government. IRC Section 911 provides
  relief by allowing taxpayers to exclude from their gross income up to $80,000 of foreign earned
  income in 2004, and a portion of their foreign housing expenses.
  An employer need not withhold federal income tax from any wages paid to a qualifying employee it
  reasonably believes will be excluded from income under the Section 911 exclusion. The maximum
  exclusion amount will remain at $80,000 through 2007. Beginning in 2008, this amount will be
  adjusted for inflation to the next multiple of $100.

                                 For Calendar Y          Exclusion amo
                                 ear                     unt
                                      2001                   $78,000
                                   2002 - 2007               $80,000

  To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing
  deduction, the individual must satisfy all three of the following requirements.
     1. Your tax home must be in a foreign country.
     2. You must have foreign earned income.
     3. You must be either:
           a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an
              uninterrupted period that includes an entire tax year,
           b. A U.S. resident alien who is a citizen or national of a country with which the United
              States has in income tax treaty in effect and who is a bona fide resident of a foreign
              country or countries for an uninterrupted period that includes an entire tax year, or
           c. A U.S. citizen or a U.S. resident alien who is physically present in a foreign or
              countries for at least 330 full days during any period of 12 consecutive months.



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TAXATION/RECONCILIATION                                    NRA REDUCED OR EXEMPT INCOME

  Social security and Medicare taxes may apply to wages paid to an employee regardless of where the
  services are performed. In general, U.S. social security and Medicare taxes do not apply to wages
  for
  services performed as an employee outside the U.S. unless one of the following exceptions applies.
     1. Services are performed on or in connection with an American vessel or aircraft and either:
           a. You entered into your employment contract within the United States, or
           b. The vessel or aircraft touches at a U.S. port while you are employed on it.
     2. Services are performed in one of the countries with which the United States has entered into
        a bi-national social security agreement.
     3. Services are performed for an American employer.
     4. Services are performed for a foreign affiliate of an American employer under a voluntary
        agreement entered into between the American employer and the U.S. Treasury Department.
  Geographic Areas Covered. The IRC Section 911 income and housing expense exclusions apply
  to any income that is earned in any territory under the rule of a government other than the United
  States. Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, American Samoa, and
  the Antarctic region are not considered foreign countries for Section 911 exclusion purposes.
  Individuals employed in these territories may be eligible for other income exclusions.
  Employees who believe they will qualify for the exclusions for foreign earned income must
  complete Form DFS-A3-5, Reduction or Exemption From Withholding and IRS Form 673,
  Statement For Claiming Exemption From Withholding…Provided by Section 911 (included in
  SECTION 17). Both forms must be submitted to the Bureau of State Payrolls for review and entry
  into the system. The exemption is valid for one year. This authorizes the agency not to withhold
  U.S. income taxes on amounts the employee certifies will be excluded.
  For additional information see:
     • IRS Publication 519, U.S. Tax Guide for Aliens,
     • IRS Publication 54, Tax Guide for U.S. Citizens and Resident aliens Abroad,
     • IRS Topic 854 – Foreign Earned Income Exclusion- Who Qualifies --
         http://www.irs.gov/taxtopics/tc854.html.
  E. U.S. CITIZENS WORKING IN U.S. POSSESSIONS
  IRC Section 3401 also excludes from wages, and thus from income tax withholding, some
  remuneration paid to U.S. citizens working in U.S. possessions. These exclusions are:

     •   3401(a)(8)(A)(ii) for services performed in a foreign country or in a possession of the United
         States by such a citizen if, at the time of the payment of such remuneration, the employer is
         required by the law of any foreign country or possession of the United States to withhold
         income tax upon such remuneration; or

     •   Section 3401(a)(8)(B) for services for an employer (other than the United States or any
         agency thereof) performed by a citizen of the United States within a possession of the United
         States (other than Puerto Rico), if it is reasonable to believe that at least 80 percent of the



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TAXATION/RECONCILIATION                                    NRA REDUCED OR EXEMPT INCOME

         remuneration to be paid to the employee by such employer during the calendar year will be
         for such services; or

     •   Section 3401(a)(8)(C) for services for an employer (other than the United States or any
         agency thereof) performed by a citizen of the United States within Puerto Rico, if it is
         reasonable to believe that during the entire calendar year the employee will be a bona fide
         resident of Puerto Rico."

     •   Also refer to IRS Reg. Sec. 31.3401(a)(8)(C)-1, Remuneration for services performed in
         Puerto Rico by citizen of the United States.

  U.S. citizens performing services within a U.S. possession claiming the exemption under 3401 of
  the Internal Revenue Code must complete Form DFS-A3-5, Reduction or Exemption From
  Withholding. This form must be submitted to the employing university or agency for review and
  entry into the system. To qualify for an exemption under Section 3401(a)(8)(C) the employee
  should file a statement with the employing agency or university containing a declaration, under the
  penalties of perjury that such statement is true to the best of the employee's knowledge and belief,
  that the employee has at all times during the current calendar year been a bona fide resident of
  Puerto Rico and that he/she intends to remain a bona fide resident of Puerto Rico during the entire
  remaining portion of such current calendar year. For more information, see IRS Publication 570,
  Tax Guide for Individuals With Income From U.S. Possessions.
F. CITIZENS OF U.S. POSSESSIONS AND TERRITORIES
  The Section 911 foreign-earned income and housing exclusions do not apply to income earned in
  U.S. possessions, Puerto Rico, or the Virgin Islands. A citizen of a possession of the United States
  (except Puerto Rico and Guam), who is not otherwise a citizen or resident of the United States is
  treated for purposes of withholding as if he or she were a nonresident alien individual. See IRS Reg.
  1.932-1(a). Certain individuals may qualify for possession exclusion. The following separate
  exclusions cover these locations:

     1. American Samoa − Bona fide residents of American Samoa may be eligible to exclude
        income from sources within American Samoa, Guam, or the Commonwealth of the Northern
        Mariana Islands from U.S. taxation under the possession exclusion. Residents of American
        Samoa must file IRS Form 4563, Exclusion of Income for Bona Fide Residents of American
        Samoa, to claim the income exclusion.
     2. Guam – Even though the U.S. and Guam have entered into an implementing agreement, the
        effective date of this agreement has been indefinitely postponed. When the agreement goes
        into effect, bona fide residents of Guam may be able to exclude U.S. taxes from their gross
        income from sources within the American Samoa, Guam, or the Commonwealth of the
        Northern Mariana Islands.
     3. Northern Mariana Islands – Individuals who are residents of the Northern Mariana Islands
        on the last day of the tax year should file a Northern Mariana Islands return and pay taxes on
        their worldwide income to the Mariana Islands. However, persons who are residents of the
        United States on the last day of the tax year should file a U.S. tax return and pay income




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TAXATION/RECONCILIATION                                   NRA REDUCED OR EXEMPT INCOME

        taxes on their worldwide income to the United States. New exclusion rules will apply to
        residents of the Northern Mariana Islands when and if an implementation agreement between
        the United States and the possession takes effect.
     4. Puerto Rico -- Residents of Puerto Rico are not entitled to the possession exclusion.
        However, U.S. citizens who are residents of Puerto Rico for an entire tax year generally are
        not subject to U.S. tax on income from Puerto Rican sources. U.S. tax will, however, apply
        to income from sources outside of Puerto Rico. See IRS Reg. 1.933-1(a).

        Under the Puerto Rico Organic Act of March 2, 1917, now reenacted by Congress as the
        Puerto Rico Federal Relations Act of 1950, and under 8 U.S.C. 1402, any person born in
        Puerto Rico on or after April 11, 1899, is automatically a citizen of the United States. The
        income tax filing of a citizen of Puerto Rico is determined by which situs (Puerto Rico or
        USA) in which the taxpayer has lived for an entire taxable year. (See IRS Publication 570)
         However, for withholding tax purposes related to income paid from within the United States,
        the citizen of Puerto Rico should be treated as would any other citizen of the United States.

        This situation should be distinguished from that of an alien (a citizen of a country other than
        the U.S. or Puerto Rico) who resides in Puerto Rico and who then visits the U.S. and receives
        U.S.- sourced income. Such an alien would be treated as a nonresident alien upon his initial
        arrival in the U.S. and would become a resident alien under either the green card test or
        substantial presence test in the normal fashion authorized by IRC 7701(b). Also refer to IRC
        1402.

     5. Virgin Islands - Residents of the Virgin Islands are not entitled to the possession exclusion.
        Individuals who are bona fide residents of the Virgin Islands at the end of the tax year should
        file a tax return with the Virgin Islands only. All U.S. income should be included on the
        return. U.S. citizens and resident aliens who have Virgin Islands income but are not
        residents of the Virgin Islands at the end of the tax year must file identical returns with both
        the U.S. and the Virgin Islands. A portion of the U.S. tax is paid to the Virgin Islands, and
        credited against the U.S. tax owed. The amount of tax paid to the Virgin Islands is calculated
        by multiplying the total tax on the employee's U.S. return by a decimal. This decimal is
        determined by dividing the employee's adjusted gross income from the Virgin Islands by his
        or her worldwide-adjusted gross income. IRS Form 8689, Allocation of Individual Income
        Tax to the Virgin Islands, is used for this computation and must be completed and attached to
        the employee's U.S. income tax return.

        IRS Reg. 31.3401(a)-1(b)(12) pertains to remuneration for services performed by permanent
        residents of the Virgin Islands. This sections states that withholding is not required from a
        payment of wages under the following circumstances:
            "If at the time of payment it is reasonable to believe that the employee will be
            required to satisfy his/her income tax obligations with respect to such wages
            under 28(a) of the Revised Organic Act of the Virgin Islands (68 Stat. 508). That
            section provides that all persons whose permanent residence is in the Virgin
            Islands 'shall satisfy their income tax obligations under applicable taxing statutes
            of the United States by paying their tax on income derived from all sources both
            within and outside the Virgin Islands into the treasury of the Virgin Islands.'

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TAXATION/RECONCILIATION                                    NRA REDUCED OR EXEMPT INCOME


             If the employee furnishes to the employer a statement in duplicate that he/she
             expects to satisfy his/her income tax obligations under 28 (a) of the Revised
             Organic Act of the Virgin Islands with respect to all wages subsequently to be
             paid to him/her by the employer during the taxable year to which the statement
             relates, the employer may, in the absence of information to the contrary, rely on
             such statement as establishing reasonable belief that the employee will so satisfy
             his/her income tax obligations. The employee's statement shall identify the
             taxable year to which it relates, and both the original and the duplicate copy
             thereof shall be signed and dated by the employee.
             The employer shall retain the original statement. The duplicate copy of the
             statement shall be sent by the employer to the Director of International
             Operations, Washington, D.C. 20225, on or before the last day of the calendar
             year in which the employer receives the statement from the employee.”
         Permanent residents of the Virgin Islands claiming the exemption under IRS Reg.31.3401(a)-
         1(b)(12) must complete Form DFS-A3-5, Reduction or Exemption From Withholding, and
         file the required statement with their employing agency/university. The form must be
         submitted to the employing agency or university for review and entry into the system. The
         employing agency/university is responsible for retaining the original statement and mailing
         the duplicate copy to the IRS.
G. NONRESIDENT ALIENS PERFORMING SERVICES OUTSIDE THE U.S.
  IRC Section 1441(a) provides that compensation paid to a nonresident alien for services performed
  entirely outside of the U.S. is considered to be foreign source income and no U.S. tax withholding is
  required. This exclusion applies to services performed as an independent contractor and as an
  employee. Nonresident alien employees performing services outside the U.S., claiming this
  exemption under section 1441(a) must complete Form DFS-A3-5, Reduction or Exemption From
  Withholding. The form must be submitted to the employing agency or university for review and
  entry into the system. If continuously employed, the exemption does not need to be renewed.
  Refer to SECTION 14, NRA PAYMENT PROCESSING PROCEDURES, for instructions on
  payments to nonresident alien independent contractor foreign source payments.
H. EXEMPTIONS UNDER A TAX TREATY
  The statutory 30 percent tax withholding rule for payments made to nonresident aliens will not apply
  if (i) the payment is exempt under an income tax treaty entered into between the United States and
  the recipient’s country of tax residence, and (ii) the appropriate tax treaty exemption forms are
  properly completed and submitted to the withholding agent in a timely fashion. Income exempt
  from tax withholding is still, nonetheless, includable in gross income. Income tax treaties operate to
  exempt from U.S. taxation otherwise taxable compensation, scholarship or fellowship payments,
  royalties, and other payments based on the eligibility of the payee.




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TAXATION/RECONCILIATION                                      NRA REDUCED OR EXEMPT INCOME

  Forms Required for Tax Treaty Exemption:
  Withholding agents may take tax treaty exemptions into account only if the nonresident alien first
  provides certain required forms to the withholding agent.
  1. Form W-9 – Request for Taxpayer Identification Number
     Individuals who have met either the green card test or substantial presence test thus becoming
     resident aliens for tax purposes, but who continue to qualify for exemption from tax based on an
     exception to the “saving clause” of an income tax treaty, are required to use Form W-9 (Request
     for Taxpayer Identification Number) and an additional statement to make such claim.
  2. Form 8233 – Exemption From Withholding on Compensation…
     To avoid tax withholding on compensation paid to nonresident employees, independent
     contractors, students, teachers, or researchers based on a tax treaty, the individual must complete
     and submit to the withholding agent a properly completed Form 8233 (Exemption From
     Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a
     Nonresident Alien Individual).
  3. Form W-8BEN and 1001 – Certificate of Foreign Status of Beneficial Owner…
     Under IRS Reg. Section 1441, a withholding agent may avoid withholding tax from a non-
     service scholarship/fellowship grant of passive income (e.g., royalties, dividends, interest,
     certain portfolio interest, etc.) payments based on a nonresident alien’s eligibility for a tax treaty
     exemption. To do so, the individual must provide a properly completed Form W-8BEN
     (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding).
     Previously, Form 1001 (Ownership, Exemption or Reduced Rate Certificate) was used for such
     purposes. Form 1001 expired on December 31, 2000 and may no longer be used.
     A withholding agent should continue to withhold tax at the statutory rate until it receives a
     properly completed Form W-8BEN from the individual. The withholding agent is not required
     to send Form W-8BEN to the IRS, but should keep it on file.




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TAXATION/RECONCILIATION                                        NRA WITHHOLDING TAX RATES

                                   WITHHOLDING TAX RATES

  The standard tax rate for taxable income paid to a nonresident alien is 30 percent. Although there
  are several exceptions to the general 30 percent withholding requirement, the withholding agent
  should generally consider the “default” rate of tax withholding to be 30 percent. This general 30
  percent rule, however, is subject to a number of important exceptions. The statutory 30 or 14
  percent withholding tax rates set forth in IRC Section 1441 do not apply if the payment represents
  wages or salary paid to a nonresident alien employee. Whether an individual will be treated as an
  employee of the entity for which he rendered services is based on traditional common law principles,
  which provide that individuals who perform services subject to the direction and control of an
  employer, both as to what shall be done and how it shall be done, are employees.

  Withholding tax is not required, however, if the compensation payments are excluded from tax
  under a provision of the Internal Revenue Code or exempt from tax under an income tax treaty. For
  example, if the income is excludable from the nonresident alien’s gross income under IRC
  §872(b)(3), no tax withholding is required. See Section 9 for information on tax treaty exemptions.

  New Requirements. IRS Notice 2005-76 provides new rules for determining the amount of income
  tax employers must withhold from wages paid for services performed in the U.S. The notice also
  provides new rules for use by nonresident alien employees in completing Form W-4. The rules for
  employers and employees are effective with respect to wages paid on or after January 1, 2006.

  The intent of the new rules is to have withholding amounts for nonresident aliens more closely
  approximate the actual income tax liability of these workers. For a copy of Notice 2005-76, which
  provides an example to illustrate the differences in the 2005 and 2006 withholding rules for
  nonresident alien employees, see IRS website http://www.irs.gov/pub/irs-drop/n-05-76.pdf.

  A. WAGES PAID TO NONRESIDENT ALIENS – GRADUATED WITHHOLDING

     Wages paid on or after January 1, 2006, are subject to a new procedure in calculating the amount
     of federal income tax withholding on the wages of nonresident alien employees. Under this
     procedure, a specified amount is added as set forth in the chart below to the nonresident’s wages
     solely for calculating the income tax withholding for each payroll period. The amount to be
     withheld is determined by applying the income tax withholding tables to the amount of wages
     paid plus the additional chart amount for the payroll period.

     When using the percentage method, the withholding allowances for the payroll period should be
     subtracted before applying the percentage method. When using the wage bracket method, the
     employer should not subtract an amount for withholding allowances because the withholding
     allowances are reflected in the wage bracket method.

     For an example calculation, see page IRS Publication 15 (Revised January 2006), page 15, at
     www.irs.gov.




REVISED: FEBRUARY 2006                          SECTION 7                            PAGE 1 OF 6
TAXATION/RECONCILIATION                                           NRA WITHHOLDING TAX RATES

     The amount to be added to the nonresident alien’s wages to calculate income tax withholding is
     set forth in the following chart. (Note. Nonresident alien students from India and business
     apprentices from India are not subject to this new procedure.)

                                 Amount to Add to Nonresident Alien
                              Employee’s Wages for Calculating Income
                                      Tax Withholding Only
                     Payroll Period                             Add Additional
      Weekly                                      $51.00
      Biweekly                                    $102.00
      Semimonthly                                 $110.00
      Monthly                                     $221.00
      Quarterly                                   $663.00
      Semiannually                                $1,325.00
      Annually                                    $2,650.00
      Daily or Miscellaneous                      $10.20

     Note. The amounts added under this chart are added to wages solely for calculating income tax
     withholding on the nonresident alien. These chart amounts should not be included in any box on
     the employee’s Form W-2 and do not increase the income tax liability of the employee. Also,
     these chart amounts do not increase social security or Medicare tax liability of the employee or
     employer.

     Note. This procedure for determining the amount of income tax withholding does not apply to a
     supplemental wage payment if the 35 percent mandatory flat rate withholding applies or if the 25
     percent flat rate withholding is being used to calculate income tax withholding on the
     supplemental wage payment.

     Potential for Underwithholding. Payroll system modifications implementing the new
     procedure for calculating the amount of income tax to be withheld for nonresident alien
     employees will not be ready by January 1, 2006. These modifications are planned for
     implementation by mid-year 2006. Nonresident alien employees submitting a new Form W-4
     following the instructions in Notice 2005-76 and eliminating the request for withholding an
     additional amount may be subject to underwithholding. Agencies and universities should notify
     nonresident alien employees of this potential for underwithholding.

     Transitional Relief for Employer. With respect to wages paid prior to January 1, 2007,the
     notice provides transitional relief for employers liability of income tax withholding and related
     interest and penalties resulting solely from the failure to apply the new withholding procedure,
     provided the employer has made a good faith effort to implement the withholding requirements
     as soon as possible. This transitional relief does not affect the liability of employees for federal
     income tax.

     1. Nonresident Alien’s Form W-4 – Special Instructions

        As with any other employee, a nonresident alien should give the employer a valid, completed
        Form W-4. Because nonresident aliens face restrictions regarding their filing status, number

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TAXATION/RECONCILIATION                                          NRA WITHHOLDING TAX RATES

        of allowances, and inability to claim the standard deduction on their personal tax returns,
        these special instructions must be followed.

        When completing Forms W-4, nonresident aliens are required to:

                       Special Instructions for Nonresident Alien’s Form W-4

          1) Not claim exemption from income tax withholding,
          2) Request withholding as if they are single, regardless of their actual marital
             status,
          3) Claim only one allowance (if the nonresident alien is a resident of Canada,
             Mexico, or Korea, he or she may claim more than one allowance), and
          4) Write “Nonresident Alien” or “NRA” above the dotted line on Line 6 of Form
             W-4.


        Note. Nonresident aliens are no longer required to request additional withholding in the box
        for Line 6 on Form W-4 because this requirement has been replaced by the new requirement
        to base withholding on the additional amounts specified above. However, a nonresident
        alien employee may request additional withholding at his or her option. See “Potential for
        Underwithholding” above.

        Note. Agencies and universities hiring new nonresident alien employees who will receive
        pay for services performed in the U.S. for the first time on or after January 1, 2006 should
        instruct the new employees to complete Form W-4 in accordance with these new
        instructions. Employers who already have one or more nonresident alien employees on file
        requesting additional withholding pursuant to the instructions in Publication 15 should advise
        such employees to file new Forms W-4 with the employer at an appropriate time such that
        the new Forms W-4 will be effective for wages paid on or after January 1, 2006.

        Electronic Form W-4. The electronic Form W-4 used by most state employees does not
        provide a field to enter nonresident alien status in lieu of writing nonresident alien on Line 6
        of the paper form. The electronic Form W-4 is being revised to include a field to enter
        nonresident alien status and will available by mid-year 2006.

     2. Special Rules for Residents of American Samoa, Canada, South Korea, Japan, Mexico,
        the Northern Mariana Islands, and Students from India.

        Nonresident aliens who are residents of American Samoa, Canada, South Korea, Japan,
        Mexico, the Northern Mariana Islands, and students from India may, in certain cases, be
        permitted to claim an additional withholding allowance for their spouse and dependents. If
        an individual qualifies for an additional exemption, he will be entitled to claim it using Form
        W-4. The rules are as follows:




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TAXATION/RECONCILIATION                                         NRA WITHHOLDING TAX RATES

        •   Residents of American Samoa, Canada, Mexico, and the Northern Mariana Islands may
            claim (i) “Single” marital status, (ii) one personal withholding allowance, plus
            withholding allowances for spouse and dependents, following the same rules applicable
            to U.S. citizens, and (iii) must request that an additional tax withholding be withheld
            based on the pay period.

        •   Residents of Japan and South Korea may claim (i) “Single” marital status, (ii) one
            personal withholding allowance, plus withholding allowances for spouse and dependents
            present with them in the United States and following the same rules applicable to U.S.
            citizens, and (iii) must request that an additional tax be withheld based on the pay period.

        •   Students from India may claim (i) “Single” marital status, (ii) one personal withholding
            allowance, plus one withholding allowance for a spouse present in the U.S., and personal
            withholding allowances for any dependents present in the U.S. who are also resident
            aliens of the U.S. Students from India are not required to have the additional tax
            withheld.

  B. STUDENTS/FELLOWS RECEIVING COMPENSATION
     The nonresident alien student or fellow who works for the school should generally be treated as
     any other nonresident alien employee, that is, U.S. income tax is withheld at the special
     graduated rates by the school. If, however, the individual comes from a country that has an
     income tax treaty with the U.S., it is possible the tax treaty will contain a special provision
     permitting the student a limited exclusion for compensation (e.g., up to $5,000 a year). Thus,
     depending on how much the student or fellow earns, all or a substantial part of the income may
     not be subject to U.S. income tax withholding. The amount of wages subject to graduated
     withholding may be reduced by the personal exemption amount ($3,100 for 2004).

     From a FICA tax standpoint, nonresident alien students and fellows who earn compensation may
     be able to claim a FICA tax exemption under IRC Section 3121(b)(19) or the “student FICA
     exemption” under IRC Section 3121(b)(10). FICA tax exemptions are discussed in Section 9.

  C. SCHOLARSHIP AND FELLOWSHIP GRANTS – REDUCED WITHHOLDING

     The payment of a qualified scholarship to a nonresident alien is not reportable and is not subject
     to nonresident alien income tax withholding. However, the portion of a scholarship or
     fellowship paid to a nonresident alien that does not constitute a qualified scholarship is
     reportable on Form 1042-S and is subject to nonresident alien withholding. For example, those
     portions of a scholarship devoted to travel, room, and board are subject to withholding and are
     reported on Form 1042-S.

     The withholding rate is 14% on taxable scholarship and fellowship grants paid to nonresident
     aliens temporarily present in the United States in “F,” “J”, “M”, or “Q” nonimmigrant status.
     Payments made to nonresident alien individuals in any other immigration status are subject to
     30% withholding.




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TAXATION/RECONCILIATION                                         NRA WITHHOLDING TAX RATES

     D. INDEPENDENT CONTRACTORS
     The general rule is that the statutory 30% rate of tax must be withheld from payments to
     nonresident alien independent contractors unless an income tax treaty operates to exempt the
     income. While this rule applies to independent contractors (e.g., computer consultants,
     attorneys, accountants, etc.), it most often applies to nonresident aliens when an institution
     invites a foreign
     scholar to come to the United States to speak at a conference, present a paper, or perform some
     similar function for an honorarium or guest speaker fee.

     A nonresident alien independent contractor should provide the withholding agent his social
     security or individual taxpayer identification number, as well as Form 8233, if he is from a tax
     treaty country and is eligible to claim a tax treaty exemption.

  E. Royalties

     In general, you must withhold tax on the payment of royalties from sources in the United States.
      However, certain types of royalties are given reduced rates or exemptions under some tax
     treaties. Accordingly, these different types of royalties are treated as separate categories for
     withholding purposes.

        •   Industrial Royalties (Income Code 10) – This category of income includes royalties for
            the use of, or the right to use, patents, trademarks, secret processes and formulas,
            goodwill, franchises, “know how,” and similar rights. It may also include rents for the
            use or lease of personal property. Under certain tax treaties, different rates may apply to
            royalties for information concerning industrial, commercial, and scientific known-how.
        •   Motion Picture or Television Copyright Royalties (Income Code 11) – This category
            refers to royalties paid for the use of motion picture and television copyrights.
        •   Other Royalties (e.g., copyright, recording, publishing) (Income Code 12) – This
            category refers to royalties paid for the use of copyrights on books, periodicals, articles,
            etc., except motion picture and television copyrights.
        •   Real Property Income and Natural Resources Royalties (Income Code 13) – You
            must withhold tax on income (such as rents and royalties) from real property located in
            the United States and held for the production of income, unless the foreign payee elects
            to treat this income as effectively connected with a U.S. trade or business. If the foreign
            payee chooses to treat this income as effectively connected, the payee must give you
            Form W-8ECI.

  F. PRIZES, AWARDS, OR OTHER GRANTS

     If a payment is considered to be a prize or award, a 30% rate of tax withholding will apply; also,
     an income tax treaty exemption is generally not applicable to prizes or awards. Alternatively, if
     the amount is deemed to be a scholarship or fellowship grant, some or the entire grant may be
     excludable under IRC Section 117 or the taxable portion eligible for the reduced withholding
     rate
     of 14%.



REVISED: FEBRUARY 2006                          SECTION 7                              PAGE 5 OF 6
TAXATION/RECONCILIATION                                       NRA WITHHOLDING TAX RATES


  G. WITHHOLDING RATES – SUMMARY

     You must withhold tax at the following rates on payments of income unless a reduced rate or
     exemption is authorized under a tax treaty.


                              TYPE OF INCOME                                         RATE
      Wages paid to a nonresident alien employee                               Graduated rates
      Taxable part of U.S. Scholarship or Fellowship Grant paid to holder of
      “F” “J” “M” or “Q” visa                                                         14%
      Royalties (unless tax treaty reduction or exemption applies)                    30%
      Prizes, Awards or Other Grants                                                  30%
      All other income subject to withholding                                         30%




REVISED: FEBRUARY 2006                         SECTION 7                            PAGE 6 OF 6
TAXATION/RECONCILIATION                              NRA TAXPAYER IDENTIFICATION NUMBERS

                            TAXPAYER IDENTIFICATION NUMBERS
Nonresident alien employees are subject to the same federal income tax withholding requirements as
other employees for all income from U.S. sources. To accomplish this, employers must obtain each
nonresident alien employee’s social security number and have the employee complete a Form W-4,
Employee’s Withholding Allowance Certificate. Under the Immigration Reform and Control Act
(IRCA), the employer must retain a completed Form I-9, Employment Eligibility Verification, attesting
to the nonresident alien’s identity and authorization to work in the U.S. Wages paid to and taxes
withheld from nonresident alien employees must be deposited and reported by the employer the same
way it does for all other employees, on Forms 941 and W-2. Nonresident aliens who are authorized to
work in the U.S. as an employee should be able to obtain a social security number.
The Internal Revenue Service issues Individual Taxpayer Identification Numbers (ITIN) to nonresident
aliens who are not eligible for a social security number but who must file a tax or information return.
The ITIN is for tax purposes only and cannot be used as proof of identity or authorization to work under
IRCA. All individuals who claim an income tax treaty exemption must have a Social Security Number
or Individual Taxpayer Identification Number.
A. SOCIAL SECURITY NUMBER
   A nonresident alien receiving salary and wages in the U.S. must obtain a social security number.
   Individuals who need to apply for a social security number must complete Form SS-5 (Application
   for a Social Security Card) and present it in person to the nearest SSA office (call 1-800-SSA-1213
   for locations and information). The SSA is the only agency with the authority to issue social
   security numbers.
   Social Security Cards Issued to Foreign Nationals
   In June 1992, the SSA implemented a new version of the social security card and added a legend that
   sets forth an individual’s employment eligibility status. The legend reads “Valid For Work Only
   with DHS Authorization.” When completing Form I-9 (Employment Eligibility Verification) to
   verify U.S. employment eligibility, a card bearing this legend should be presented in conjunction
   with INS-issued documents that establish work authorization, such as (i) Form I-20 for F-1
   individuals, endorsed with work authorization on the back, (ii) Form DS-2019 for J-1 individuals, or
   (iii) an Employment Authorization Card issued by the Department of Homeland Security.
   Applying for a Social Security Number
   A nonresident alien who needs to apply for a social security number must complete Form SS-5 and
   present it in person to the nearest SSA office. The individual must present (i) proof of identity (e.g.,
   a valid passport or birth certificate), and (ii) work authorization or proof of eligibility to be in the
   United States (e.g., Form I-94 Arrival/Departure card and Form DS-2019, if a J-1 individual). The
   SSA must interview the individual before a number will be issued.
   With the implementation of the new rules under SEVIS (Student and Exchange Visitors Information
   System) the SSA is now required to verify that a foreign national who applies for a social security
   number is legally present in the United States and does in fact, have work authorization. It may
   take up to ten to fourteen weeks after the initial application to receive the social security number.
   Effective October 13, 2004, F-1 students who are applying for SSNs will be required to provide
   additional information. An F-1 Student must provide the SSA with evidence of age, identity,
   immigration status and work authorization (these are required for all applicants for SSNs).

REVISED: JANUARY 2005                      SECTION 8                                       PAGE 1 OF 4
TAXATION/RECONCILIATION                             NRA TAXPAYER IDENTIFICATION NUMBERS

  Additionally, “unless the F-1 student has an employment authorization document (EAD) from DHS
  or is authorized by the F-1 student’s school for curricular practical training (CPT), the F-1 student
  must provide evidence that he or she has been authorized by the school to work and has secured
  employment or a promise of employment before we (SSA) will assign and SSN.”
  Request Receipt From SSA as Proof of Application
  When submitting Form SS-5 to the SSA office, the individual should request a receipt as proof of
  application.
  Some agencies and universities may have policies and procedures that prohibit the individual from
  being added to the payroll system until the SSA has assigned a social security number. While there
  is no legal requirement to wait for the number the employer may choose to require the individual to
  wait. In doing so, it is important to remember that during this waiting period, the individual should
  not perform services for the employer as doing so will require the individual to be paid in a timely
  fashion.
  Individuals without a social security number and having an “application receipt” from the SSA,
  assuming that all other employment eligibility requirements have been satisfied, do not have to wait
  until the actual social security number is assigned to begin work; the receipt from the SSA serves as
  evidence of application for a social security number and allows the individual to begin work or be
  paid. The individual should provide the social security number to the withholding agent as soon as it
  is received.
  Given the long waiting period many foreign nationals face (and the fact that in doing so, the
  individual must forgo often much needed funds), the employing agency or university may assign an
  internally generated identification number for temporary use (see Temporary Identification Numbers
  below). These employer-generated numbers are for employer internal use only and may not be used
  for any other purpose.
B. INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN)
  The IRS issues Individual Taxpayer Identification Numbers (ITIN) to aliens who are not eligible for
  a social security number but who must file a tax or information return. Under the regulations of
  6109, many aliens present in the U.S. who are unable or ineligible to obtain a social security number
  are now required to apply for and obtain an ITIN. Under the procedures, a person entitled to receive
  a social security number will not be issued an ITIN. A nonresident alien who is issued an ITIN and
  later becomes entitled to a social security number must apply for a social security number and
  relinquish the ITIN.
  The following individuals are required to apply for an ITIN if unable to obtain a social security
  number:

     •   U.S. resident aliens who are not otherwise eligible to receive a social security number but are
         required to file a U.S. tax return;

     •   Nonresident aliens who are not otherwise eligible to receive a social security number but are
         required to file a U.S. tax return and claim a refund;

     •   Nonresident aliens who are not otherwise eligible to receive a social security number but
         who choose to file a joint U.S. tax return with a spouse that is a U.S. citizen or resident; and


REVISED: JANUARY 2005                    SECTION 8                                       PAGE 2 OF 4
TAXATION/RECONCILIATION                            NRA TAXPAYER IDENTIFICATION NUMBERS


     •   Aliens who are not otherwise eligible to receive a social security number who have been or
         will be claimed as a spouse or dependent on a U.S. tax return. Given the special tax
         withholding and filing rules applicable to certain individuals, this item is particularly
         applicable to spouse and dependent visa holders form Canada, Japan, Korea, Mexico and
         students form India
  Individual Taxpayer Identification Numbers take the form 000-00-0000, the same format as a social
  security number. The first three digits range from 900 through 999. Because the ITIN is intended
  for tax use only, withholding agents should be careful not to mistake an ITIN in an employment
  eligibility review. Care should be exercised to ensure that employees are not paid through the
  payroll system using a “9xx” number in the first field lieu of an authentic social security number.
  An ITIN may not be used to create an inference regarding the immigration status of a foreign
  individual or that person’s right to be legally employed in the United States
  Form W-7 Application for IRS Individual Taxpayer Identification Number
  Individuals not otherwise eligible to receive a social security number should complete IRS Form W-
  7, Application for IRS Individual Taxpayer Identification Number to apply for an ITIN. Form W-7
  must be submitted to the IRS or a certifying acceptance agent together with the required
  documentation to substantiate an individual’s foreign status and true identity. Examples of such
  documentation are an original (or a notarized copy of an original) foreign passport, driver’s license,
  birth certificate, identity card, or U.S. visa document. An individual must file a Form W-7 in
  advance of the first required use of the ITIN in order to permit the issuance of the number to comply
  with the provisions of section 6109. Form W-7 and the instructions are included in SECTION 17.
  The IRS has reported that it may take approximately 30 days to receive an ITIN. However, some
  nonresident aliens may have already returned to their home country when they receive their ITIN.
  Therefore, it is recommended that part 3 of the Form W-7 contain the mailing address of the
  university or agency, with the notation “care of” with the name of an individual at the university.
  The IRS address for filing Forms W-7 is:
     Internal Revenue Service          FAX: (215) 516-3270
     Philadelphia Service Center       FAX: (215) 516-3271
     P.O. Box 447,                     FAX: (215) 516-3272
     Bensalem, PA 19020
  IRS Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number, provides
  instructions on completing Form W-7. This publication also provides a listing of IRS offices
  overseas that can provide assistance.
  Filing Forms 1042-S Without Taxpayer Identification Number
  If the agency/university is unsuccessful in obtaining an ITIN, it may be able to avoid the penalty
  imposed under section 6721 by following the affidavit procedures set forth in Regulation 301.6109-
  1(c). The procedures set forth the process by which the withholding agent who has asked the payee
  for the taxpayer identification number, as well as clearly indicated that such number must be
  provided, and the payee has not provided such number, may file the return potentially without

  penalty. To do so, the withholding agent may prepare and sign an affidavit and attach it to the Form
  1042.


REVISED: JANUARY 2005                    SECTION 8                                     PAGE 3 OF 4
TAXATION/RECONCILIATION                           NRA TAXPAYER IDENTIFICATION NUMBERS


  Each agency or university is responsible for providing this affidavit to the Bureau of State Payrolls
  for individuals paid during the calendar year not having an ITIN. This statement should be provided
  by January 31 the subsequent year. A sample affidavit is included in SECTION 17 (DFS-A3-
  Affidavit). Upon receipt of the ITIN from the Internal Revenue Service the agency or university
  should notify the Bureau of State Payrolls immediately, in writing with a copy of the IRS approval
  notice, in order to correct the 1042-S filing.
  The Bureau of State Payrolls is required to furnish a taxpayer identification number on all required
  returns, statements, etc. If an agency or university does not know the social security number or
  Individual Taxpayer Identification Number you must request it from the individual. The request
  should state that the identifying number has to be furnished under authority of law. The absence of a
  social security number or Individual Taxpayer Identification Number could result in the assertion of
  penalties by the IRS.
  If a foreign company is engaged in a U.S. trade or business, it must apply for a Taxpayer
  Identification Number because it is required to file a U.S. tax return reporting its U.S. business
  income. In such case, the foreign company should complete form W-8ECI to allow the withholding
  agent to refrain from withholding tax. If the foreign company is not engaged in a U.S. trade or
  business, it must also apply for a Taxpayer Identification number. In this case, the withholding
  agent must withhold tax at the statutory rate of 30 percent.
C. EMPLOYER ASSIGNED IDENTIFICATION NUMBER (TEMPORARY)
  As discussed above, individuals that have applied for a social security or individual taxpayer
  identification number may be assigned a temporary identification number by the employing agency
  or university.
  The temporary number is for internal use by the employer and may not be used for any other
  purpose. The employer is responsible for maintaining a record of the individuals assigned a
  temporary number and notifying the Bureau of State Payrolls when a valid taxpayer identification
  number is received. The following table shows the range of temporary numbers that may be utilized
  by each university:

   University                           Range of Temporary Numbers
   University of Florida                849-10-0000 through 849-10-9999
   Florida State University             849-20-0000 through 849-20-9999
   Florida A & M University             849-30-0000 through 849-30-9999
   University of Central Florida        849-40-0000 through 849-40-9999
   University of South Florida          849-50-0000 through 849-50-9999
   Florida Atlantic University          849-60-0000 through 849-60-9999
   University of West Florida           849-70-0000 through 849-70-9999
   Florida International University     849-80-0000 through 849-80-9999
   University of North Florida          849-90-0000 through 849-90-9999
   Florida Gulfcoast University         849-95-0000 through 849-95-9999




REVISED: JANUARY 2005                   SECTION 8                                      PAGE 4 OF 4
TAXATION/RECONCILIATION                                                  NRA TAX TREATY BENEFITS

                                       TAX TREATY BENEFITS
An income tax treaty is a bilateral agreement between two governments under which each country
agrees to limit or modify the application of its domestic tax laws in an attempt to avoid having the same
income taxed twice. The U.S. has income tax treaties with more than 50 countries that exempt or reduce
the amount of withholding from wages earned by nonresident aliens in the U.S. if certain conditions are
met.
Most tax treaties to which the U.S. is a party provide for at least a partial exemption from tax for pay for
labor or personal services performed in the United States by a qualified individual. Most tax treaties
also include specific articles designed to foster education and cultural exchanges. These articles are
directed at the taxation of students, trainees, teachers, and researchers.
Nonresident aliens claiming tax treaty benefits must notify you that they are residents of a country with
which the United States has an income tax treaty and qualify for reduced rates of, or exemption from,
income tax withholding. It is important to remember that technically a tax treaty exemption is only
“claimed” at the time the individual files his U.S. tax return (i.e., Form 1040NR or 1040NR-EZ), not at
the time he files exemption forms, Forms W-8BEN and 8233) with the withholding agent.
All individuals claiming an income tax treaty exemption must file Forms 8233 or W-8BEN, as
applicable, and have an SSN or ITIN. The IRS will reject forms without a taxpayer identification
number unless a “receipt” from the SSA or IRS is provided showing that application has been made.
Refer to SECTION 8 for information on taxpayer identification numbers.
A. ELIGIBILITY FOR TREATY BENEFITS
   When reviewing an income tax treaty article, it is important to pay close attention to the
   qualifications for exemption specified in the text of the article. For example, the article may limit
   the exemption to payments made by a certain type of payor (i.e., a foreign resident). To determine
   an individual's eligibility for a tax treaty an analysis must be undertaken to determine:

       •   What is the residency status of the individual as defined by their home country and by the
           U.S.? Does this status qualify for a potential exemption from tax?
       •   What is the primary purpose of the individual's presence in the U.S.? Is there an article in the
           tax treaty that could exempt this type of activity?
       •   What is the type of payment (scholarship, fellowships, independent personal service, and
           dependent personal service)? Is there an article in the tax treaty that could exempt this type
           of payment?
       •   How long will the individual be in the U.S.? This question is extremely important when
           dealing with tax treaties with a retroactive clause. These treaties will take away all benefits
           if an individual remains in the U.S. beyond the specified time period. Currently, countries
           with tax treaties that include a retroactive clause are Germany, India, Netherlands, Thailand,
           and United Kingdom.
       •   Who is the payor?
   1. Residency
       Generally, the qualifying individual must be a resident of the treaty country. In some cases the
       individual must be a citizen of the treaty country. Residency under the tax treaties is determined
       primarily by one's "residency" and not by one's citizenship or nationality. In addition, the

REVISED: FEBRUARY 2006                               SECTION 9                           PAGE 1 OF 10
TAXATION/RECONCILIATION                                               NRA TAX TREATY BENEFITS

     domestic tax laws of most countries determine residency for tax purposes by criteria other than
     by citizenship or nationality. For example, the U.S. tax treaties with both China and Sweden
     determine residency first and foremost by the domestic law of each country. If dual residency
     results from the application of the domestic law of both countries, then the “tiebreaker rules” of
     each treaty come into play.
     The tax laws of China require that a resident of China must have a "place of abode" in China to
     be considered a resident. The domestic law of Sweden states that anyone who resides in Sweden
     longer than 6 months shall be considered a resident of Sweden for tax purposes.
     For U.S. tax purposes, the withholding agent generally may conclude that if an individual is a
     citizen of a country, he is also likely a resident of that country. Where the withholding agent is
     unable to determine whether the individual is in fact a resident of the tax treaty country, it is
     suggested that the withholding agent withhold tax and allow the individual to claim the tax treaty
     exemption on his U.S. tax return where he can justify his treaty exemption claim directly with
     the IRS.
     Tie-Breaker Rules: Where the individual is a citizen or resident of one country and also a
     citizen or resident of another country (other than the U.S.), a question arises as to which tax
     treaty to consider for tax withholding. Generally all tax treaties provide that in this situation the
     determination is made by application of a series of “tie-breaker” rules, which generally look at
     the location of the individual’s permanent home, the place where his personal and economic
     relations are closer, the location of his “habitual abode,” and the country in which he is a citizen
     or national. The “tie-breaker” rules are found in the treaty’s residency article and will provide
     guidelines for determining which treaty to use. The individual may not choose which treaty he
     wishes to claim, the treaty that should applied should be the one of the country to which he has a
     closer connection.
     The “Savings Clause” Concept: It has been the policy of the U.S. for many years that income
     tax treaties negotiated by the United States will contain a “savings clause;” however, some of the
     oldest tax treaties do not have such a clause. The concept of the “savings clause” is confusing
     because many withholding agents incorrectly believe that the basis of the “savings clause” is to
     “save” the person from paying tax, when it is in fact, the opposite – to “save” the United States
     from losing tax.
     The purposes of such a clause is to prevent U.S. citizens or residents from using a tax treaty
     inappropriately, reduce their U.S. tax liability, or otherwise benefit from the tax treaty. The
     “savings clause” can generally be found in the residency article. In some newer tax treaties, the
     Treasury Department Technical Explanation will also make reference to its existence when
     discussing various benefits allowed under certain articles.
     A “savings clause” will prevent a citizen of a tax treaty country who qualifies as a U.S. resident
     (by virtue of having passed the green card or substantial presence test, or obtains U.S. citizenship
     through naturalization) from being able to claim U.S. tax treaty benefits under his home
     country’s tax treaty.
     Exceptions to the “Savings Clause”: Most tax treaties contain an exception to the “savings
     clause” provision for certain types of individuals who claim tax treaty benefits, including those
     individuals who claim tax treaty benefits as students, trainees, teachers, and researchers. For

REVISED: FEBRUARY 2006                             SECTION 9                           PAGE 2 OF 10
TAXATION/RECONCILIATION                                                NRA TAX TREATY BENEFITS

     example, an exemption from tax for fellowship income under a “student/trainee” article is
     eligible for the exclusion even though such individual may also be classified as a U.S. Resident
     under the substantial presence test. The exception to the “savings clause’ serves to override the
     “savings clause.”
  2. Primary Purpose
     For purposes of reviewing an individual’s potential tax treaty exemption eligibility, it is the
     individual’s primary purpose for presence in the U.S., not his primary activity while here that
     should be considered. Form IAP-66 is an USIA form issued and signed by the sponsoring
     organization of any Exchange Visitor temporarily present in the U.S. in J-1 status. The exchange
     visitor himself should have a pink copy of Form IAP-66.
     The Internal Revenue Service requests to see a copy of Form IAP-66 during its examinations to
     verify the category of the exchange visitor shown in Question 4 of the form. Under both the
     Internal Revenue Code and tax treaties, students are treated differently than non-students.
     Question 4 on Form IAP-66 is the only sure means of determining whether a J-1 Exchange
     Visitor is a student or a non-student.
     Example. For example, many J-1 graduate students who do research 20 hours a week attempt to
     claim treaty benefits pertaining to a research scholar rather than the treaty benefits pertaining to a
     student. The block checked in Question 4 of Form IAP-66 settles the question in an authoritative
     way that is difficult to contradict. If the student still maintains that he is a research scholar, he
     must explain why his sponsoring university has classified him as a student.
     Example. An Indian student is present in the U.S. under an F-1 visa. The primary purpose of an
     F-1 visaholder's visit is to be a student; therefore, the individual will not qualify under Article 22
     as a teacher or researcher.
     Example. An individual from a tax treaty country comes to the U.S. under an F-2 or J-2 visa.
     The primary purpose of the F-2 or J-2 visaholder's visit to the U.S. is to accompany the spouse or
     dependent (the F-1 or J-1 visaholder). Therefore, they are not eligible for an exemption under
     any tax treaty and are subject to withholding at the standard nonresident alien rates.
  3. Type of Income
     The individual may be receiving compensation income, a scholarship/fellowship grant, or both.
     Some student/trainee articles contain an exemption for several different types of income. For
     example, under the U.S. – France tax treaty, a French student could be exempt for (i)
     compensation for services, (ii) a scholarship/fellowship grant which requires no service, and/or
     (iii) remittances or allowances from abroad.
  4. Length of Stay in U.S./Income Limitations
     An article may indicate that the exemption is valid only for a certain length of time; if the
     individual’s stay in the U.S. has exceeded that time period he is no longer eligible for the
     exemption. Typically, the exemption for teaching or research activities is available for a period
     not exceeding two years from the date of the individual’s arrival in the U.S. Some tax treaties
     require that the visit not be “expected” to exceed two years, and others withdraw the exemption
     entirely if the individual stays in the U.S. more than two years. Under most tax treaties, if an


REVISED: FEBRUARY 2006                             SECTION 9                            PAGE 3 OF 10
TAXATION/RECONCILIATION                                               NRA TAX TREATY BENEFITS

     individual remains in the U.S. for a period exceeding two years, the individual should be taxed
     beginning at the end of the two-year period.
     Article 20 of the U.S. - United Kingdom Tax Treaty limits the visit to the U.S. to two years. If
     the individual stays longer than two years the benefit of the treaty is lost retroactively. In this
     situation, if the agency/university has reason to believe that the individual will be staying longer
     than two years they should not grant the tax treaty exemption.
     Most tax treaties set an annual maximum dollar amount for which the exemption for personal
     services of a student/trainee compensation income may be claimed. The treaty with Canada
     allows a tax exemption on up to $10,000 of remuneration paid in the calendar year. However, if
     the individual earns more than $10,000, the entire benefit of the tax treaty is lost retroactively.
  5. Other Specific Qualifications
     Once it is determined that residency, purpose, income type, and length of stay qualifications
     have been met, the articles may impose other specific restrictions, such as requiring that (i) the
     payor be a particular entity, or (ii) the individual be a particular type of recipient.
B. EMPLOYEE COMPENSATION
  Salaries, wages, or any other pay for personal services paid to nonresident alien employees are
  subject to graduated withholding in the same way as for U.S. citizens and residents if the wages are
  effectively connected to a U.S. trade or business. Any wages paid to a nonresident alien for personal
  services performed as an employee for an employer are generally exempt from the 30%
  withholding if the wages are subject to graduated withholding. To qualify for a tax treaty exemption
  from withholding an alien student, trainee, teacher, professor, or researcher must complete Form
  8233, the required attachment, and Form DFS-A3-5.
  1. Income Code 17 – Dependent Personal Services
     Pay for dependent personal services under some tax treaties is exempt from U.S. income only if
     both the employer and employee are treaty country residents and the nonresident alien employee
     performs the services while temporarily living in the United States (usually for not more than
     183 days). Other treaties provide for exemption from U.S. tax on pay for dependent personal
     services if the employer is any foreign resident and the employee is a treaty country resident and
     the nonresident alien employee performs the services while temporarily in the U.S.
  2. Income Code 19 – Students and Trainees
     Some tax treaties have an exemption for nonresident alien students receiving payment for
     personal services performed while temporarily in the United States as a student, trainee, or
     apprentice; or while acquiring technical, professional, or business experience. All tax treaty
     student articles include a limitation on the time that an individual can claim treaty benefits. The
     limitation is generally either "reasonable period needed to complete the education or training" or
     five years. Certain tax treaties combine the year limitations with the teacher article to limit the
     combined period of benefits to five years.




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TAXATION/RECONCILIATION                                               NRA TAX TREATY BENEFITS


  3. Income Code 18 – Teachers and Researchers
     Under most tax treaties pay for teaching is exempt from U.S. tax and from withholding for a
     specified period of time. Most tax treaties limit the "teacher/researcher exemption" to two years
     from the date of the teacher's arrival in the U.S., not the date that the individual began working.
     The tax treaties with Greece and China allow a three-year benefit. Benefits are lost retroactively
     under the teacher articles of the treaties with Germany, India, the Netherlands, Thailand, and the
     United Kingdom. Under some tax treaties, (i.e. United Kingdom) individuals may use the
     benefits of the treaty more than once if the individual reestablishes his/her tax residency and
     physical presence in the treaty country before claiming benefits again, while other treaties limit
     the treaty benefit to one time. If an individual has enjoyed the benefits of the student article in
     the immediately preceding period, some treaties do not allow teacher or researcher benefits.
C. SCHOLARSHIP AND FELLOWSHIP RECIPIENTS (Income Code 15)
  Many treaties contain language that exempts scholarship and fellowship grants received by an
  individual who is in the U.S. (i) studying at a U.S. educational institution, (ii) training to pursue a
  practice or preferred specialty, or (iii) studying or doing research under a grant from a
  government, charitable, or educational organization. If the individual falls into any one of these
  categories, he is not subject to U.S. tax on the full amount of the grant, regardless of whether the
  grant comes from U.S. or foreign sources. The treaty provision usually exempts the entire
  scholarship or fellowship amount, regardless of whether the grant is a “qualified scholarship” under
  U.S. law. Typically this exemption is available only for a limited period of time.
  Although usually found in the student articles of the tax treaties, many of these exemptions also
  apply to research grants received by researchers who are not students.
  The university is responsible for maintaining copies of IRS forms and for monitoring the tax treaty
  benefit eligibility period for each student who is claiming tax treaty benefits. The IRS requires that
  the university keep the W-8BEN on file for at least four years after the end of the last year to which
  it applies.
  A nonresident alien who is claiming a treaty exemption must provide you with his or her TIN on
  Form W-8BEN or on Form 8233 or you cannot allow the treaty exemption. Form DFS-A3-5,
  Reduction or Exemption From Withholding, must be filed with the Bureau of State Payrolls if the
  fellowship/scholarship will be paid through the Payroll Processing System. A recipient who
  receives both wages and a scholarship from the same institution at the same time can claim treaty
  exemptions on both kinds of income on Form 8233.
D. INDEPENDENT CONTRACTORS (Income Code 16)
  This category of pay includes payments for professional services, such as fees of an attorney,
  physician, or accountant made directly to the person performing the services. It also includes
  honoraria paid by colleges and universities to visiting teachers, lecturers, and researchers.
  Under most tax treaties, compensation for independent personal services performed in the U.S. is
  exempt from income tax only when the services are performed during a period of temporary
  presence


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TAXATION/RECONCILIATION                                              NRA TAX TREATY BENEFITS

  in the U.S. (usually a period of 183 days or less). Independent nonresident alien contractors use
  Form 8233 to claim an exemption from withholding under a tax treaty.
  Often, you must withhold under the statutory rules on payments made to nonresident aliens for
  services performed in the U.S. This is because the factors on which the treaty benefits are based
  may
  not be determinable until after the close of the tax year. The contractor must then file a U.S. income
  tax return (1040NR) to recover withheld tax and provide the IRS with proof that he or she is entitled
  to a treaty exemption.
E. OTHER TAX TREATY ISSUES

  1. U.S. – U.S.S.R Tax Treaty Applications
     After the breakup of the former Soviet Union, the U.S. negotiated agreements with most of the
     new republics under which they would continue to be covered by the U.S. – U.S.S.R. tax treaty
     until such time as the newly formed republic entered into a separate tax treaty with the U.S. The
     following republics have negotiated and ratified a tax treaty with the U.S.:
         Baltic States of Estonia          Latvia                  Russian Federation
         Kazakhstan                        Lithuania               Ukraine

  2. U.S. – U.S.S.R. Exemption for Students
     An individual from a qualifying former Soviet country who is temporarily present in the U.S. for
     the primary purpose of studying at an educational or scientific research institution or for the
     purpose of acquiring a profession or specialty is exempt from tax in the U.S. on a “stipend,
     Scholarship, or other substitute type of allowance necessary to provide for ordinary living
     expenses.” The term “ordinary living expenses” includes tuition payments. The exemption is
     applicable for a five-year period.
     Pursuant to a letter agreement in 1973, the exemption for “trainees and specialists” will not apply
     to any amount in excess of $10,000, and that the living expense exemption for students will
     apply to “a lesser amount.” The agreement does not specify what the “lesser amount” should be;
     some institutions use a $9,999 amount.
     Where a resident of a former Soviet country qualifies for exemption both as a “student” under
     the treaty and under IRC Section 117, the more favorable exemption is to be applied, but not
     both at the same time.
  3. Students and Researchers – Kazakhstan, Russia and Ukraine Tax Treaties
     These treaties differ substantially from the U.S. – U.S.S.R. tax treaty with respect to payments
     made to students, teachers, researchers, and other scholars. For example, article 18 of the U.S. –
     Russia treaty contains an ambiguous statement that sets forth an exemption for a student who
     receives “payment from abroad for the purpose of his maintenance, education, study, research, or
     training, and with respect to the grant, allowance, or other similar payments.” This language has
     caused confusion as to whether only payments from abroad are exempt or whether the exemption
     applies to a “grant, allowance, or other similar payments” regardless of the source of the funding.


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TAXATION/RECONCILIATION                                                      NRA TAX TREATY BENEFITS

     The Treasury Department has verified on several occasions that a “grant, allowance, or other
     similar payments” are exempt under the tax treaty regardless of the source of funding. The
     Treasury Department also stated that the exemption will not apply to portions of a grant or
     allowance for payments representing compensation for the performance of services such as
     teaching or research or in any other capacity.
  4. India Tax Treaty Student Provisions
     Article 21 of the tax treaty relates to students and allows a student from India to be “entitled to
     the same exemptions, reliefs or reductions in respect to taxes available to residents” of the U.S.
     The IRS has interpreted this to mean that students from India may claim the standard deduction
     when filing their Form 1040NR/1040NR-EZ as long as they do not file itemized deductions.
     This article does not allow an exemption from withholding or the payment of tax; the article only
     offers additional allowances and/or deductions. This ability to claim additional allowances
     and/or deductions is limited to students – it does not apply to other individuals, such as teachers
     or researchers.
  5. Hungary, Barbados and Jamaica – Special Provisions
     Three tax treaties permit visiting students and trainees to elect to be treated as U.S. residents for
     tax purposes. The purpose of this election is to permit the individual to qualify for additional tax
     benefits available to U.S. residents, such as an additional personal exemption for a spouse and
     dependency exemptions for children, as well as the standard deduction.
F. FORMS REQUIRED FOR TREATY EXEMPTION
  The appropriate tax treaty exemption form depends on the type of income and the residency status of
  the payee.
               Type of Income                      Nonresident Alien                   Resident Alien
   Compensation –Dependent
    Income Code 17 – generally from Canada      Form 8233, no attachment      No applicable exemption under treaty
    Income Code 18 – teachers and researchers   Form 8233, with attachment    Form W-9, with attachment
    Income Code 19 – students and trainees      Form 8233, with attachment    Form W-9, with attachment
   Compensation – Independent                   Form 8233, no attachment      No tax withholding required
   Scholarship/Fellowship                       Form W-8BEN                   No tax withholding required
   Royalty                                      Form W-8BEN                   No tax withholding required
   Other Income                                 No applicable exemption       No tax withholding required
                                                under a treaty


  1. Form W-9 – Request for Taxpayer Identification and Certification
     Form W-9 should be collected from a resident alien who qualifies for tax treaty exemption
     confirming that he is in fact a resident alien for tax purposes. Form W-9 is scheduled for
     revision which will allow U.S. persons to:
         • Report a taxpayer identification number to withholding agent;
         • Claim a tax treaty exemption at the time of withholding; and
         • Declare U.S. status to withholding agent.




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TAXATION/RECONCILIATION                                              NRA TAX TREATY BENEFITS


  2. Form 8233 – Exemption From Withholding on Compensation for Independent (and Certain
     dependent) Personal Services of a Nonresident Alien Individual
     This form is used by a nonresident individual to claim a tax treaty exemption from withholding
     on some or all compensation paid for:
         1) Independent personal services (self-employment),
         2) Dependent personal services,
         3) Personal services income and non-compensatory scholarship or fellowship income from
            the same withholding agent.
     If a withholding agent wishes to avoid withholding tax on compensation paid to nonresident
     alien employees, independent contractors, students, teachers, or researchers based on a tax treaty
     between the United States and the individual’s home country, the withholding agent must first
     receive from the individual a properly completed Form 8233. A student receiving both
     compensation and a non-service scholarship or fellowship grant may combine his claims for a
     tax treaty exemption for two types of income on one form -- Form 8233. The individual must
     be receiving both types of income at the time of the exemption request.
     Form 8233 is valid only for the calendar year in which it is filed and must be refiled each year.
     The exemption from tax withholding becomes effective for payments made ten days from the
     date the withholding agent submits Form 8233 to the IRS by mail or fax. The withholding agent
     may choose to make the payment without waiting ten days (the exemption will be retroactive to
     the date the form was filed, provided the form is not rejected by the IRS). In such case, the
     withholding agent should be confident that the exemption request is valid.
     The withholding agent is required to examine tax treaty exemption statements for completeness
     and eligibility for exemption, given all the facts that are known and should be reasonably known
     by the withholding agent. The withholding agent cannot rely on incomplete or inaccurate forms
     and must withhold the required tax. If the IRS rejects the Form 8233 within the ten-day waiting
     period, the withholding agent is responsible for collecting or paying the tax that should have
     been withheld.
     The individual should complete Form 8233 to allow sufficient time to comply with IRS time
     limitations. Nonresident alien independent contractor voucher submission dates should be
     controlled to comply with the IRS mandated time limitations. For nonresident alien employees,
     forms must not be submitted to the Bureau of State Payrolls unless the time limitations will be
     met by the next applicable pay date. If forms are submitted late resulting on taxes withheld from
     an otherwise exempt individual, the taxes will have to be recovered by the individual from the
     IRS when he/she files his/her tax return at the end of the year.
     Each university/agency is responsible for monitoring the tax treaty benefit eligibility period for
     each individual who has filed a Form 8233. If an individual's eligibility status has changed, the
     BOSP must be notified in writing immediately to remove the exemption from the system.
     You must not accept Form 8233, and you must withhold, if either of the following applies:




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TAXATION/RECONCILIATION                                               NRA TAX TREATY BENEFITS

        •   You know or have reason to know that any of the facts or statements on Form 8233 may
            be false; or
        •   You know or have reason to know that the eligibility of the nonresident alien individual's
            compensation for the exemption cannot be readily determined (for example, if you know
            that the nonresident alien individual has an office in the United States regularly available
            for performing personal services).
     If you accept Form 8233 and later find that either of the situations described above applies, you
     must promptly notify the IRS at the address above, and the Bureau of State Payrolls, in writing.
     Also, if you are notified by the IRS that the eligibility for the exemption of the nonresident alien
     individual's compensation is in doubt or that the compensation is not eligible for exemption, you
     must notify the Bureau of State Payrolls in writing immediately to begin withholding. See
     Regulations section 1.1441-4(b)(2)(iii) for examples illustrating these rules. Also, if you submit
     an incorrect Form 8233, the IRS will notify you that the form submitted is not acceptable.
     Again, you must notify this to the Bureau of State Payrolls in writing immediately.
     An incorrect Form 8233 is (a) any Form 8233 that claims a tax treaty benefit or exemption that
     does not exist or is obviously false; or (b) any Form 8233 that has not been completed in
     sufficient detail to allow determination of the correctness of the tax treaty benefit or exemption
     claimed.
     Additional Statements
     Nonresident alien students, professors/teachers, and researchers using Form 8233 to claim a tax
     treaty withholding exemption for compensation for personal services must attach to Form 8233
     the statement required by Rev. Proc. 87-8, 87-9, 93-22 and 93-22A. The format and contents of
     the required statements are contained in IRS Pub 519.
     Submission Requirements
     You will need one original and three copies of the completed Form 8233 with attachment. One
     copy of the form must be submitted to the Bureau of State Payrolls. The original must be
     submitted within five days of acceptance to:
            Internal Revenue Service
            International Section
            P.O. Box 920
            Bensalem, PA 19020-8518
     It is recommended that forms mailed to IRS be sent via Certified Return-receipt Mail, or via
     Facsimile.
     Submit one copy of Form DFS-A3-5, Form 8233, and attachments to:
            Department of Financial Services
            Bureau of State Payrolls
            200 E. Gaines Street
            Room 364, Fletcher Building
            Tallahassee, FL 32399-0356



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TAXATION/RECONCILIATION                                                NRA TAX TREATY BENEFITS

     Give one copy of the completed Form 8233 to the nonresident alien individual. Keep a copy for
     your records. Each copy of Form 8233 must include any attachments submitted by the
     nonresident alien individual. The exemption from withholding is effective for payments made at
     least 10 days after you properly mail Form 8233 to the IRS.


  3. Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax
     Withholding
     Nonresident alien scholarship or fellowship grant recipients who receive U.S. source scholarship,
     fellowship, stipend, or grant payments, and who want to claim a tax treaty exemption must file
     Form W-8BEN. This form should also be used to claim a reduction in or exemption from tax
     withholding for a royalty, dividend, or interest payment.
     Generally, a foreign person that is the beneficial owner of the income should give you a Form
     W-8BEN, whether or not it is claiming a reduced rate of, or exemption from, withholding.
     Form W-8BEN must be completed by the individual and submitted to the withholding agent.
     Do not send Form W-8BEN to the IRS. Instead, keep the forms in your records for as long as
     they may be relevant to the determination of your tax liability under IRC Section 1461. Use the
     information of Forms W-8BEN to prepare Forms 1042-S.
     Period of Validity
     Generally, a Form W-8BEN provided without a U.S. TIN will remain in effect for a period
     starting on the date the form is signed and ending on the last day of the third succeeding calendar
     year, unless a change in circumstances makes any information on the form incorrect. A Form
     W-8BEN with a U.S. TIN will remain in effect until a change of circumstances makes any
     information on the form incorrect, provided that the withholding agent reports on Form 1042-S
     at lease one payment annually to the beneficial owner.
G. INDIVIDUALS WITHOUT SSN OR ITIN
  Individuals claiming an income tax treaty exemption must have a U.S. issued social security or
  individual taxpayer identification number. When completing Form W-8BEN or 8233, if the social
  security or taxpayer identification number is not assigned by the time the tax treaty exemption form
  is filed, the individual should attach either (i) Form SS-5 and “receipt” from the SSA (in the case of
  a social security number), or (ii) Form W-7 (in the case of an individual taxpayer identification
  number), signed either by the IRS or a certifying acceptance agent. If the individual submits a tax
  treaty exemption request without a taxpayer identification number or proof that such a number has
  been applied for, the withholding agent must withhold tax.
H. TECHNICAL EXPLANATIONS
  After a new tax treaty enters into force, the Treasury Department prepares a "technical explanation"
  of the text of the tax treaty provisions. The technical explanations are useful for interpreting the tax
  treaties. The information in IRS Publication 901 is not all-inclusive and tax treaties are regularly
  updated. Therefore, you should not rely solely on this publication. The Internal Revenue Service
  has the complete text of income tax treaties on their web site at: http://www.ustreas.gov/. Other
  sources of tax treaty information include Artic International and Windstar Technologies.


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TAXATION/RECONCILIATION                                             NRA FICA TAX EXEMPTIONS

                                      FICA TAX EXEMPTIONS

With several important exceptions, social security and Medicare taxes generally apply to all wages paid
for work performed in the U.S. regardless of the citizenship or residency status of the employee or the
employer. The following are exceptions to this general rule.
A. IRC 3121(b)(19) – F, J, M, AND Q VISA STATUS EXEMPTION
   Amounts earned by nonresident aliens who are temporarily in the U.S. as students, scholars, or
   exchange visitors under an F, J, M, or Q visa are not subject to social security or Medicare tax if the
   work they perform is carried out to further the purpose for which they entered the U.S. The
   exemption does not extend to the spouse or children of such nonresident aliens, who may be
   admitted under a derivative visa.
   IRC Section 3121(b)(19), provides that the term “employment” for FICA tax purposes will not
   include: service which is performed by a nonresident alien individual for the period he is temporarily
   present in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section
   101(a)(15) of the Immigration and Nationality Act, as amended, and which is performed to carry out
   the purpose specified in subparagraph (F), (J), (M), or (Q), as the case may be.
                   Criteria for FICA Tax Exemption Under IRC Section 3121(b)(19)
    To be exempt from FICA tax under IRC Section 3121(b)(19), an individual must be:
       • A nonresident alien for tax purposes;
       • Present in the United States under an F, J, M, or Q visa;
       • Performing services in accordance with the primary purpose of the visa’s issuance (i.e.,
           working “legally” and be the primary holder of the visa, the “-1”).
   These individuals may be allowed to legally work in furtherance of their immigration status after
   graduation (under Optional Practical Training or OPT) and in certain cases, prior to graduation
   (under Curricular Practical Training or CPT). Therefore, such individuals, if working in OPT or
   CPT status at an organization or company other than the college or university of attendance, may be
   exempt from FICA tax if the continue to meet the criteria of IRC Section 3121(b)(19).
   Scholarships and fellowships granted to nonresident alien students are exempt from social security
   and Medicare taxes to the same extent they are exempt from federal income tax withholding. See
   IRC Section 3121(a)(20).
   Example: Assume that an individual arrives in the U.S. for the first time on April 1, 2002, as a J-1
   to teach. In determining the individual’s U.S. residency status for tax purposes, the individual will
   be an “exempt individual” and therefore will not count days of presence in the U.S. under the
   substantial presence test for calendar years 2002 and 2003 and, therefore, will be a nonresident alien
   for those two years. For 2002 and 2003 she will meet all three of the IRC Section 3121(b)(19) tests
   and will be exempt from FICA tax. Beginning on January 1, 2004, however, she must begin to
   count days under the substantial presence test, and once she has been in the U.S. for 183 days during
   2004, she will become a “resident alien” retroactively to January 1, 2004. As a resident alien, the
   individual is no longer eligible for the 3121(b)(19) exemption and is subject to FICA tax
   retroactively to January 1, 2004.




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TAXATION/RECONCILIATION                                            NRA FICA TAX EXEMPTIONS

  In this example the employer has two choices: (i) wait until the individual meets the substantial
  presence test in 2004 and then withhold FICA tax retroactively to January 1, or, (ii) begin
  withholding FICA tax on January 1 under the assumption that the l83 day test will be met that year.
B. IRC 3121(b)(10) – STUDENT FICA EXEMPTION
  IRC Section 3121(b)(10) sets forth the conditions under which students may be exempt from FICA
  taxes (the “student FICA exception”). It provides that employment for purposes of FICA does not
  include services performed in the employ of a school, college, or university (SCU), or certain
  affiliated tax-exempt organizations in relation to the SCU (related IRC Section 509(a)(3)
  organization), if the service is performed by a student who is enrolled and regularly attending classes
  at an SCU.
  Final regulations issued December 21, 2004, provide guidance regarding the employment tax
  exceptions for student services. These regulations are applicable for services performed on or
  after April 1, 2005. Concurrent with the issuance of the final section 3121(b)(10) regulations, the
  IRS released Rev. Proc. 2005-11 which sets forth a new student FICA exception safe harbor. The
  old safe harbor revenue procedure, Rev. Proc. 98-16, has been reinstated and is applicable to
  services performed prior to April 1, 2005. After that date, Rev. Proc. 98-16 is superceded and
  replaced by Rev. Proc. 2005-11.
  The final regulations provide rules for determining whether an organization is a school, college, or
  university (SCU) and whether an employee is a student for purposes of sections 3121(b)(10),
  3121(b)(2), and 3306(c)(10)(B) of the Code. The student FICA exception applies to services only
  when both the employer status and the student status requirements are met.

  1. School, College, or University
     The exceptions from employment for student services apply only if the employee is a student
     enrolled and regularly attending classes at a SCU. A SCU is determined with reference to the
     organization’s primary function. An organization whose primary function is to carry on
     educational activities qualifies as a SCU for purposes of the student exceptions from
     employment.
     The first component of the student FICA exception is the requirement that the employer be a
     school, college, or university whose “primary function” is to conduct educational activities.
         a. The “primary function” standard requires that a “school, college or university” must
            have as its primary function formal instruction, normally maintain a regular faculty and
            curriculum and normally have a regular enrolled body of students in attendance at a place
            where its educational activities are regularly carried on.
         b. The employer status requirement is met only if a school, college, or university (SCU), or
            related IRC 509(a)(3) organization employs the student.
         c. An organization meets the definition of employer status only if its primary function is
            education.
         d. To qualify as an educational organization it is not enough that the organization carries on
            educational activities, its primary function must be to carry on educational activities. It


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TAXATION/RECONCILIATION                                            NRA FICA TAX EXEMPTIONS

            does not include organizations engaged in both educational and non-educational
            activities unless the latter are merely incidental to the educational activities.
            Though medical institutions have long argued that a “teaching hospital” is an educational
            institution, the new regulations make it clear that the FICA exception will be granted
            only to services performed in the employ of a school, college, or university only if its
            primary function is to conduct educational activities. In common standards, a hospital’s
            function is to care for patients. A museum’s function is to maintain and preserve a
            collection of art. Though hospitals and museums may have large educational
            components, the FICA exception will not apply since they will not qualify under the
            primary function standard.
  2. Student Status Standard -- General Rule
     The second component of the student FICA exception is the requirement that the employee in
     question be a student. The regulations retain the general rule that services performed by an
     employee of a school, college, or university are eligible for the FICA tax exemption if the
     services are performed by a student who is enrolled and regularly attending classes at such
     institution.
     Further, the employee’s status as a student continues to depend upon the relationship of the
     employee with the organization for which services are performed and requires that services
     performed as an employee be incident to and for the purpose of pursuing a course of study at
     such school, college, or university. However, the regulations provide detailed requirements for
     application of the three overall criteria that have the effect of denying the FICA tax exception to
     medical residents.
        a. Enrolled and Regularly Attending Classes – An employee is enrolled if the employee is
           registered for a course or course creditable toward a degree, certificate, or other
           recognized educational credential granted by the school, college, or university, i.e., an
           organization that meets the primary function test described above. The employee must
           be regularly attending classes to be deemed a student. A class is considered to be an
           instructional activity led by a knowledgeable faculty member following an established
           curriculum. Traditional classroom instruction as well as other activities can meet this
           requirement. The frequency of classes will also be a factor in satisfying this test.
        b. Course of Study – A course of study consists of one or more courses that meet the
           requirements to receive a degree, certificate or other recognized educational credential
           granted by a school, college, or university. A course of study can also include one or
           more courses that meet the requirements for the employee to sit for an examination
           necessary to receive certification by a recognized organization in a field.
        c. Incident To and For the Purpose of Pursuing a Course of Study – Of the three criteria
           necessary to support student status under the regulations, the “incident to” test will be the
           most difficult to satisfy for many institutions and their medical residents. This
           requirement focuses on comparing the employee’s education and service roles.




REVISED: FEBRUARY 2006                        SECTION 10                                 PAGE 3 OF 6
TAXATION/RECONCILIATION                                         NRA FICA TAX EXEMPTIONS

               i) Course Workload – The educational aspect of the employee’s relationship, as
                  compared to the service component of the relationship, must be predominant in
                  order for the employee’s services to be incident to and for the purpose of pursuing
                  a course of study. Whether the education or service component of the
                  relationship is dominant is based on the employee’s particular facts, taking into
                  account how the employee’s course workload compares with a full-time course
                  workload.
                  An individual who is a half-time undergraduate student or half-time graduate or
                  professional student and who does not have the status of a career employee will
                  qualify for the Student FICA exception.
                  An individual is deemed to be a half-time undergraduate, graduate, or
                  professional student if the individual does not have the status of a career
                  employee, who is enrolled in the last semester and is enrolled in the number of
                  hours needed to complete the requirements for the degree, certificate, or other
                  recognized educational credential.

               ii) Service Component of the Employee’s Relationship – While the service
                   component is established by the facts and circumstances related to the employee’s
                   employment, any individual with the status of a “career employee” is ineligible
                   for the FICA tax exemption. The concept of “career employee” has been
                   prescribed previously by the IRS to determine eligibility for the student FICA
                   exemption (most recently in 1998) and is significantly expanded in the proposed
                   regulations. Any one of four circumstances will cause the employee to be
                   deemed a “career employee.”
        d. Career Employee – The employee’s primary relationship with the institution that employs
           them must be as a student and secondarily as an employee. The student FICA exception
           is not available with respect to an employee who is a “career employee.” The following
           employees are career employees:
               i) Employees who work 40 or more hours per week on a regular basis.
               ii) An individual who is a “professional employee.” A professional employee has all
                   of the following attributes:

                      •   The employee’s primary duty consists of the performance of work
                          requiring advanced knowledge in a field of science or learning
                          customarily acquired by a prolonged course of specialized intellectual
                          instruction.

                      •   The employee’s work requires consistent exercise of discretion and
                          judgment.

                      •   The employee’s work is predominantly intellectual and varied in
                          character, the results of which cannot be standardized in relation to given
                          time period.



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TAXATION/RECONCILIATION                                            NRA FICA TAX EXEMPTIONS

                 iii) An employee eligible to receive or participate in any one of a list of employee
                      benefits such as vacation, sick leave or paid holidays; an employer-sponsored
                      retirement plan; reduced tuition; life insurance; or dependent care assistance.
                 iv) An employee required to be licensed under state or local law in the field for
                     which the employee performs services.
  The Student FICA exception does not apply to services performed by an individual who is not
  enrolled in classes during school breaks of more than five weeks (including summer breaks of more
  than five weeks).
  The revenue procedure does not apply to employees who are; postdoctoral students, postdoctoral
  fellows, medical residents, or medical interns because the services performed by these employees
  cannot be assumed to be incident to and for the purpose of pursuing a course of study. The
  employment activities of these individuals overlaps with the activities comprising the course of
  study, and thus it is not appropriate to apply the standards of this revenue procedure to these
  individuals.
C. APPLICATION OF TAX TREATIES TO FICA TAX WITHHOLDING
  With the exception of the tax treaty with the former USSR, income tax treaties apply only to federal
  income tax withholding. Withholding agents should note the exemption included in the former
  USSR tax treaty applies only to the employee side of the FICA tax withholding. Since there is no
  mechanism to programmatically process this type of exemption, it is recommend that an exemption
  not be granted and that each employee that believes that he/she qualifies for it, request it directly
  from the IRS when filing their tax return. In conclusion, an exemption from FICA tax withholding
  is only allowed under IRC 3121(b).
D. SOCIAL SECURITY "TOTALIZATION" AGREEMENTS
  The United States has entered into agreements with several foreign countries to coordinate social
  security coverage and taxation of workers who are employed in those countries. These agreements
  are commonly referred to as totalization agreements and are in effect with the following countries.
   Australia                Finland                  Italy                      South Korea
   Austria                  France                   Luxembourg                 Spain
   Belgium                  Germany                  Netherlands                Sweden
   Canada                   Greece                   Norway                     Switzerland
   Chile                    Ireland                  Portugal                   United Kingdom
  Generally, under these agreements, the worker will be subject to social security taxes only in one
  country, typically in the country where the work is performed.
  To utilize the totalization agreement as an exemption from U.S. Social Security tax, the foreign
  employee must prove either he/she or a third party on his/her behalf is continuing to pay the Social
  Security tax to his/her country for the income that he/she earns while working in the U.S.
  Employees may establish this by providing a statement from the authorized official or agency of the
  foreign country verifying that the worker’s pay is subject to social security coverage in that country.




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TAXATION/RECONCILIATION                                          NRA FICA TAX EXEMPTIONS



  If the authorities of the foreign country will not issue such a statement the employee should get a
  statement from the U.S. Social Security Administration, Office of International Programs, P.O. Box
  17775, Baltimore, MD 21235-7775. You may also obtain information at:
  http://www.ssa.gov/international/totalization_agreements.html.
E. NONRESIDENT ALIEN FICA REFUND REQUESTS
  Refunds for nonresident alien employees that had FICA contributions erroneously withheld may be
  requested from the Bureau of State Payrolls using form DFS-A3-NRA-REFUND, Nonresident
  Alien FICA Refund Request Form. A copy of the I-94 or IAP 66 should be attached that
  demonstrates the individual's visa status.




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TAXATION/RECONCILIATION                                          NRA FEDERAL TAX REPORTING

                                  FEDERAL TAX REPORTING

The Bureau of State Payrolls reports payments subject to NRA withholding on IRS Form 1042-S,
Foreign Person's U.S. Source Income Subject to Withholding, including amounts for independent
contractor payments, amounts for nonqualified scholarships/fellowships, and compensation paid to a
nonresident alien under a treaty exemption. Nonresident alien individuals may receive a Form W-2 as
well as a Form 1042-S if they claim the treaty benefits and their income exceeds the maximum dollar
limit or time limit of the treaty. All other employee compensation is reported on Form W-2.
NRA withholding tax collections are remitted in accordance with the IRS deposit requirements. Form
1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, must be filed by
March 15 of the year following the calendar year in which the income subject to reporting was paid. A
Form 1042-S is prepared for each recipient of income and is also due to the IRS by March 15 of the
following year.
See IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for
additional information.
General withholding and reporting situations are shown on page two below.




REVISED: JANUARY 2005                         SECTION 11                                PAGE 1 OF 2
TAXATION/RECONCILIATION                                                                                                  NRA FEDERAL TAX REPORTING

                                           GENERAL WITHHOLDING AND REPORTING SITUTATIONS

                                                                                                Withholding                                Reporting
                                           General Payee                                                  Form Required
Type of Income        Income Code           Immigration           Service or        Rate if Treaty           if Treaty         If Tax Exempt          If Taxable
                                              Status             Non-Service        Not Applicable          Applicable
                                                                                                                                1042-S (with       1042-S
Royalty                     12                   Any             Non-service              30%                W-8BEN           exemption code 4)    (with tax rate)

Scholarship or
Fellowship                                 Generally F-1,                                  0%                   N/A             No reporting              N/A
(tuition, required          15             F-2, J-1, J-2,        Non-service                                                     required
fees, books)                               M-1, Q-1, R-1
Scholarship or                                                                             14%           W-8BEN        (may
Fellowship (in                             Generally F-1,                           (if F, J, M, or Q)    use 8233 if also
excess of tuition,          15             F-2, J-1, J-2,        Non-service                              receiving treaty-     1042-S (with             1042-S
required fees,                             M-1, Q-1, R-1                                    30%           exempt wages)       exemption code 4)      (with tax rate)
books)                                                                               (all other visas)
Independent                              Generally, B-1, B-
personal                    16              2, WB, WT,                                                                          1042-S (with             1042-S
services                                 J-1 (non-student),         Service               30%                  8233           exemption code 4)      (with tax rate)
                                                 TN
General                                  TN (generally only
Employee                    17              applicable to                                Single,               8233             1042-S (with              W-2
Compensation                              individuals from          Service        ? allowances plus      (no attachment)     exemption code 4)
                                              Canada)                                   $7.60/wk

Compensation                                                                                                 8233 with
As teacher/                 18            J-1 (non-student)         Service          S. 1. $7.60/wk      attachment (W-9        1042-S (with              W-2
Researcher                                    H-1B, O-1                                                  with attachment if   exemption code 4)
                                                                                                          resident alien)
                                                                                                             8233 with
Compensation as             19                F-1, J-1              Service          S. 1. $7.60/wk      attachment (W-9        1042-S (with              W-2
Student/Trainee                           (student/trainee)                                              with attachment if   exemption code 4)
                                                                                                          resident alien)
Miscellaneous               50                   Any             Non-service              30%                    N/A                 N/A                 1042-S
                                                                                                                                                     (with tax rate)

This chart represents general nonresident tax withholding and reporting situations, payments to individuals with unusual circumstances will need additional review.
Individuals from Canada, Mexico, Japan, Korea, American Samoa, the Northern Mariana Islands, and students from India may be eligible to claim additional
withholding allowances.
                                                                                                                   ____________________________________
REVISED: JANUARY 2005                                            SECTION 11 - CHART                                                        PAGE 2 OF 2
TAXATION/RECONCILIATION                                    NRA PAYMENTS FROM LOCAL FUNDS

                             NRA PAYMENTS FROM LOCAL FUNDS

Universities and agencies that pay nonresident aliens through their local funds are responsible for
withholding the required amount of tax, and reporting these transactions to the Internal Revenue
Service. The university or agency must use their own federal identification number for this purpose.

Payments and reporting should be made in accordance with applicable sections of the Internal Revenue
Code, Treasury Regulations, and Immigration Law. Documentation supporting these payments should
be retained by the university and should be available to the IRS and Department of Financial Services
upon request for audit purposes.




REVISED: JANUARY 2005                       SECTION 12                                PAGE 1 OF 1
TAXATION/RECONCILIATION                                                    TAX PAID BY EMPLOYER

                                     TAX PAID BY EMPLOYER
When an agency or university pays the individual's tax liability, under U.S. tax law the payment
constitutes additional income to that individual and the "tax on tax" problem occurs.

The fact that an agency/university may not be able to withhold tax from a particular payment does not
alleviate the university or agency’s liability for the tax or responsibility for payment to the Internal
Revenue Service.

Example. If a university pays a nonresident alien independent contractor $1,000 for a lecture, it must
withhold 30 percent of that amount, or $300. However, if the university elects to pay the IRS on behalf
of the individual, the amount may be "grossed up." The $300 withholding would constitute additional
income to the nonresident alien and is therefore subject to additional taxation. Consequently, the
university must pay additional withholding to the IRS. This "grossed-up" amount is calculated as
follows:
Formula: Net Amount / [1- {tax rate}] = Gross amount to be paid.

$1,000 / [1- {.30}] = $1,428.57

The gross amount of the payment is $1,428.57; the net amount is $1,000.

Total withholding remitted to the IRS is $428.57.




REVISED: JANUARY 2005                        SECTION 13                                    PAGE 1 OF 1
TAXATION/RECONCILIATION                             NRA PAYMENT PROCESSING PROCEDURES

             NONRESIDENT ALIEN PAYMENT PROCESSING PROCEDURES
A. EMPLOYEES
  Payments to nonresident alien employees are processed through the Payroll Processing System and
  are subject to special withholding rules. Generally, additional amounts must be withheld, their filing
  status is restricted, and the number of allowable exemptions is limited. This is required because
  nonresident aliens cannot claim the standard deduction. The Form W-4 information is used during
  payroll processing to calculate the amount of income tax withholding unless the employee has
  claimed a tax treaty exemption. The Form W-4 for a nonresident alien must:

     •   Indicate only "Single" marital status (regardless of actual marital status).
     •   With some exceptions claim only one withholding allowance. The Internal Revenue Code
         allows taxpayers from Canada, Mexico and U.S. Nationals to claim personal exemptions for
         their spouse and children under certain conditions. A United States national, as defined in
         IRS Publication 519, “is an individual who, although not a U.S. citizen, owes his or her
         allegiance to the United States. U.S. nationals include American Samoans and Northern
         Mariana Islanders who chooses to become U.S. nationals instead of U.S. citizens.” These
         individuals can claim more than one allowance, if applicable. Tax treaties with Japan and
         the Republic of Korea (South Korea) allow taxpayers from those countries (under certain
         conditions) to claim personal exemptions for their spouse and children. The tax treaties with
         Barbados, Hungary, and Jamaica allow students (not teachers/researchers) to elect to be
         treated as residents of the U.S. for tax purposes immediately upon their arrival in the U.S.
     •   Not claim "exempt" withholding status.
     •   May not claim the Earned Income Credit unless married to a U.S. citizen and elects to be
         taxed as a resident alien for the entire year.
     •   The IRS requires additional withholding from the wages of nonresident alien employees. For
         calendar years 2004 and 2005 the amounts are:
                              Pay Period     Additional Withholding
                              Biweekly               $15.30
                              Monthly                $33.10

  However, due to a payroll system limitation fixed additional withholding amounts must be input in
  whole dollars. Therefore, when you enter the W-4 cards please round up to the following amount:
                              Pay Period     Additional Withholding
                              Biweekly               $16.00
                              Monthly                $34.00

  These withholding amounts will be within the withholding tolerances allowed under Treasury
  Regulations 31.3402(h)(4)-1.
  The U.S. tax treaty with India allows nonresident alien students from India to claim the Standard
  Deduction, and thus additional withholding amounts are not required.
  Nonresident aliens who refuse to file a proper W-4 as required by IRS regulations must have federal
  income taxes withheld at the rates pertaining to single status, zero exemptions allowed. Refer to
  Treasury Regulation Section 31.3402(f)(2)-1(e).


REVISED: JANUARY 2005                      SECTION 14                                    PAGE 1 OF 9
TAXATION/RECONCILIATION                            NRA PAYMENT PROCESSING PROCEDURES

  These provisions are found in IRS Publication 15, Circular E - Employer's Tax Guide.
  Publication 15 is specially referenced in the Internal Revenue Regulations as the authority for wage
  withholding; therefore, the additional withholding is legally required. Treasury Regulation
  31.3402(b)-1, Percentage Method of Withholding, states:
  "With respect to wages paid after April 30, 1975, the amount of tax to be deducted and withheld
  under the percentage method of withholding shall be determined under the applicable percentage
  method withholding table contained in Circular E (Employer's Tax Guide) according to the
  instructions contained therein."
  The appropriate retirement code should be entered to make the individual either subject to or exempt
  from taxes under the Federal Insurance Contributions Act. Refer to SECTION 10 for more
  information on exclusions from FICA.
     1. Canada, Mexico and U.S. Nationals
         Residents of Canada, Mexico and U.S nationals are subject to the same withholding
         requirements as other nonresident aliens - graduated withholding on wages and 30 percent
         withholding on all other payments (or lower treaty rate). However, according to IRC 873,
         they are not restricted to a single personal withholding allowance; they may claim personal
         allowances under the same provisions that apply to U.S. citizens.
     2. India
         Students from India who are eligible for the benefits of Article 21(2) of the United States-
         India Income Tax Treaty can claim additional withholding allowances for the standard
         deduction and their spouses. They can claim an additional withholding allowance for each
         dependent not admitted to the United States on F-2, J-2, or M-2 visas. Also, they do not have
         to request additional withholding.
     3. Japan and the Republic of Korea (South Korea)
         The Japanese and Republic of Korea (South Korean) tax treaties allow residents of Japan or
         the Republic of Korea (South Korea) to claim withholding allowances for themselves and a
         spouse and any dependent children who live with them in the United States for any portion of
         the year. An additional requirement as stated in the IRS Publication 519 is “The additional
         deduction for the exemptions must be prorated based on the ratio of the alien’s U.S. source
         gross income effectively connected with a U.S. trade or business for the tax year to the
         alien’s entire income from all sources during the tax year.”
B. INDEPENDENT CONTRACTORS
  Payments to nonresident alien independent contractors are processed through the Voucher Audit
  System. All vouchers for payments made to nonresident alien independent contractors must be
  submitted to the Bureau of State Payrolls, which will review them to ensure compliance with tax
  regulations. The nonresident alien independent contractor should be entered into the vendor system
  following the specific input standards in the FLAIR manual.




REVISED: JANUARY 2005                      SECTION 14                                  PAGE 2 OF 9
TAXATION/RECONCILIATION                              NRA PAYMENT PROCESSING PROCEDURES


  In order to ensure that the requirements of the Internal Revenue Code are met, unique object codes
  have been designated for payments made to nonresident aliens. Agencies should review their
  procedures for assigning the codes to ensure expenditures are recorded correctly as transactions are
  processed.
  If the contract is required to be entered into the Contract System, the contract number must be shown
  on the voucher schedule. If income tax is withheld, the Bureau of Auditing will record the income
  tax amount in the contract system.
  The taxation of travel and related expense reimbursements to nonresident alien independent
  contractors has been an open issue with the IRS for a long time. On December 16, 1998, in response
  to an inquiry led by the National Association of College and University Business Officers
  (NACUBO), the IRS issued an information letter throwing some light on this issue. In general the
  letter states that "the reimbursements provided to the nonresident aliens who incurred travel and
  related expenses in visits to the U.S. to serve as guest lecturers at the University do not appear to be
  includible in their gross income if the individuals properly substantiated their deductible expenses to
  the payor within the meaning of section 274(d) and the regulations thereunder and if the
  reimbursements do not exceed those substantiated expenses." The IRC section mentioned refers to
  the substantiation of travel expenses under an accountable plan.
  However, the letter also includes some wording regarding "lecturers that come to the U.S. in their
  capacities as employees of another entity" that could be problematic. Apparently, in this situation the
  individuals would not be exempt if their organizations do not have a plan that meets the section
  274(d) requirements. The letter states that "if the nonresident aliens served as guest lecturers in their
  capacities as employees of another entity (e.g., employees of foreign universities), the
  reimbursements are in connection with the performance of services as employees of the employer
  under section 62(a) and (c) and the relevant regulations. The fact that the reimbursements are paid
  by a third party (e.g., the host university) is not determinative. Consequently, if the nonresident
  aliens' employer maintains an accountable plan within the meaning of section 1.62-2(c)(2), the
  reimbursements for substantiated expenses are excluded from the individuals' incomes, are not
  reported as wages or other compensation on the individuals' Forms W-2, and are exempt from the
  withholding and payment of employment taxes."
     1. Foreign Source Payments Object Codes and Documentation
         Foreign source payments made to nonresident aliens independent contractors are not subject
         to the IRS withholding and reporting requirements. Compensation for personal services
         performed out of the United States is considered to be foreign “sourced”. Refer to
         SECTION 5 for more information on income sourcing rules. Accordingly, they do not have
         to be reviewed by the Bureau of State Payrolls. The following object codes should be used
         for this type of payments:
             1352    Nonresident Alien Independent Contractor – Foreign Source
             2672    Travel Nonresident Alien Independent Contractor – Foreign Source
         If compensation income is earned with respect to services performed both within and outside
         the U.S., Treasury Regulation 1.861-4(b) requires the income to be prorated between the
         U.S. and foreign source on a time spent basis. Therefore, the income should also be


REVISED: JANUARY 2005                       SECTION 14                                     PAGE 3 OF 9
TAXATION/RECONCILIATION                            NRA PAYMENT PROCESSING PROCEDURES

        appropriately allocated between object codes and the voucher has to be reviewed by the
        Bureau of State Payrolls.

     2. Payments Exempt Under a Tax Treaty Object Codes and Documentation
        A voucher should be prepared for the payment to the contractor using the appropriate object
        code with the following documents attached:

           •   Completed Foreign National Information Form
           •   One copy of the completed IRS Form 8233
           •   Copy of both sides of the contractor's I-94, Arrival and Departure Record.
           •   Copy of contractor's U.S. VISA from passport
           •   Copy of contractor's DS-2019 (Formerly IAP-66)
        Selected forms are available in SECTION 17, RESOURCES.
       The voucher must be submitted to the Bureau of State Payrolls for review and approval.
        Exception. INS regulations permit Canadian citizens and citizens of the visa waiver
        countries to enter the United States without a visa or the Arrival/Departure Record, I-94.
        Treat these individuals traveling without a visa or I-94 as if they were traveling on a B-1 or
        B-2 status. See SECTION 3, C, VISAS, for more information.
        Object Codes
        1351    Nonresident Alien Independent Contractor                 Exempt
        2671    Travel Nonresident Alien Independent Contractor          Exempt

     3. Taxable Payments Object Codes and Documentation
        A voucher should be prepared for the payment to the contractor using the appropriate object
        code with the following documents attached:

           •   Completed Foreign National Information Form - The following supporting
               documentation should be retained by the university and should be available to the
               Department of Financial Services upon request for audit purposes:
           •   Completed IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner
               for United States Tax Withholding
           •   Copy of both sides of the contractor's I-94, Arrival and Departure Record
           •   Copy of the contractor's U.S. VISA from passport
           •   Copy of contractor's DS-2019 (Formerly IAP-66)
        Exception. USCIS regulations permit Canadian citizens and citizens of the visa waiver
        countries to enter the United States without a visa or the Arrival/Departure Record, I-94.
        Treat these individuals traveling without a visa or I-94 as if they were traveling on a B-1 or
        B-2 status. See SECTION 3, C, VISAS, for more information.




REVISED: JANUARY 2005                     SECTION 14                                     PAGE 4 OF 9
TAXATION/RECONCILIATION                             NRA PAYMENT PROCESSING PROCEDURES

         Object Codes
         1350    Nonresident Alien Independent Contractor                 Taxable
         2670    Travel Nonresident Alien Independent Contractor          Taxable

         Withholding Taxes
         Withholding at a 30% rate is required on the taxable portion of the payment. A journal
         transfer (JT) must be prepared by agencies to transfer the income tax to the Bureau of State
         Payrolls using FLAIR account code: 43-74-2-101001-43200100-00-000600-00. The sub-
         vendor identification number must be the taxpayer identification number of the independent
         contractor. The object code on the voucher and journal transfer must be the same.
         Documentation should be attached to the JT supporting the calculation of withholding.
         Example.       Independent Contractor Payment                        $1,000.00
                        Taxable Amount X Tax Rate (1000.00 X .30)                300.00
         See SECTION 13, Tax Paid by Employer, for gross-up calculations when the agency or
         university pays the tax.
C. SCHOLARSHIP GRANTS
  Nonresident alien scholarship and per diem payments under the Mutual Security Act of 1954, as
  amended, must be processed through the Payroll Processing System. Nonresident alien individuals
  that receive scholarship payments must:

     •   Complete a Foreign National Information Form
     •   Complete a W-4 Card
     •   Complete a DFS-A3-05, Reduction or Exemption From Withholding
         If claiming a U.S. tax treaty exemption, complete an IRS Form W-8BEN, Certificate of
         Foreign Status of Beneficial Owner for United States Tax Withholding. This form replaces
         IRS Form 1001, Ownership, Exemption, or Reduced Rate Certificate.
     1. Cash Payments – Paid on F001 Payroll Requisition File
         Normally, nonresident alien scholarship payments are taxed at either 14% or 0%. Payments
         that do not meet the criteria for reduced withholding under section 1441(b) and require
         taxation of 30% must be processed through the Voucher Audit System.
         To submit nonresident alien cash scholarship payments to the Bureau of State Payrolls on a
         payroll requisition file (F0001), the file specifications for a F0001 should be followed using
         the appropriate earnings code. The record layout and other pertinent information are found
         in the Payroll Preparation Manual, Volume VI, Section 1.




REVISED: JANUARY 2005                      SECTION 14                                     PAGE 5 OF 9
TAXATION/RECONCILIATION                            NRA PAYMENT PROCESSING PROCEDURES

        F0001 Special Instructions
         Object Code                Must be 7400NN where NN = Agency Unique
         SAMAS Account Code         Account Category Cannot be "01"
         Position Number            Should be 090000
         Pay Plan                   Should be 00
         Class Code                 Should be 0000
         Appointment Status         Must be "FS"
         Retirement Code            Must be "ZX"
         Cash Gross                 Required and Must Equal Earnings Amount
         Total Gross                Required and Must Equal Earnings Amount
         W-2 Gross                  Must be Zeroes
         FICA Gross                 Must be Zeroes
         Retirement Gross           Must be Zeroes
         Earnings Code              Must be 9153 or 9156
         Deduction Amount           Must be Same as Total Gross and Cash Gross

        Earnings Codes
          9156     NRA Scholarship, Exempt Under IRC (i.e. qualified and USAID)
          9153     NRA Scholarship


        If a nonresident alien receives a payment that is partially qualified and partially nonqualified
        two records must be submitted on the file F0001. Multiple records must also be submitted if
        the scholarship recipient also receives wages.
        Earnings Code 9156 relates to an exclusion under an Internal Revenue Code, NOT a tax
        treaty exemption. Tax treaty exemptions would apply to nonqualified scholarships. If the
        scholarship is exempt under a tax treaty the appropriate IRS and Bureau of State Payrolls
        forms must be completed as described under SECTION 9 – Tax Treaty Benefits.
        Scholarships coded 9156 are not taxed. Scholarships coded 9153 are taxed at 14% by the
        Payroll Processing System, unless there is a Form DFS-A3-05, Reduction or Exemption
        From Withholding, filed with the Bureau of State Payrolls that indicates that the individual is
        claiming the benefits of a tax treaty.
        Before submitting the scholarship record on the F0001 you must ensure that the scholarship
        recipient has a W-4 card and a Form DFS-A3-05 with reason 3 checked, filed with the
        Bureau of State Payrolls. If these records are not input into the W-4 system the payment
        record will drop and will NOT be processed.




REVISED: JANUARY 2005                     SECTION 14                                     PAGE 6 OF 9
TAXATION/RECONCILIATION                            NRA PAYMENT PROCESSING PROCEDURES

     2. Cash Payment for Per Diem Payments Under The Mutual Security Act of 1954, As
        Amended
        Payments made to a nonresident alien scholarship recipient for "per diem for subsistence"
        made in connection with the Mutual Security Act of 1954, as amended, submitted to the
        Bureau of State Payrolls following the file specifications F0001 have to follow the file
        organization and other pertinent information found in the Payroll Preparation Manual,
        Volume VII, Section 3. The following codes must be used:
        Status Code Object Code           Earnings Code
        FS          7400                  9156 NRA Scholarship, Exempt under IRC
        Earnings Code 9156 relates to the exclusion under Internal Revenue Code 1441(c)(6) NOT a
        tax treaty exemption.
     3. Cash Payments Paid Through the Voucher Audit System
        Cash scholarship payments that are submitted through the Voucher Audit System should
        follow a procedure similar to that for payments to independent contractors, but utilizing the
        appropriate scholarship object codes specified below.
        Withholding at a 14% or 30% is required on the taxable portion of the payment (Refer to
        SECTION 7, Withholding Tax Rates. A journal transfer (JT) is to be prepared by agencies
        to transfer the income tax to the Bureau of State Payrolls using FLAIR account code: 43-74-
        2-101001-43200100-00-000600-00. Devolved universities must pay by check. The
        subvendor identification number must be the taxpayer identification number of the
        scholarship recipient. The object code on the voucher and journal transfer must be the same.
         Documentation should be attached to the JT supporting the calculation of withholding.
                 Object Code     Earnings
                 7410            NRA Scholarship, Exempt Under IRC
                                 (i.e. Qualified or USAID Per Diem Payment)
                 7420            NRA Scholarship – Non-qualified

        A voucher should be prepared for the payment to the scholarship recipient using the
        appropriate object code with the following documents attached:

           •   Completed Foreign National Information Form
           •   If applicable, completed IRS Form W-8BEN, Certificate of Foreign Status of
               Beneficial Owner for United States Tax Withholding
           •   Copy of both sides of the scholarship recipient I-94, Arrival and Departure Record.
           •   Copy of scholarship recipient's U.S. VISA from passport
        The voucher must be submitted to the Bureau of State Payrolls for review and approval.
        Exception. USCIS regulations permit Canadian citizens and citizens of the visa waiver
        countries to enter the United States without a visa or the Arrival/Departure Record, I-94.
        Treat these individuals traveling without a visa or I-94 as if they were traveling on a B-1 or
        B-2 status. See SECTION 3, C, Visas, for more information.



REVISED: JANUARY 2005                     SECTION 14                                     PAGE 7 OF 9
TAXATION/RECONCILIATION                              NRA PAYMENT PROCESSING PROCEDURES

     4. Non-Cash Payments
         Universities can sometimes choose to make non-cash payments to scholarship recipients.
         This type of payments must be entered into the payroll system via the on-line cancellation
         adjustment system to update the scholarship recipient record, which will ensure that they are
         adequately reported to the recipient and the Internal Revenue Service at the end of the year.
         Instructions for entering these type payments into the payroll system are found in the Payroll
         Preparation Manual, Volume V, Section 7. Before entering the adjustment for non-cash
         payments you must ensure that the scholarship recipient has a W-4 card and a Form DFS-
         A3-05, with reason 3 checked, filed with the Bureau of State Payrolls.
         The following earnings codes must be used:
         Earnings Codes
            9157    NRA Scholarship, Exempt Under IRC
            9184    NRA Scholarship
         Scholarships coded 9157 are not taxed. Scholarships coded 9184 are taxed at 14% by the
         Payroll Processing System, unless there is a Form DFS-A3-05, Reduction or Exemption
         From Withholding, in the system that indicates that the individual is claiming the benefits of
         a tax treaty. If the non-cash payment has to be taxed at 30%, you will need to contact the
         Bureau of State Payrolls, because the payment will have to be processed differently. Please
         refer to SECTION 7, and Section 9, for more details on taxation of this type of payments.
D. ROYALTY PAYMENTS
  Payments for royalties are processed through the Voucher Audit System. All nonresident alien
  royalty voucher payments must be submitted to the Bureau of State Payrolls, for tax compliance
  review. Payments should be coded using object code 4997 Royalties.
  The withholding rate that is required on the taxable portion of the payment varies depending on the
  particular tax treaty. If there is no tax treaty the withholding at a 30% rate is required. These rates
  are available in IRS Publication 901, U.S Tax Treaties. A journal transfer (JT) is to be prepared by
  agencies to transfer the income tax to the Bureau of State Payrolls using FLAIR account code: 43-
  74-2-101001-43200100-00-000600-00. Devolved universities must pay by check. The sub-vendor
  identification number must be the taxpayer identification number of the royalty recipient. The
  object code on the voucher and journal transfer must be the same. Documentation should be
  attached to the JT supporting the calculation of withholding.
E. PRIZES AND AWARDS
  Payments for prizes and awards are processed through the Voucher Audit System. All nonresident
  alien prize and award vouchers must be submitted to the Bureau of State Payrolls, which will review
  them to ensure compliance with tax regulations. Payments should be coded using object code 4984
  Awards to Nonresident Alien Non-employees.




REVISED: JANUARY 2005                       SECTION 14                                     PAGE 8 OF 9
TAXATION/RECONCILIATION                            NRA PAYMENT PROCESSING PROCEDURES

  Withholding at a 30% rate is required on the taxable portion of the payment. A journal transfer (JT)
  is to be prepared by agencies to transfer the income tax to the Bureau of State Payrolls using FLAIR
  account code: 43-74-2-101001-43200100-00-000600-00. Devolved universities must pay by check.
   The sub-vendor identification number must be the taxpayer identification number of the royalty
  recipient. The object code on the voucher and journal transfer must be the same. Documentation
  should be attached to the JT supporting the calculation of withholding.




REVISED: JANUARY 2005                      SECTION 14                                  PAGE 9 OF 9
TAXATION/RECONCILIATION                                      NRA VIEW PAYROLL SYSTEM
                                                       EMPLOYEE EXCLUDED INFORMATION

           VIEW PAYROLL SYSTEM – EMPLOYEE EXCLUDED INFORMATION
State employees or fellowship/scholarship recipients claiming eligibility for either an exemption from
withholding tax or reduced withholding must complete Form DFS-A3-05, Reduction or Exemption
From Withholding. Payroll system records created by Form DFS-A3-05 may be viewed by accessing
the FLAIR Payroll System.
REASON CODES 2, 4, 5, or 6
   To view reason types 2, 4, 5, or 6 on the form from the Payroll Main Menu select W4 and press the
   enter key.
                                             PAYROLL MAIN MENU
                SEL
                BC     BATCH CONTROL PROCESS
                CA     CANCELLATIONS AND ADJUSTMENTS
                CS     COLLECTIONS SYSTEM
                DC     DEFERRED COMP. AUTH. FILE - BOSP & TREASURER
                DE     DATA ENTRY PROCESS
                DM     DIRECTORY MAINTENANCE MENU
                EI     EMPLOYEE INFORMATION
                RS     REPORT SCHEDULING - BOSP ONLY
                SR     SALARY REFUNDS
                TR     TAX REPORTING
                W4     W4/W5 MAINTENANCE MENU

                W4     <--- ENTER SEL CODE


   The W-4 Maintenance Menu will appear. From this menu select “C” Inquiry of Current Records,
   enter the social security number (SS NUMBER), enter “ 9” under “TYPE”, and press the enter key.

                                        W-4 MAINTENANCE MENU

                SEL
                A       ADD NEW PENDING RECORDS           -   SS NUMBER REQUIRED
                C       INQUIRY OF CURRENT RECORDS        -   SS NUMBER REQUIRED
                I       INQUIRY OF PENDING RECORDS        -   SS NUMBER REQUIRED
                M       SUMMARY OF PENDING RECORDS        -   L2L3 AND OLO REQUIRED
                N       SUMMARY OF RECORDS BY NAME        -   LAST NAME REQUIRED – BOSP ONLY
                U       UPDATE OF PENDING RECORDS         -   SS NUMBER, LL2L3,AND OLO REQUIRED

                TYPE
                1       W-4 DATA
                8       EXCLUDED EMPLOYMENT DATA          (INCOME CODE 15)
                9       MISCELLANEOUS TAX DATA



       PF12 – MAIN MENU
       NEXT: SEL C           SS NUMBER 123 45 6789            STATUS     L2L3 ****          OLO ****
              TYPE 9         LAST NAME _                                 FIRST NAME


   The Miscellaneous Tax Data Screen will appear, displaying the information from Form DFS-A3-05,
   Reduction or Exemption From Withholding.

REVISED: JANUARY 2005                        SECTION 15                                  PAGE 1 OF 2
TAXATION/RECONCILIATION                                  NRA VIEW PAYROLL SYSTEM
                                                   EMPLOYEE EXCLUDED INFORMATION

REASON CODE 3

  To view reason 3 on Form DFS-A3-05 (scholarship exemption) select W4 from the Payroll Main
  Menu and press the enter key.

                                         PAYROLL MAIN MENU
              SEL
              BC     BATCH CONTROL PROCESS
              CA     CANCELLATIONS AND ADJUSTMENTS
              CS     COLLECTIONS SYSTEM
              DC     DEFERRED COMP. AUTH. FILE - BOSP & TREASURER
              DE     DATA ENTRY PROCESS
              DM     DIRECTORY MAINTENANCE MENU
              EI     EMPLOYEE INFORMATION
              RS     REPORT SCHEDULING - BOSP ONLY
              SR     SALARY REFUNDS
              TR     TAX REPORTING
              W4     W4/W5 MAINTENANCE MENU

              W4     <--- ENTER SEL CODE


  The W-4 Maintenance Menu will appear. From this menu select “C” Inquiry of Current Records,
  enter the social security number (SS NUMBER), enter “8” under TYPE, and press the enter key.

                                    W-4 MAINTENANCE MENU

              SEL
              A      ADD NEW PENDING RECORDS          -   SS NUMBER REQUIRED
              C      INQUIRY OF CURRENT RECORDS       -   SS NUMBER REQUIRED
              I      INQUIRY OF PENDING RECORDS       -   SS NUMBER REQUIRED
              M      SUMMARY OF PENDING RECORDS       -   L2L3 AND OLO REQUIRED
              N      SUMMARY OF RECORDS BY NAME       -   LAST NAME REQUIRED – BOSP ONLY
              U      UPDATE OF PENDING RECORDS        -   SS NUMBER, LL2L3,AND OLO REQUIRED

              TYPE
              1      W-4 DATA
              8      EXCLUDED EMPLOYMENT DATA         (INCOME CODE 15)
              9      MISCELLANEOUS TAX DATA



     PF12 – MAIN MENU
     NEXT: SEL C          SS NUMBER 123 45 6789           STATUS   L2L3 ****         OLO ****
            TYPE 8        LAST NAME _                              FIRST NAME



  The Miscellaneous Tax Data Screen will appear, displaying information from Form DFS-A3-05,
  Reduction or Exemption From Withholding.




REVISED: JANUARY 2005                    SECTION 15                                PAGE 2 OF 2
TAXATION/RECONCILIATION                                              NRA TAX TREATY ARTICLES

                                     TAX TREATY ARTICLES

A. TAX TREATY OVERVIEW
  The United States has income tax treaties with a number of foreign countries. Under these treaties,
  residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt
  from U.S. income taxes on certain items of income they receive from sources within the U.S. These
  reduced rates and exemptions vary among countries and specific items of income.
  If the treaty does not cover a particular kind of income, or if there is no treaty between the foreign
  country and the U.S., tax must be paid on the income in the same way and at the same rates shown
  on the instructions for Form 1040NR. Also see IRS Publication 519, U.S. Tax Guide for Aliens.
  Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they do
  not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S.
  income tax on their worldwide income.
  Treaty provisions generally are reciprocal (apply to both treaty countries). Therefore, a U.S. citizen
  or resident who receives income from a treaty country and who is subject to taxes imposed by
  foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the
  rate of taxes of those foreign countries. Treaty benefits generally are available to U.S. citizens who
  do not reside in the U.S.
B. RESEARCHING TAX TREATIES
  A tax treaty is the result of negotiations between the United States and a foreign country. The
  negotiation process is often lengthy, sometimes spanning many years before the ratifications are
  complete. Withholding agents should exercise caution when obtaining treaty information, as treaty
  information is generally available before the effective date. The tax treaty does not generally
  become effective until the first day of the calendar year after the instruments of ratification are
  exchanged.
  Because the Treasury Department is responsible for negotiating the terms of the tax treaty, the
  Treasury Department prepares a “technical explanation” of the text of the treaty and its intended
  provisions. This is the official guide for interpreting the tax treaty. The technical explanations are a
  valuable research tool for interpreting the often vague and ambiguous language used in a tax treaty.
  Because these explanations serve as the official guide and often contain new criteria for exemption,
  withholding agents should always read the Treasury Department Technical Explanation in
  connection with the actual text of the income tax treaty when reviewing any situation for tax treaty
  exemption.
  It is important to remember that when reading the Treasury Department Technical Explanation, the
  language may discuss the “existing convention’ versus the “new convention” – the Explanation is
  written to assist those reviewing the new treaty (i.e., “new convention”) in understanding the terms
  and conditions set forth therein, as compared to any “existing convention” that may currently be in
  effect at the time of review and ratification. Once ratified, the language of the Explanation is not
  modified to “update” the fact that the discussion therein refers to the now ratified treaty.




REVISED: FEBRUARY 2006                       SECTION 16                                     PAGE 1 OF 3
TAXATION/RECONCILIATION                                           NRA TAX TREATY ARTICLES


  1. IRS Publication 901, U.S. Tax Treaties
     Publication 901 will tell you whether a tax treaty between the U.S. and a particular country
     offers a reduced rate of, or possible a complete exemption from, U.S. income tax for residents of
     that particular country. Tables in the back of the publication show the countries that have
     income tax treaties with the U.S., the tax rates on different kinds of income, and the kinds of
     income that are exempt from tax. In addition to the tables in the back of the publication, the
     publication contains discussions of exemptions from tax and certain other effects of the tax
     treaties on the following types of income:
        •   Pay for certain personal services performed in the United States
        •   Pay of a professor, teacher, or researcher who teaches or performs research in the United
            States for a limited time.
        •   Amounts received for maintenance and studies by a foreign student or apprentice who is
            here for study or experience
        •   Wages, salaries, and pensions paid by a foreign government
     Caution! You should use Publication 901 only for quick reference. It is not a complete guide to
     all provisions of every income tax treaty.
     Some common tax treaty benefits of U.S. residents with foreign income are explained in IRS
     Publication 54, Tax Guide for U.S. Citizens and Residents Abroad.
  2. IRS – Income Tax Treaties
     The complete texts of the following income tax treaties and corresponding explanations are
      available at: http://www.irs.gov/businesses/international/article/0,,id=96739,00.html.
      Australia                 Greece                  Morocco                  Sweden
      Australia Protocol        Hungary                 Mexico                   Thailand
      Austria                   Iceland                 Netherlands              Trinidad
      Barbados                  India                   New Zealand              Tunisia
      Belgium                   Indonesia               Norway                   Turkey
      Canada                    Ireland                 Pakistan                 Ukraine
      China                     Israel                  Philippines              USSR
      Cyprus                    Italy                   Poland                   United Kingdom
      Czech Republic            Jamaica                 Portugal                 UK Protocol
      Denmark                   Japan                   Romania                  United Kingdom
      Egypt                     Kazakhstan              Russia                   United States Model
      Estonia                   Korea                   Slovak Republic          Venezuela
      Finland                   Latvia                  Slovenia
      France                    Lithuania               South Africa
      Germany                   Luxembourg              Spain




REVISED: FEBRUARY 2006                     SECTION 16                                   PAGE 2 OF 3
TAXATION/RECONCILIATION                                         NRA TAX TREATY ARTICLES


  3. Other Links – Treaty Information
     •   U.S. Department of Treasury -- http://www.ustreas.gov/offices/tax-policy/treaties.html
     •   IRS – International Taxpayer – Tax Treaties
            http://www.irs.gov/businesses/small/international/article/0,,id=96454,00.html




REVISED: FEBRUARY 2006                    SECTION 16                                 PAGE 3 OF 3
TAXATION/RECONCILIATION                                                                                    NRA RESOURCES
                                                        RESOURCES
This section provides a quick guide to contacts, links, publications and forms, and frequently used
words and concepts. For more information on a particular topic, please refer to the Table of Contents,
click on the section that covers the topic, and you will be linked to the portion of the NRA Handbook
that provides a more information on that subject.
A. TELEPHONE CONTACTS -- List of federal agencies and their respective telephone numbers.

    Agency                                 Section                                             Phone Number

    Bureau of Citizenship and              National Customer Service Center                    1-800-375-5283
    Immigration Services
    (BCIS)*

    Bureau of Citizenship and              Office of Business Liaison                          1-800-357-2099
    Immigration Services
    (BCIS)*

    Department of Labor                    Wage and Hour National Call Center                  1-866-487-2365

    Internal Revenue Service               Customer Service                                    1-215-516-2000

    Internal Revenue Service               General Information/ Technical Service              1-800-829-1040

    Internal Revenue Service               Information Reporting Program                       1-866-455-7438

    Internal Revenue Service               Taxpayer Advocate                                   1-877-777-4778

    Internal Revenue Service               Tax Treaty                                          1-200-874-1582

    Internal Revenue Service               Federal, State, & Local Government                  1-877-829-5500

    Internal Revenue Services              Forms                                               1-800-829-3676

    Social Security                        General Information                                 1-800-772-1213
    Administration

    Social Security                        Special Help Line                                   1-800-772-6270
    Administration

    Social Security                        Employee Verification Service Hotline               1-410-965-7140
    Administration

    Social Security                        Employer Services Liaison Officer –                 1-404-562-1315
    Administration                         Atlanta Region
    Pat McCarron
   * U.S. Citizenship and Immigration Services -- Background – On November 25, 2001, the President signed the Homeland
   Security Act of 2002 into law. This law transferred INS functions to the new Department of Homeland Security. As of March 1,
   2003, the former Immigration and Naturalization Service (INS) was abolished and its functions and units incorporated into the new
   Department.


REVISED: FEBRUARY 2006                                     SECTION 17                                              PAGE 1 OF 11
TAXATION/RECONCILIATION                                                             NRA RESOURCES

B. LINKS
  There is a wealth of information available via the internet that can assist with questions, concerns,
  and education for dealing with nonresident alien payments. See the alphabetical list below for many
  of these useful links.

   Agency                        Topic                        Website
   Arctic International LLC      Home Page                    http://www.arcticintl.com

   Bureau of Citizenship and     (BCIS) Home Page             http://uscis.gov/graphics/index.htm
   Immigration Services

   Bureau of Citizenship and     (BCIS) Office of Business    http://uscis.gov/graphics/services/employ
   Immigration Services          Liaison                      erinfo/oblhome.htm

   Department of Labor           Home Page                    http://www.dol.gov

   Department of State           Bureau of Consular Affairs   http://travel.state.gov/visa/tempvisitors.ht
                                                              ml

   Internal Revenue Code         U.S. Tax Code On-line        http://www.fourmilab.ch/ustax/ustax.htm
                                                              l

   Internal Revenue Service      Forms and instructions       http://www.irs.gov/formspubs/index.html

   Internal Revenue Service      Tax law questions to IRS     http://www.irs.gov/

   Internal Revenue Service      Publications                 http://www.irs.gov/formspubs/index.html

   Internal Revenue Service      Educational materials        http://www.irs.gov/

   Internal Revenue Service      IRS press releases           http://www.irs.gov/

   Internal Revenue Service      Frequently asked questions   http://www.irs.gov/

   Internal Revenue Service      E-mail questions to IRS      http://www.irs.gov/

   Siskind’s Immigration         Visa Law                     http://www.visalaw.com/
   Bulletin

   Social Security               Home Page                    http://www.socialsecurity.gov
   Administration

   Social Security               Totalization Agreements      http://www.ssa.gov/international/totalizat
   Administration                                             ion_agreements.html

   U.S. Dept. of Treasury        Home Page                    http://www.ustreas.gov/index.html

   U.S. Information Agency       Home Page 1953-1999          http://dosfan.lib.uic.edu/usia/

   Windstar Technologies, Inc.   Home Page                    http://www.windstar-tech.com
REVISED: FEBRUARY 2006                          SECTION 17                                PAGE 2 OF 11
TAXATION/RECONCILIATION                                                           NRA RESOURCES



C. FORMS & PUBLICATIONS
  The Table 1 below lists publications, forms, and handbooks that offer explanations and rules for
  handling NRA payments. Click on the publication or form you wish to view. Some publications
  and forms are in Adobe Acrobat PDF format, so you must have Adobe Reader in order to view.
  Some forms are not viewable from this page, as they are internal agency forms only. Several
  handbooks are only available by purchase through the publisher.

  Table 2 contains websites available for form searches, in case the one you are researching is not
  listed in the first table.
  TABLE 1

   Forms and
   Publications          Description or Title
   Booklet M-274         Handbook for Employers by USCIS
   DFS-A3-Affidavit      Prepared by an employing agency or university to certify compliance with
                         Treasury Regulation 301.6109(c)

   DFS-A3-NRA-           Nonresident Alien FICA Refund Request
   Refund
   DFS-A3-05             Reduction or Exemption From Withholding

   DFS-A3-53             Taxpayer Identification Number Request

   DS-2019               Certificate of Eligibility for Exchange Visitor Status (formerly IAP-66)

   Foreign National      Prepared by nonresident alien individuals and submitted with each voucher
   Form                  and other documentation for payments to NRA Independent Contractors.

   USCIS Form I-9        Employment Eligibility Verification

   USCIS Form I-20       Certificate of Eligibility for Nonimmigrant (F-1) Student Status

   USCIS I-94 Card       Arrival/Departure Record

   Form I-151 USCIS      Alien Registration Card (Green Card) replaced in 1996 with the I-551

   Form I-551 USCIS      Alien Registration Receipt Card; Green Card; Resident Alien Card;
                         Permanent Resident Card

   Form I-766 USCIS      Employment Authorization Document

   Immigration and       Immigration Issues for Tax and Payroll Professionals, by Eleanor Pelta
   Tax – At the          and Donna Kepley, Artic International, Washington, D.C.
REVISED: FEBRUARY 2006                       SECTION 17                                 PAGE 3 OF 11
TAXATION/RECONCILIATION                                                      NRA RESOURCES
   Crossroads

   Forms and
   Publications        Description or Title
   IRS Pub 15          Employers Tax Guide

   IRS Pub 15-A        Employer’s Supplemental Tax Guide

   IRS Pub 54          Tax Guide for U.S. Citizens and Resident Aliens Abroad

   IRS Pub 515         Withholding of Tax on NRA’s and Foreign Entities

   IRS Pub 519         U.S. Tax Guide for Aliens

   IRS Pub 678-FS      Foreign Students and Scholar Text

   IRS Pub 570         Tax Guide for Individuals With Income From U.S. Possessions

   IRS Pub 597         Information for the Unites States-Canada Income Tax Treaty

   IRS Pub 901         U.S. Tax Treaties

   IRS Pub 1187        Specifications for Filing Forms 1042-S, Foreign Person’s U.S. Source
                       Income subject to Withholding, Electronically or Magnetically

   IRS Pub 1542        Per Diem Rates

   IRS Pub 1915        Understanding Your IRS Individual Taxpayer Identification Number

   IRS Form 673        Statement for Claiming Benefits provided by Section 911, Internal Revenue
   with                Code
   Instructions
   IRS Form 1042       Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
   with Instructions

   IRS Form 1042-S     Foreign Person’s U.S. Source Income Subject to Withholding
   2006 Instructions

   IRS Form 1281       Backup Withholding for Missing an Incorrect Name/Tin(s)

   IRS Form 1042-T     Annual Summary and Transmittal of Forms 1042
   with Instructions

   IRS Form 4563       Exclusion of Income for Bona Fide Residents of American Somoa




REVISED: FEBRUARY 2006                     SECTION 17                               PAGE 4 OF 11
TAXATION/RECONCILIATION                                                           NRA RESOURCES
   Forms and
   Publications            Description or Title
   IRS Form 8233           Exemption from Withholding on Compensation for Independent Personal
   Instructions            Services of a Nonresident Alien Individual

   IRS Form W-7            Application for IRS Individual Tax Identification Number (ITIN)
   with Instructions

   IRS Form W-             Certificate of Foreign Status of Beneficial Owner for United States Tax
   8BEN                    Withholding
   Instructions
   IRS Form W-9            Request for Taxpayer Identification Number & Certification
   Instructions
   NAFTA                   North American Free Trade Agreement 1999

   Nonresident Alien       A Guide for Institution Making Payment to Foreign Students, Employees
   Tax Compliance          and Other International Visitors, by Donna E. Kepley, Artic International,
                           Washington, D.C.

   SS-5                    Application for Social Security Card

   SS-8                    Determination of Worker Status for Purposes of Federal Employment Taxes
                           and Income Tax Withholding


  TABLE 2

   Agency                              Internet Link
   USCIS (Home)                       http://uscis.gov/graphics/index.htm
   USCIS Forms                        http://uscis.gov/graphics/formsfee/index.htm
   USCIS Bulletins                    http://uscis.gov/graphics/services/employerinfo/eibulletin.htm
   Dept. of State - Visa Forms         http://foia.state.gov/FORMS/visa.asp
   Dept. of State - Passport Forms     http://travel.state.gov/passport/passport_1738.html
   Social Security Forms                http://ssa.gov/online
   IRS Forms and Publications           http://www.irs.gov/formspubs/
   IRS Prior Year’s Forms               http://www.irs.gov/formspubs/article/0,,id=98339,00.html
   U.S. Government Federal Forms http://www.usa-federal-forms.com/immigration.html#ssa




REVISED: FEBRUARY 2006                        SECTION 17                                PAGE 5 OF 11
TAXATION/RECONCILIATION                                                          NRA RESOURCES


D. GLOSSARY -- Frequently used terms and concepts



    Term                        Definition
    Acceptance Agent            A person under a written agreement with the IRS authorized to
                                assist alien individuals get ITINs.
    Accountable Plan Rules      Accountable plan rules apply only to compensatory payments – that
                                is, allowable travel payments and/or reimbursements made to
                                employees and independent contractors.
    Alien                       Non U.S. citizen
    BCIS                        The Immigration and Naturalization Service transitioned into the
                                Department of Homeland Security. On March 1, 2003 the INS
                                benefits function became part of the new Bureau of Citizenship and
                                Immigration Services (BCIS) within the Department of Homeland
                                Security.
    Beneficial Owner            If all the appropriate requirements have been established on a Form
                                W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary
                                evidence, the payee may be treated as a foreign beneficial owner.
    Certificate of Compliance   This is a form that a foreign visitor must file with the IRS to
    (“Sailing Permit”)          demonstrate that he or she has paid all applicable U.S. taxes before
                                leaving the U.S. Holders of F-1, J-1, H-3, and H-4 visas are not
                                required to obtain the Certificate of Compliance if their only U.S.
                                source income was:
                                    • Allowances or payments to cover study expenses (including
                                        travel, maintenance, and tuition), or
                                    • Wages from authorized work (including practical training).
    Closer Connection           The act of having a connection to a country other than the United
                                States by virtue of permanent home, personal and economic
                                relations, family, business, political and/or religious affiliations,
                                etc., even after residing in the U.S. for a long enough time period to
                                pass the substantial presence test in the U.S. for tax purposes.
    Compensation                Payment made in consideration of a past, present, future activity.
    Dependent Compensation      Wages, salary
    DHS                         Department of Homeland Security, formerly the U.S. Immigration
                                and Naturalization Service (INS).
    Dual Status                 An individual may be both a resident and a nonresident alien in the
                                same year. This usually occurs in the year of departure or arrival.
                                The appropriate withholding treatment applies, according to the
                                individual’s residency status for each part of the year.

REVISED: FEBRUARY 2006                      SECTION 17                                  PAGE 6 OF 11
TAXATION/RECONCILIATION                                                       NRA RESOURCES

   EAD – Employment         The document, issued by the USCIS, proves you are allowed to
   Authorization Document   work in the U.S. See Form I-765 for the categories of people who
                            must apply for an Employment Authorization Document. For those
                            who do not need to apply, see 8 CFR 274a.12(b).
   Effectively Connected    Generally, when a foreign person engages in a trade or business in
   Income                   the U.S., all income from sources in the U.S. connected with the
                            conduct of that trade or business is considered effectively connected
                            with a U.S. business.
   Exchange Visitor         The Immigration and Nationality Act provides two nonimmigrant
                            visa categories for the exchange visitor programs. The “J” visa is
                            for educational and cultural programs; the “Q” international cultural
                            exchange program provides for practical training and employment.
   Exempt Individual        The term refers to an individual who, when taking the substantial
                            presence test, is not required to count certain periods of time present
                            in the U.S. with respect to the calculation of the test.
   Exempt Status            A period of time when aliens in F, J, M, or Q immigration status are
                            not required to count their days of presence. 678-FS
   FADP                     Fixed or Determinable Annual or Periodical Income, is all income
                            except: 1) Gains from the sale of property; and, 2) Items of income
                            excluded from gross income with regard to U.S. or foreign status of
                            the owner of the income, such as Qualified Scholarship Income.
   Fellowship               According to Section 117 of the IRC, an amount paid or allowed to,
                            or for the benefit of a student, whether an undergraduate or
                            graduate, to aid such individual in pursuing his studies.
   Foreign National         Citizen of a foreign country
   Form DS-2019             Form DS-2019 is a document published by the U.S. Information
                            Agency that supports a J-1 visa. The form is prepared for student
                            and scholars by the sponsoring university.
   Form I-9                 The Immigration Reform and Control Act made all U.S. employers
                            responsible to verify the employment eligibility and identity of all
                            employees hired to work in the U.S. To implement the law,
                            employers are required to complete Employment Eligibility
                            Verification forms (Form I-9) for all employees, including U.S.
                            citizens.
   Form I-20                Form I-20 is a document published by the USCIS that supports an
                            F-1 visa. Only students receive Form I-20.
   Green Card               Alien registration card issued by the U.S. Citizenship and
                            Immigration Services. The card gives official immigration status,
                            or Lawful Permanent Residency, in the United States. AKA:
                            Resident Alien Card, Permanent Resident Card, Alien Registration
                            Receipt Card, Form I-551
REVISED: FEBRUARY 2006                  SECTION 17                                  PAGE 7 OF 11
TAXATION/RECONCILIATION                                                       NRA RESOURCES


   Green Card Test          The green card granted foreign nationals who enter the United
                            States with immigrant visas confers resident status on such
                            individuals. Individuals generally are treated as residents for the
                            entire tax year if they held a green card at any time during that year.
   Illegal Alien            Aliens that entered the United States without proper authorization
                            and documents; or aliens that once entered the U.S. legally and have
                            since violated the terms of entry.
   Individual Taxpayer      An ITIN is for tax use only. It does not entitle a person to social
   Identification Number    security benefits or change employment or immigration status.

   Independent Contractor   Payments to foreign visitors for services performed outside the
   Compensation             scope of employment. (e.g., consulting fees, speaker fees,
                            honoraria, and payment to an independent contractor.)

   INS                      See BCIS above.
   IRCA                     Immigration Reform and Control Act of 1986 requires employers to
                            verify the employment eligibility of persons working in the United
                            States who are: 1) Citizens of the United States; 2) Nationals of the
                            United States; or, 3) Aliens authorized to work in the U.S.
   Lawful Permanent         An individual residing permanently in the U.S. as an immigrant, in
   Resident                 accordance with immigration laws.
   National                 For U.S. tax purposes, a national is generally thought of as a citizen;
                            however, a national is also an individual who owes allegiance to or
                            is afforded the rights and protection by virtue of something less than
                            formal citizenship. Is generally someone born (i) in a U.S.
                            possession, or (ii) outside the U.S. or a U.S. possession to parents
                            who are both nationals of the U.S.
   Nonimmigrant             An alien who is allowed to reside temporarily in the United States.

   Nonresident Alien        A nonresident alien is an individual who is not a U.S. citizen or a
                            resident alien. A resident of a foreign country under the residence
                            article of an income tax treaty is a nonresident alien for tax
                            purposes. A person who is not a U.S. citizen and who does not
                            meet either the green card test or the substantial presence test.
   Non-Qualified            As set forth in IRC Section 117, a non-qualified scholarship is the
   Scholarship              amount received as a scholarship grant which is in excess of (i)
                            tuition and fees required for enrollment, and (ii) fees, books,
                            supplies, and equipment required for enrollment in classes. (e.g.,
                            room, board, travel, non-required equipment, stipend, living
                            allowance, per diem, cash, etc.)


   Passport                 Any travel document issued by a competent authority showing the

REVISED: FEBRUARY 2006                  SECTION 17                                  PAGE 8 OF 11
TAXATION/RECONCILIATION                                                           NRA RESOURCES
                              bearer’s origin, identity and nationality (if any), which is valid for
                              admission of the bearer into a foreign country.
   Penalties for Prohibited   The DHS is authorized to conduct investigations to determine
   Practices                  whether employers have violated the prohibitions against knowingly
                              employing unauthorized aliens and failing to properly complete,
                              present or retain the Employment Eligibility Verification form for
                              newly hired individuals. See USCIS Bulletin 111 (December 7,
                              2004), http://www.uscis.gov/index.htm.
   Primary Purpose            The primary reason for which the individual came to and remains
                              present in the U.S. The primary purpose is either set forth on the
                              individual’s immigration or visa documentation or is implicit to the
                              issuance of the particular visa.
   Qualified Scholarship      Any amount received as a scholarship or fellowship grant that you
                              use according to the terms of the grant for:
                                  (1) Tuition and fees required to enroll in, or to attend, and
                                      educational institution, or
                                  (2) Income that is not effectively connected with a trade or
                                      business in the Unites States
   Remuneration               Anything of value given in exchange for labor or services rendered
                              by an employee
   Resident Alien             A resident alien is an individual that that is not a citizen or national
                              of the U.S. and who meets either the green card test or the
                              substantial presence test for the calendar year (January 1 to
                              December 31).
   Resident Alien Election    Nonresident aliens may make a special election to be treated as a
                              resident for the first year in which they are present in the U.S. This
                              election is subject to several restrictions, one of which is that the
                              individual must satisfy the substantial presence test in the year
                              following the election.
   Savings Clause             A provision in an income tax treaty to which the U.S. is a party, the
                              purpose of which is to prevent U.S. citizens and/or residents from
                              using the income tax treaty to reduce their U.S. tax liability or
                              otherwise use the benefits of the treaty. The “savings clause”
                              allows the U.S. to tax its citizens and/or residents as if the treaty had
                              not come into effect.
   Savings Clause Exception   The U.S. may choose to allow certain individuals who enter the
                              U.S. for a temporary visit, but who have obtained U.S. residency
                              status for tax purposes to claim or, as in most cases, continue to
                              claim, the benefits of the tax treaty. Educational visaholders, for
                              whom the exception to the “savings clause” generally applies, are
                              allowed to remain nonresident aliens for longer periods of time than
                              under the previous U.S. tax residency tests.



REVISED: FEBRUARY 2006                    SECTION 17                                    PAGE 9 OF 11
TAXATION/RECONCILIATION                                                      NRA RESOURCES
   Scholarship          An amount given to or on behalf of a student for purposes of
                        educational activity. For tax purposes, a scholarship must be
                        divided into three components, based on the intent of the payment:
                        (i) qualified scholarship (i.e., tuition, required fees, books/supplies),
                        (ii) non-qualified scholarship (i.e., amounts in excess of the
                        qualified portion for which services are not required), (iii)
                        compensation for services.
    Social Security             An agency of the United States Department of Health and Human
    Administration              Services.
    Social Security Number      A card issued by the Social Security Administration that has a
    and Card                    unique nine-digit identification number issued to qualifying
                                individuals, primarily to determine eligibility for benefits earned
                                though employment. Employers are required to report wages using
                                the Social Security number. While waiting for a Social Security
                                number, employers can use a letter from the Social Security
                                Administration stating that the individual has applied for a number.
    Social Security Tax         The old age, survivors, and disability insurance portion of the FICA
                                tax.
    Source of Income            Generally, income is from U.S. sources if it is paid by domestic
                                corporations, U.S. citizens, or resident aliens, or entities formed
                                under the laws of the U.S. or a state. Income is also U.S. source if
                                the property that produces the income for which the income is paid
                                were performed in the U.S.
    Stipend                     A payment made to an individual for purposes of living or
                                maintenance.
    Student                     Any individual who is temporarily in the United States on an “F,”
                                “J,” “M,” “Q” visa.
    Substantial Presence Test   Foreign nationals must be treated as residents if they satisfy the
                                substantial presence test, even if they have entered the U.S. under a
                                nonimmigrant visa. Under this test the foreign national is a resident
                                if present in the U.S. at least 31 days in the current year and 183
                                days during the current year and two preceding years as determined
                                under a weighted formula.
    Teacher/Trainee             An individual, other than a student, who is temporarily in the United
                                States under a “J” or “Q” visa and substantially complies wit the
                                requirements of that visa.
    Technical Explanation       Technical explanation from the IRS is the official explanation of an
    (Treasury Department)       income tax treaty for purposes of U.S. taxation.
    Totalization Agreements     A bi-national agreement to alleviate the burden of double social
                                security taxation and to integrate coverage of employees.

    Treaty                      A treaty is an agreement between two countries. The provisions

REVISED: FEBRUARY 2006                      SECTION 17                               PAGE 10 OF 11
TAXATION/RECONCILIATION                                                     NRA RESOURCES
                          take precedence over regular tax law


   U.S. Citizenship &     On March 1, 2003, services formerly provided by the Immigration
   Immigration Services   and Naturalization Services transitioned into the Department of
   (USCIS)                Homeland Security under U.S. Citizenship & Immigration Services.
                          In support of DHS overall mission, the priorities of USCIS are to
                          promote national security, continue to eliminate immigration case
                          backlogs, and improve customer service.

   Visa                   An official endorsement of a passport indicating the owner has
                          permission to enter or cross a particular country. The visa type
                          further identifies the primary purpose of the visit and relates to a
                          section of law.
   Visa Waiver Program    Starting October 26, 2004 visa waiver travelers from all 27 Visa
                          Waiver Program (VWP) countries must present either a machine-
                          readable passport or a U.S. visa. See http://travel.state.gov.
   Withholding Agent      A withholding agent is any person or entity that is required to
                          deduct or withhold tax from payments made to nonresident aliens or
                          foreign organizations and pay that tax to the IRS. A withholding
                          agent can be held liable for any tax that should have been deducted,
                          withheld, or otherwise collected.




REVISED: FEBRUARY 2006                SECTION 17                                  PAGE 11 OF 11
Form    8233                       Exemption From Withholding on Compensation
                                 for Independent (and Certain Dependent) Personal
(Rev. December 2001)                                                                                                                             OMB No. 1545-0795
                                      Services of a Nonresident Alien Individual
Department of the Treasury
Internal Revenue Service                                             See separate instructions.

Who Should                   IF you are a nonresident alien individual who is                           THEN, if you are the beneficial owner of that
Use This Form?               receiving . . .                                                            income, use this form to claim . . .

Note: For                    Compensation for independent personal                                      A tax treaty withholding exemption for part or
definitions of terms         services performed in the United States                                    all of that compensation and/or to claim the
used in this section                                                                                    daily personal exemption amount.
and detailed
instructions on              Compensation for dependent personal                                        A tax treaty withholding exemption for part or
required                     services performed in the United States                                    all of that compensation.
withholding forms
for each type of                                                                                        Note: Do not use Form 8233 to claim the daily
income, see                                                                                             personal exemption amount.
Definitions on
pages 1 through 3            Noncompensatory scholarship or fellowship                                  A tax treaty withholding exemption for part or
of the instructions.         income and personal services income from                                   all of both types of income.
                             the same withholding agent

DO NOT Use                   IF you are a beneficial owner who is . . .                                 INSTEAD, use . . .
This Form. . .
                             Receiving compensation for dependent                                       Form W-4
                             personal services performed in the United
                             States and you are not claiming a tax treaty
                             withholding exemption for that compensation

                             Receiving noncompensatory scholarship or                                   Form W-8BEN or, if elected by the
                             fellowship income and you are not receiving                                withholding agent, Form W-4 for the
                             any personal services income from the same                                 noncompensatory scholarship or
                             withholding agent                                                          fellowship income

                             Claiming only foreign status or treaty benefits                            Form W-8BEN
                             with respect to income that is not
                             compensation for personal services


This exemption is applicable for compensation for calendar year                                , or other tax year beginning

and ending                                    .

 Part I        Identification of Beneficial Owner (See instructions.)
 1 Name of individual who is the beneficial owner           2 U.S. taxpayer identifying number              3   Foreign tax identifying number, if any (optional)


 4 Permanent residence address (street, apt. or suite no., or rural route). Do not use a P.O. box.


    City or town, state or province. Include postal code where appropriate.                                     Country (do not abbreviate)


 5 Address in the United States (street, apt. or suite no., or rural route). Do not use a P.O. box.


    City or town, state, and ZIP code


    Note: Citizens of Canada or Mexico are not required to complete lines 7a and 7b.
 6 U.S. visa type                                            7a Country issuing passport                    7b Passport number


 8 Date of entry into the United States                      9a Current nonimmigrant status                 9b Date your current nonimmigrant status expires


10 If you are a foreign student, trainee, professor/teacher, or researcher, check this box
   Caution: See the line 10 instructions for the required additional statement you must attach.
For Paperwork Reduction Act Notice, see separate instructions.                                        Cat. No. 62292K                     Form   8233    (Rev. 12-2001)
Form 8233 (Rev. 12-2001)                                                                                                                                            Page     2
 Part II      Claim for Tax Treaty Withholding Exemption and/or Personal Exemption Amount
11     Compensation for independent (and certain dependent) personal services:
     a Description of personal services you are providing



     b Total compensation you expect to be paid for these services in this calendar or tax year                                 $
12     If compensation is exempt from withholding based on a tax treaty benefit, provide:
     a Tax treaty and treaty article on which you are basing exemption from withholding

     b Total compensation listed on line 11b above that is exempt from tax under this treaty                                $
     c Country of permanent residence
    Note: Do not complete lines 13a through 13c unless you also received compensation for personal services from the same
    withholding agent.
13 Noncompensatory scholarship or fellowship income:
  a Amount $
  b Tax treaty and treaty article on which you are basing exemption from withholding

     c Total income listed on line 13a above that is exempt from tax under this treaty $
14     Sufficient facts to justify the exemption from withholding claimed on line 12 and/or line 13 (see instructions)




       Note: Lines 15 through 18 are to be completed only for certain independent personal services (see instructions).
15     Number of personal exemptions                            16 How many days will you perform services in
       claimed                                                      the United States during this tax year?
17     Daily personal exemption amount claimed (see instructions)
18     Total personal exemption amount claimed. Multiply line 16 by line 17
 Part III        Certification
Under penalties of perjury, I declare that I have examined the information on this form and to the best of my knowledge and belief it is true, correct, and complete.
I further certify under penalties of perjury that:
● I am the beneficial owner (or am authorized to sign for the beneficial owner) of all the income to which this form relates.
● The beneficial owner is not a U.S. person.
● The beneficial owner is a resident of the treaty country listed on line 12a and/or 13b above within the meaning of the income tax treaty between the United States
  and that country.
● The beneficial owner is not a former citizen or long-term resident of the United States subject to section 877 (relating to certain acts of expatriation) or, if subject
  to section 877, the beneficial owner is nevertheless entitled to treaty benefits with respect to the amounts received.
Furthermore, I authorize this form to be provided to any withholding agent that has control, receipt, or custody of the income of which I am the beneficial owner or
any withholding agent that can disburse or make payments of the income of which I am the beneficial owner.


Sign Here
                              Signature of beneficial owner (or individual authorized to sign for beneficial owner)                               Date
 Part IV         Withholding Agent Acceptance and Certification
Name                                                                                                                                     Employer identification number


Address (number and street) (Include apt. or suite no. or P.O. box, if applicable.)


City, state, and ZIP code                                                                                                                Telephone number


Under penalties of perjury, I certify that I have examined this form and any accompanying statements, that I am satisfied that an exemption from withholding is warranted,
and that I do not know or have reason to know that the nonresident alien individual is not entitled to the exemption or that the nonresident alien’s eligibility for the
exemption cannot be readily determined.

Signature of withholding agent                                                                                                         Date
                                                                                                                                OMB No. 1115-0136
U.S. Department of Justice
Immigration and Naturalization Service                                                    Employment Eligibility Verification

                                                            INSTRUCTIONS
                           PLEASE READ ALL INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS FORM.

 Anti-Discrimination Notice. It is illegal to discriminate against any individual (other than an alien not authorized to work in the
 U.S.) in hiring, discharging, or recruiting or referring for a fee because of that individual's national origin or citizenship status. It is
 illegal to discriminate against work eligible individuals. Employers CANNOT specify which document(s) they will accept from an
 employee. The refusal to hire an individual because of a future expiration date may also constitute illegal discrimination.

 Section 1 - Employee.                 All employees, citizens and                 If an employee is rehired within three (3) years of the
 noncitizens, hired after November 6, 1986, must complete                          date this form was originally completed and the
 Section 1 of this form at the time of hire, which is the actual                   employee's work authorization has expired or if a
 beginning of employment. The employer is responsible for                          current employee's work authorization is about to
 ensuring that Section 1 is timely and properly completed.                         expire (reverification), complete Block B and:
                                                                                  -     examine any document that reflects that the
 Preparer/Translator Certification. The Preparer/Translator                             employee is authorized to work in the U.S. (see
 Certification must be completed if Section 1 is prepared by a                          List A or C),
 person other than the employee. A preparer/translator may be                           record the document title, document number
                                                                                  -     and expiration date (if any) in Block C, and
 used only when the employee is unable to complete Section 1
 on his/her own. However, the employee must still sign Section                          complete the signature block.
                                                                                  -
 1.                                                                       Photocopying and Retaining Form I-9. A blank I-9 may be
                                                                          reproduced, provided both sides are copied. The Instructions
 Section 2 - Employer. For the purpose of completing this                 must be available to all employees completing this form.
 form, the term "employer" includes those recruiters and                  Employers must retain completed I-9s for three (3) years after
 referrers for a fee who are agricultural associations, agricultural      the date of hire or one (1) year after the date employment ends,
 employers or farm labor contractors.                                     whichever is later.
                                                                          For more detailed information, you may refer to the INS
 Employers must complete Section 2 by examining evidence of               Handbook for Employers, (Form M-274). You may obtain
 identity and employment eligibility within three (3) business            the handbook at your local INS office.
 days of the date employment begins. If employees are                     Privacy Act Notice.   The authority for collecting this
 authorized to work, but are unable to present the required               information is the Immigration Reform and Control Act of
 document(s) within three business days, they must present a              1986, Pub. L. 99-603 (8 USC 1324a).
 receipt for the application of the document(s) within three              This information is for employers to verify the eligibility of
 business days and the actual document(s) within ninety (90)              individuals for employment to preclude the unlawful hiring, or
 days. However, if employers hire individuals for a duration of           recruiting or referring for a fee, of aliens who are not
 less than three business days, Section 2 must be completed at            authorized to work in the United States.
 the time employment begins. Employers must record: 1)
 document title; 2) issuing authority; 3) document number, 4)             This information will be used by employers as a record of their
 expiration date, if any; and 5) the date employment begins.              basis for determining eligibility of an employee to work in the
 Employers must sign and date the certification. Employees                United States. The form will be kept by the employer and made
 must present original documents. Employers may, but are not              available for inspection by officials of the U.S. Immigration and
 required to, photocopy the document(s) presented. These                  Naturalization Service, the Department of Labor and the Office
 photocopies may only be used for the verification process and            of Special Counsel for Immigration Related Unfair Employment
 must be retained with the I-9. However, employers are still              Practices.
 responsible for completing the I-9.                                      Submission of the information required in this form is voluntary.
                                                                          However, an individual may not begin employment unless this
 Section 3 - Updating and Reverification. Employers                       form is completed, since employers are subject to civil or
 must complete Section 3 when updating and/or reverifying the             criminal penalties if they do not comply with the Immigration
 I-9. Employers must reverify employment eligibility of their             Reform and Control Act of 1986.
 employees on or before the expiration date recorded in                   Reporting Burden. We try to create forms and instructions that
 Section 1. Employers CANNOT specify which document(s)                    are accurate, can be easily understood and which impose the
 they will accept from an employee.                                       least possible burden on you to provide us with information.
                                                                          Often this is difficult because some immigration laws are very
          If an employee's name has changed at the time this              complex. Accordingly, the reporting burden for this collection
          form is being updated/ reverified, complete Block A.            of information is computed as follows: 1) learning about this
                                                                          form, 5 minutes; 2) completing the form, 5 minutes; and 3)
          If an employee is rehired within three (3) years of the
                                                                          assembling and filing (recordkeeping) the form, 5 minutes, for
          date this form was originally completed and the                 an average of 15 minutes per response. If you have comments
          employee is still eligible to be employed on the same           regarding the accuracy of this burden estimate, or suggestions
          basis as previously indicated on this form (updating),          for making this form simpler, you can write to the Immigration
          complete Block B and the signature block.                       and Naturalization Service, HQPDI, 425 I Street, N.W., Room
                                                                          4034, Washington, DC 20536. OMB No. 1115-0136.

                                                                                                                           Form I-9 (Rev. 11-21-91)N
                                          EMPLOYERS MUST RETAIN COMPLETED FORM I-9
                                         PLEASE DO NOT MAIL COMPLETED FORM I-9 TO INS
U.S. Department of Justice                                                                                                                                  OMB No. 1115-0136
Immigration and Naturalization Service                                                                     Employment Eligibility Verification
Please read instructions carefully before completing this form. The instructions must be available during completion
of this form. ANTI-DISCRIMINATION NOTICE: It is illegal to discriminate against work eligible individuals.
Employers CANNOT specify which document(s) they will accept from an employee. The refusal to hire an
individual because of a future expiration date may also constitute illegal discrimination.
Section 1. Employee Information and Verification.                          To be completed and signed by employee at the time employment begins.
Print Name:      Last                                     First                                   Middle Initial       Maiden Name


Address (Street Name and Number)                                                                  Apt. #               Date of Birth (month/day/year)


City                                                State                                          Zip Code            Social Security #


 I am aware that federal law provides for                                         I attest, under penalty of perjury, that I am (check one of the following):
                                                                                              A citizen or national of the United States
 imprisonment and/or fines for false statements or
                                                                                             A Lawful Permanent Resident (Alien # A
 use of false documents in connection with the                                               An alien authorized to work until        /  /
 completion of this form.                                                                    (Alien # or Admission #)
Employee's Signature                                                                                                      Date (month/day/year)

             Preparer and/or Translator Certification.                 (To be completed and signed if Section 1 is prepared by a person
             other than the employee.) I attest, under penalty of perjury, that I have assisted in the completion of this form and that to the
             best of my knowledge the information is true and correct.
             Preparer's/Translator's Signature                                            Print Name

             Address (Street Name and Number, City, State, Zip Code)                                                    Date (month/day/year)


Section 2. Employer Review and Verification. To be completed and signed by employer. Examine one document from List A OR
examine one document from List B and one from List C, as listed on the reverse of this form, and record the title, number and expiration date, if any, of the
document(s)
                        List A                       OR                            List B                       AND                                List C
Document title:

Issuing authority:

Document #:

       Expiration Date (if any):    /    /                             /      /                                                     /       /

Document #:

       Expiration Date (if any):    /    /

CERTIFICATION - I attest, under penalty of perjury, that I have examined the document(s) presented by the above-named
employee, that the above-listed document(s) appear to be genuine and to relate to the employee named, that the
employee began employment on (month/day/year)           /    /    and that to the best of my knowledge the employee
is eligible to work in the United States. (State employment agencies may omit the date the employee began
employment.)
Signature of Employer or Authorized Representative                Print Name                                            Title


Business or Organization Name                 Address (Street Name and Number, City, State, Zip Code)                     Date (month/day/year)



Section 3. Updating and Reverification.               To be completed and signed by employer.
A. New Name (if applicable)                                                                                   B. Date of rehire (month/day/year) (if applicable)


C. If employee's previous grant of work authorization has expired, provide the information below for the document that establishes current employment
   eligibility.
                Document Title:                           Document #:                         Expiration Date (if any):         /       /
l attest, under penalty of perjury, that to the best of my knowledge, this employee is eligible to work in the United States, and if the employee presented
document(s), the document(s) l have examined appear to be genuine and to relate to the individual.
Signature of Employer or Authorized Representative                                                                      Date (month/day/year)


                                                                                                                                                Form I-9 (Rev. 11-21-91)N Page 2
                                       LISTS OF ACCEPTABLE DOCUMENTS

               LIST A                                       LIST B                                    LIST C

 Documents that Establish Both                     Documents that Establish                Documents that Establish
    Identity and Employment                                Identity                         Employment Eligibility
              Eligibility              OR                                           AND
                                            1. Driver's license or ID card            1. U.S. social security card issued
1. U.S. Passport (unexpired or
                                               issued by a state or outlying             by the Social Security
   expired)
                                               possession of the United States           Administration (other than a card
                                               provided it contains a                    stating it is not valid for
                                               photograph or information such as         employment)
2. Certificate of U.S. Citizenship
                                               name, date of birth, gender,
   (INS Form N-560 or N-561)                   height, eye color and address

                                                                                      2. Certification of Birth Abroad
3. Certificate of Naturalization            2. ID card issued by federal, state          issued by the Department of
   (INS Form N-550 or N-570)                    or local government agencies or          State (Form FS-545 or Form
                                                entities, provided it contains a         DS-1350)
                                                photograph or information such as
4. Unexpired foreign passport,                  name, date of birth, gender,
   with I-551 stamp or attached                 height, eye color and address
   INS Form I-94 indicating                                                           3. Original or certified copy of a
   unexpired employment                                                                  birth certificate issued by a state,
                                            3. School ID card with a
   authorization                                                                         county, municipal authority or
                                               photograph
                                                                                         outlying possession of the United
5.   Permanent Resident Card or                                                          States bearing an official seal
                                            4. Voter's registration card
     Alien Registration Receipt Card
     with photograph (INS Form              5. U.S. Military card or draft record
     I-151 or I-551)
                                            6.    Military dependent's ID card        4. Native American tribal document
6. Unexpired Temporary Resident
   Card (INS Form I-688)
                                            7. U.S. Coast Guard Merchant
                                               Mariner Card
                                                                                      5. U.S. Citizen ID Card (INS Form
7. Unexpired Employment
                                            8. Native American tribal document           I-197)
   Authorization Card (INS Form
   I-688A)
                                            9. Driver's license issued by a
                                               Canadian government authority          6. ID Card for use of Resident
8. Unexpired Reentry Permit (INS                                                         Citizen in the United States
   Form I-327)                                   For persons under age 18 who            (INS Form I-179)
                                                     are unable to present a
                                                     document listed above:
9. Unexpired Refugee Travel
   Document (INS Form I-571)                                                          7. Unexpired employment
                                            10. School record or report card             authorization document issued by
10. Unexpired Employment
                                                                                         the INS (other than those listed
    Authorization Document issued by                                                     under List A)
    the INS which contains a                11. Clinic, doctor or hospital record
    photograph (INS Form I-688B)
                                            12. Day-care or nursery school
                                                record



         Illustrations of many of these documents appear in Part 8 of the Handbook for Employers (M-274)


                                                                                                   Form I-9 (Rev. 10/4/00)Y Page 3

				
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