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Accounts Payable Training Seminars

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Accounts Payable Training Seminars Powered By Docstoc
					        Accounts Payable &
       Disbursements Training
_____________________________________________________________

                      DAY TWO
Taxable Payments Made Through the
          Vendor System
______________________________________________________________


                         Asger Pedersen
                  Accounting Services & Controls
                       Agenda
                       DAY TWO
                             (Today)
Taxable Payments Made Through the
 Vendor System
   Review: General Disbursements Issues
   Independent Personal Services Payments
   Vendor Payments with Income Tax Implications
   California Non-Wage Tax Withholding
   Taxation of Scholarship / Fellowship Grants
   Nonresident Alien Tax Issues

                    DAY TWO     Taxable Payments Made
Nov-10                  through the Vendor System       2
           Class Focus

AWARENESS – Policies, Procedures,
  Responsibilities
PROCESSES – serving stakeholders
TOOLS – providing user functionality
         Ask questions!
            DAY TWO     Taxable Payments Made
Nov-10          through the Vendor System       3
     Review: General Disbursements Issues
                       The Essentials
Accounting looks for evidence of both
 Authorization and Approval
No payment transaction should lack
 appropriate authorization, approval
 and substantiating documentation
         See discussion at PAYMENT PROCESSING AT UCSB:
                   OVERVIEW at following web link:
           http://www.accounting.ucsb.edu/pdf/ap_overview.pdf

                         DAY TWO     Taxable Payments Made
Nov-10                       through the Vendor System          4
     Review: General Disbursements Issues
    All payment requests must evidence
•   Authorization — a commitment
     •   By an authorized individual (PI’s, LV buyers,
         Purchasing, Contracts & Property Office)
     •   In the form of a requisition, purchase order,
         contract, agreement or letter of understanding
•   Approval — an acknowledgement
     •   By a departmental approver (signer with authority to
         disburse from the budget in question)
     •   In the form of an invoice or payment request
         referencing a valid authorization


                     DAY TWO     Taxable Payments Made
Nov-10                   through the Vendor System         5
     Review: General Disbursements Issues
     Relationships & Compliance Issues
All payment requests …
•  Infer a contractual relationship
     •   Buyer/Seller – common goods & services
     •   Employer/Employee – dependent personal services
     •   Client/Service provider – independent persnl servcs
•   Raise tax compliance issues
     •   Sales/Use tax – common goods & services
     •   Income tax reporting – dependent and independent
         personal services providers
     •   Income tax withholding – as triggered by taxpayer’s
         status (residency, entity type, back-up withholding)
                      DAY TWO     Taxable Payments Made
Nov-10                    through the Vendor System            6
     Review: General Disbursements Issues
         The Different Types of Services

Payments for common goods & services
     •   Under Low Value (LV), Vendor Blanket (VB) or High
         Value (SB) authorizations
Payments for personal, professional services
     •   Requiring Payroll processing or
     •   Letter of Understanding (LE), Business Services
         Contract (CT) or High Value Purchase Order (SB)
     See discussions at PAYMENT PROCESSING AT UCSB:
             SELECTED TOPICS at following web link:
http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf


                      DAY TWO     Taxable Payments Made
Nov-10                    through the Vendor System              7
      Independent Personal Services Payments
              Governing U.C. Policies
  The following are links to relevant UC policies
                   BFB* BUS-43, Materiel Management
             http://www.ucop.edu/ucophome/policies/bfb/bus43.html
            BFB* BUS-77, Independent Contractor Guidelines
            http://www.ucop.edu/ucophome/policies/bfb/bus77pdf.html
BFB* BUS-34, Securing the Services of Independent Consultants
             http://www.ucop.edu/ucophome/policies/bfb/bus34.html
                                       *Business and Finance Bulletins (BFB)
  See also Summary of Authorizations Required for Approval at
http://www.accounting.ucsb.edu/pdf/AP_summary_of_auths_for_payment.pdf



                             DAY TWO     Taxable Payments Made
   Nov-10                        through the Vendor System             8
   Independent Personal Services Payments
           Local Policy Administration
Contracts & Property or Purchasing units
 Authorizes contracts for services

 Links to forms, guidance, policies
        http://www.busserv.ucsb.edu/contractsproperty/index.htm
        http://www.busserv.ucsb.edu/purchasing/index.htm
Accounting Services & Controls
 Processes contract payments

 Links to forms, guidance, policies
        http://www.accounting.ucsb.edu/disbursement/forms.shtml


                         DAY TWO     Taxable Payments Made
Nov-10                       through the Vendor System             9
    Independent Personal Services Payments
         Authorizing Services Contracts
   You do not have the authority to sign contracts on
    behalf of UC unless delegated to you by
    Regents/Chancellor/campus Materiel Manager
        Must go through Contracts & Property office
   No agreements should be executed outside
    established policy and procedure parameters
        Know contract authorization vehicles and limits
   No services should be performed without a fully
    executed Letter of Understanding (LE), Purchase
    Order (SB), or Business Services Contract (CT)
        Violations could result in personal/institutional liabilities


                          DAY TWO     Taxable Payments Made
Nov-10                        through the Vendor System              10
   Independent Personal Services Payments
         Authorizing Services Contracts
         Tools and guidance at the Purchasing /
              Contracts & Property web sites
         Request for Independent Consultant Services
           http://www.busserv.ucsb.edu/Forms/ConsultantRequest.pdf
         Request for Personal or Professional Services
          Agreement
           http://www.busserv.ucsb.edu/Forms/RequestforService.pdf
         CONTACTS:
            Julie Sears, Materiel Manager,
             julie.sears@buss.ucsb.edu, x2585
            Randy Stoskopf, Contracts & Property
             Administrator, randall.stoskopf@purc.ucsb.edu,
             x3001

                         DAY TWO     Taxable Payments Made
Nov-10                       through the Vendor System               11
       Independent Personal Services Payments
              Status Determination per BFB BUS-77
    Employee status
            Employer controls results, methods and means
    Non-employee status
            Employer controls only the results
    Status determination tools
       Independent Contractor Pre-hire Worksheet, Exhibit D
      http://www.ucop.edu/ucophome/policies/bfb/bus34a3.pdf
       See also Purchasing’s Relationship Determination Table
      http://www.busserv.ucsb.edu/purchasing/goods_services/indepcontrac
                                  tors_psa.htm

                             DAY TWO     Taxable Payments Made
    Nov-10                       through the Vendor System           12
        Independent Personal Services Payments
      Services Definitions from BFB BUS-43
1.    Common goods and services – Standard supplies
     and services readily obtainable through conventional
     commercial channels (covered in DAY ONE class)
2.   Personal services – infrequent, technical, or unique
     functions performed by an independent contractor
       Usually an individual, perhaps part-time
       For example; translation, technical editing or appraisal
3.   Professional services – infrequent, technical, and/or
     unique functions by an independent contractor
       In an occupation rendering such services full time, often
        partnerships, firms, corporations
       For example; medical, engineering, performing arts,
        management consultation
                        DAY TWO     Taxable Payments Made
     Nov-10                 through the Vendor System          13
        Independent Personal Services Payments
      Services Definitions from BFB BUS-43
4.    Independent contractor – A relationship where the
      University controls only the result, not the manner of
      performance
5.    Independent consultant – When the University
       controls neither the result not the manner of performance
        Competence to provide professional or technical advice
          ALL BUT #1 REQUIRE INCOME TAX REPORTING
        See also the Payment Processing under Contracts for
             Independent Personal Services discussion at the
                           following web link
       http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf

                           DAY TWO     Taxable Payments Made
     Nov-10                    through the Vendor System             14
 Independent Personal Services Payments
 The Purpose of a Contracts for Services
   Documents scope – Who, what, when,
    where and why
   Documents purpose – What project,
    what mission and funding source
   Documents expectations – Outcome,
    output for how much compensation
   Documents risk – How much risk and
    who assumes it
              DAY TWO     Taxable Payments Made
Nov-10            through the Vendor System       15
    Independent Personal Services Payments
               Contract Vehicles / Limits

   Letter of Understanding (LE) — low
    dollar, simple event, very low risk
          Speakers, trainers, workshop facilitators
          Cannot exceed $1,500 for one-time event
          Very low risk, off-campus or on-campus with
           UCSB providing facilities, equipment
     See How to Hire Speakers & Trainers (non-academic
       activities) at Contracts & Property web page
         http://www.busserv.ucsb.edu/contractsproperty/speakers_trainers.h
                                  tm#instructions

                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System              16
   Independent Personal Services Payments
               Contract Vehicles / Limits
    Purchase order (SB) – simple event, very
     low risk
            Speakers, trainers, workshop facilitators
             exceeding $1,500 but not over $10,000
    Contracts (CT) – any risk level
            If over $10,000, even if very low risk
            Any amount: if higher risks, unique require-
             ments (catering, props, equipment)
            Consultants – All, no matter the amount
            Contractors – Professional, unique skills
                See links to Campus Catering Policy and Guidelines
              http://www.ehs.ucsb.edu/units/envhlth/ehrsc/caterguide.htm
              http://www.policy.ucsb.edu/housing-svcs/newfoodpolv41.pdf

                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System                  17
      Independent Personal Services Payments
           HONORARIA—UNIQUE STATUS
In recognition of special services or distinguished
 achievements for which custom forbids a fixed price
      Person with academic credentials in academic
       setting
      Approval by department heads, deans or
       Chancellor required
      No local policy statement, but local approval limits
       apply
   See AMC* D-371-35, Disbursements: Honorarium Payments
 http://www.ucop.edu/ucophome/policies/acctman/d-371-35.pdf

                                                          *Accounting Manual Chapter
                      DAY TWO     Taxable Payments Made
  Nov-10                  through the Vendor System                           18
  Independent Personal Services Payments
  OTHER PAYMENT PROCESSING TYPES
          Undergraduate Research Grants
             Prizes, Awards and Gifts
                 Stipend Payments
          Leases and Contract Payments
              Settlement Payments
              Home-Stay Payments
For detailed discussions of above topics see Selected Topics at
                         this web link:
 http://www.accounting.ucsb.edu/pdf/ap_payment_process_selected.pdf
                       DAY TWO     Taxable Payments Made
 Nov-10                    through the Vendor System             19
    Independent Personal Services Payments
                     Responsibilities
When Procuring Personal Services
   Campus departments
        Initiate procurement process by submitting relevant
         data and required forms
   Contract & Property (Business Services)
        Administers processes for requisitioning services,
         executing contracts
   Accounting Services & Controls
        On the basis of data supplied, properly tax codes
         payment transactions
                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System          20
Independent Personal Services Payments
             Questions




             DAY TWO     Taxable Payments Made
 Nov-10          through the Vendor System       21
    Vendor Payments with Income Tax Implications
Who is Tax-Reportable? — Exempt?
   Reportable: vendor system compensation to
    individuals and sole proprietors
   Exempt: generally corporate entities because
    they are ―fully audited‖
     AMC* D-371-12.1, Disbursements: Accounting for and Tax Reporting of
                  Payments Made Through the Vendor System
       http://www.ucop.edu/ucophome/policies/acctman/d-371-12-1.pdf
   How to tell the difference: Payers expected to certify
    vendors on IRS Form
        Disclose TIN and residency/immigration status
        Certify to back-up withholding status
         W-9, Request for Taxpayer Identification Number & Certification
                 http://www.irs.ustreas.gov/pub/irs-pdf/fw9.pdf


                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System                  22
       Vendor Payments with Income Tax Implications
     Tax Reporting Elements on Form-5
Compliance questions:
   UC Employee? If ―Yes‖, provide justification for non-payroll treatment.
   UCSB Student? If ―Yes‖, ( ) undergraduate? or
    ( ) graduate? or ( ) non-degree candidate?
   Independent Service Provider/Consultant? If ―Yes‖,
    ( ) individual/partnership? or ( ) incorporated entity?
   California Nonresident? If ―Yes‖, is work performed in California?
    ( ) Yes, ( ) No
   Nonresident Aliens? If ―Yes‖, is work performed in US?
    ( ) Yes, ( ) No
   Taxpayer Identification Number (TIN)
                    See form and instructions at
              http://www.accounting.ucsb.edu/forms/form5.shtml

                            DAY TWO     Taxable Payments Made
    Nov-10                      through the Vendor System              23
    Vendor Payments with Income Tax Implications
Tax Reporting Elements on Form-5
   Tax coding accuracy requires
        Description of nature of transactions
        Correct disclosure of payee status
        Disclosure of location of activity
   Types of TIN (Taxpayer Identification Number):
        Social Security Number (SSN) issued by SSA
        Employer Identification Number (EIN) issued by IRS
        Individual Taxpayer Identification Number (ITIN)
         issued by the IRS
                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System          24
Vendor Payments with Income Tax Implications
             Taxable/Reportable —Travel*
   Moving Expenses
   Unrecovered Travel Advances
   Unsubstantiated Travel Expenses
   Discount, Rebate, or Premium Coupons on Transportation
    Tickets
   Unsubstantiated Travel Expenses incurred by Independent
    Contractor/Consultant
         See also BFB** G-28, POLICY AND REGULATIONS GOVERNING TRAVEL
                http://www.ucop.edu/ucophome/policies/bfb/g28toc.html

                                                                *Per tables in AMC* D-371-12.1
                                                                **Business and Finance Bulletin



                            DAY TWO     Taxable Payments Made
    Nov-10                      through the Vendor System                               25
    Vendor Payments with Income Tax Implications
            Tax Exempt Items—Travel*
   Per Diem for Foreign Travel
   Actual Travel Expenses for following expenses
        Spouse on University business
        Pre-employment (PE) Interview and spouse accompanying on PE
         interview
        Rendering charitable service to University
        Accepting a non-reportable prize or award
        Independent Contractor/Consultant
        Subsistence for travel assignments of more than one year
See also BFB** G-28, POLICY AND REGULATIONS GOVERNING TRAVEL
       http://www.ucop.edu/ucophome/policies/bfb/g28toc.html

                                                      *Per tables in AMC* D-371-12.1
                                                      **Business and Finance Bulletin


                         DAY TWO     Taxable Payments Made
Nov-10                       through the Vendor System                           26
       Vendor Payments with Income Tax Implications
        Taxable/Reportable – Other Payments*
    Fees for Professional Services (Resident or Non-Resident Alien)
    Payments to attorneys for legal expenses
    Health care commissions to non-employees
    Damage payment - services prior to signing loyalty oath
    Rent, Royalties
    Prizes and awards to Faculty
    Prizes and awards to employees – cash
    Prizes and awards to non-employees
    Uniform allowance (under a non-accountable plan – lump sum
     allowances)
    Human subject payments
                                           *Per tables in AMC* D-371-12.1

                          DAY TWO     Taxable Payments Made
    Nov-10                    through the Vendor System            27
    Vendor Payments with Income Tax Implications
Tax Exempt Items – Other Payments*
    Lease purchase agreement payments
    Overtime meals
    Employee non-cash award expenditures
    Uniform allowance or reimbursement
     (under an accountable plan – business
     connection, substantiation, return of
     excess amounts )
    Vendor system settlement payments
                                        *Per tables in AMC* D-371-12.1

                  DAY TWO     Taxable Payments Made
Nov-10                through the Vendor System                     28
   Vendor Payments with Income Tax Implications
              Responsibilities
                     POLICY SAYS:
   It is the responsibility of the campus accounting
   officers to tax code payments made through the
                University vendor system.

                WHAT CAN GO WRONG?
      Accounting may not be able to complete the
   transaction due to incomplete/incorrect tax data.
     Noncompliant transactions may be subject to
       delays and 30%–37% backup withholding.
                  DAY TWO     Taxable Payments Made
Nov-10                through the Vendor System       29
         California Non-Wage Tax Withholding
            Overview and References
CA Non-Resident Income Tax Withholding Factors
 On non-wage compensation for services performed in
  California by California nonresidents
 Applies to residents of foreign countries performing
  services in California
 California does not recognize foreign tax treaties


 AMC D-371-77, Disbursements: State Tax Withholding from Nonwage
                 Payments to Nonresidents of California
   http://www.ucop.edu/ucophome/policies/acctman/d-371-77.pdf
    See following State of California Franchise Tax Board Publications,
                 Guidelines for Determining Resident Status
               http://www.ftb.ca.gov/forms/misc/1031.pdf


                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System                 30
         California Non-Wage Tax Withholding
         California Non-Resident Status
   Determining California Non-Resident
    Status
        Individuals – less than nine months of year in
         California
        Corporations, Partnerships, LLC’s
           NOT organized or existing under laws of the State
           NOT qualified by Secretary of State to transact
            business in California



                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System            31
    California Non-Wage Tax Withholding
Income Tax Withholding—Performing Entities
   Entertainment – Payments to performing entities
    (Dept. of Arts & Lectures)
    See Nonresident Withholding—Entertainment Guidelines
         http://www.ftb.ca.gov/forms/misc/1024.pdf
   Tax Withholding Procedures—performers
        Payments subject to 7% withholding if total gross is
         over $1500 for tax year
        Waiver or reduced rate may be requested from State
         Franchise Tax Board
        Approval or denial provided on Form 595 – attach if
         applicable

                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System            32
         California Non-Wage Tax Withholding
         Income Tax Withholding—General
   General – fees for professional services, consulting,
    conducting seminars, prizes, awards, royalties

         Payee may submit Nonresident Withholding Waiver Request
          http://www.ftb.ca.gov/forms/02_forms/02_588.pdf?75622

   Tax Withholding Procedure—general
        Payments subject to 7% withholding if total gross is over $1500
         for tax year
        Request waiver or reduced withholding on Form 588
        The FTB will issue a determination letter – must be attached



                          DAY TWO     Taxable Payments Made
Nov-10                        through the Vendor System                33
          California Non-Wage Tax Withholding
         Income Tax Withholding—Corporations
   Corporate (also partnerships and LLC’s) –
    Payments to such entities with no permanent place of
    business in state

         Corporations may execute a Withholding Exemption Certificate
             http://www.ftb.ca.gov/forms/02_forms/02_590.pdf?75622


   Tax Withholding Procedure—corporate entities
         Payments subject to 7% withholding if total gross is over $1500
          for tax year
         Request waiver or reduced withholding on Form 590
         The FTB will issue a determination letter – must be attached


                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System               34
 Taxation of Scholarship / Fellowship Grants
    Degree vs. Non-Degree Candidates
   DEFINITIONS
        Degree Candidate – Undergraduate and graduate
         students including full and part-time students who are
         merely attending an accredited educational institution
         authorized to provide a bachelor or higher degree
        Non-Degree Candidate – Post-doctoral fellow or a
         student enrolled in a ―certificate‖ program

 AMC* T-182-77, Taxes: Taxation of Scholarship and Fellowship Grants
                      and Educational Assistance
   http://www.ucop.edu/ucophome/policies/acctman/t-182-77.pdf

                                                  * Accounting Manual Chapter


                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System                      35
 Taxation of Scholarship / Fellowship Grants
     Qualified vs. Nonqualified Amounts
   Payments to Degree Candidates
        Qualified Amounts – Used for tuition and fees and
         related course requirement expenses is excludable
         from the recipient’s gross income if the recipient is a
         candidate for a degree for the purpose of studying or
         conducting research at an educational institution.
        Nonqualified Amounts – For incidental expenses;
         e.g., room and board or expenses for individual
         papers/research projects, is not excludable from
         gross income. Therefore such expenses are taxable.

                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System          36
 Taxation of Scholarship / Fellowship Grants
             Tax Reporting of Grants
   Degree Candidates
        Neither the qualified nor the nonqualified portions are
         reportable by the University.
        Any amount used for nonqualified expenses must be
         reported by the recipient on his/her tax return.
   Non-Degree Candidates and Post-Doctoral
    Fellows
        No amount is considered qualified; the entire amount
         of the grant is taxable and must be reported by the
         recipient on his/her tax return, though not reportable
         by the University.
                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System          37
    Taxation of Scholarship / Fellowship Grants
         When Work Is a Condition of Grant
   Compensation for Services—Payroll
    treatment
    Any portion of a grant representing payment
    for the performance of teaching, research,
    or other services by the student, required as
    a condition of receiving such a grant, is
    considered wages for employment tax
    purposes.

                   DAY TWO     Taxable Payments Made
Nov-10                 through the Vendor System       38
     Taxation of Scholarship / Fellowship Grants
                 Rules for Nonresident Aliens

     Treatment differs from U.S. residents
            Qualified amounts are exempt same as U.S. residents
            Nonqualified amounts are reportable on 1042-S
            Nonqualified amounts subject to 14% withholding unless tax treaty
             provisions apply
            Non-degree candidates subject to 30% withholding unless tax
             treaty provisions apply
     Forms Required: W-8BEN (3 versions—all hyperlinked)
            W-8BEN (UCSB-GS) – UCSB Graduate Student, F1, J1 visas
            W-8BEN (UCSB-EV) – UCSB Exchange Visitor, F1, J1, M1, Q1 visas
            UC W-8BEN – non-UCSB NRA’s on B1, B2, WB, WT and other visas


                               DAY TWO     Taxable Payments Made
    Nov-10                         through the Vendor System               39
Taxation of Scholarship / Fellowship Grants
Employee Educational Assistance Payments
   Excludable from income under certain
    IRS-compliant programs
        IRC Section 117 – includes UC’s qualified Fee
         and Tuition Reduction programs
        IRC Section 127 – use form to determine
         taxability and job relatedness of activity
   Use form to calculate benefit
         See page 43 (last page, Exhibit D) of this policy link:
         http://www.ucop.edu/ucophome/policies/acctman/t-182-77.pdf

                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System              40
   Vendor Payments with Income Tax Implications
                 Questions




                 DAY TWO     Taxable Payments Made
Nov-10               through the Vendor System       41
              Nonresident Alien Tax Issues
               Who Is Nonresident Alien
   Status certification process
      If on IRS Form W-9 CANNOT affirm
             I am a U.S. person (including a U.S. resident alien)
             ―Person‖ includes entities such as corporations
        Then IRS Form W-8BEN is required
          Form UC W-8BEN replaces the University’s old Statement of
                               Citizenship form
         http://www.ucop.edu/ucophome/cao/paycoord/w8ben.pdf
    See AMC* T-182-27, Taxes: Federal Taxation of Aliens
     http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf
                                        *Accounting Manual Chapter


                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System             42
         Nonresident Alien Tax Issues
 Components of Nonresident Alien (NRA) Taxation
   Determining residency for tax purposes
   Visas: what activities they allow / prohibit
   Possible international tax treaty benefits
   NRA Tax withholding and reporting rules
   The ITIN—Individual Taxpayer Identification
    Number
   Procedures and tools for paying NRA’s
    See AMC* T-182-27, Taxes: Federal Taxation of Aliens
     http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf
                                        *Accounting Manual Chapter

                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System            43
        Nonresident Alien Tax Issues
     Alien classifications / administration
   Certain alien classifications (visa types) may receive
        Employment compensation
        Independent Contractor Payments (Honoraria)
        Scholarships/Fellowship grants
        Reimbursement for travel/sustenance expenses (some may
         receive Honoraria)
   Visa Classifications Relate to Employment Provisions
        As a condition of admission
        Only with special authorizations / permits
        Prohibited
   Under regulations issued by
        U.S Immigration and Customs Enforcement (ICE – formerly INS)
         – immigration law and enforcement
        Internal Revenue Service (IRS) – tax policy only

                            DAY TWO     Taxable Payments Made
Nov-10                          through the Vendor System           44
   Nonresident Alien Tax Issues
Immigration (ICE) Status Categories
   U.S. Citizen — By birth or Naturalization
   Permanent Resident — Immigrant with ―Green Card‖
   Nonresident — Aliens temporarily present in the U.S for
    specific purposes as indicated by visa type
   Refugee, asylee, etc.
U.S. Tax (IRS) Status Categories
   U.S. Citizens and Resident Aliens are taxed under
    same regulations
   Nonresident Aliens are subject to 30% withholding
    unless tax treaty provision or tax code regulation applies


                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System         45
             Nonresident Alien Tax Issues
         Determining Federal Tax Status (IRS)
   Factors Determining Alien Tax Status
        ―Green Card‖ test — permanent immigrant visa,
         resident alien
        Substantial presence test — generally relevant for
         visas permitting employment
        Visa categories exempt from substantial presence test
         — generally F-1, J-1 student/teacher visas
        Brief visitors for business/tourism—B-1, B-2, WB, WT
   All must use UC’s new form to determine Alien
    Tax Status (formerly Statement of Citizenship):
    University of California Certificate of Foreign Status for Federal Tax
                            Withholding (UC W-8BEN)
 http://www.ucop.edu/ucophome/cao/paycoord/w8ben.pdf

                           DAY TWO     Taxable Payments Made
Nov-10                         through the Vendor System                     46
                  RESIDENCY FLOW CHART
                                                                                START

                                                               Yes
                                    Resident Alien                    Green Card?

                                                                                             No
         Meet substantial presence test (that is, physically
         present in US for 183 days in 3-year period,                     Yes        Present in US for at least
         counted as all days in current year, plus one-third                         31 days in current year?
         of days in preceding year, plus one-sixth of days       No
         in second preceding year)?                                                         No

                                 Yes                                  Nonresident Alien               Yes
            Still meet substantial presence test if
            disregard days as exempt individual       No
                                                                                                   Resident Alien
                                Yes
                                                Yes
                Present in US for at least                                      No                            No
                183 days in current year?
                                                           Tax home in               Yes   Closer connection to foreign
                                              No           foreign country?                country than to US?



                                       DAY TWO     Taxable Payments Made
Nov-10                                     through the Vendor System                                                47
           Nonresident Alien Tax Issues
               Immigration Expenses
   Allowable as University Expense, not taxable to
    the alien employee, employment related
        Visa application, renewal fees
        Costs of obtaining status as a permanent resident
        Related legal fees and travel must be properly
         substantiated
   Immigration–related fees associated with
    scholarship / fellowship grants
        Considered part of fellowship grant
        Must be included by student in gross income
                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System         48
           Nonresident Alien Tax Issues
                    The ITIN
   The Individual Taxpayer Identification Number
    (ITIN)
        For aliens not eligible for Social Security Number
         (SSN)
        For tax reporting purposes only - implies no legal
         immigration status
   Without SSN or ITIN
        Alien is not eligible to receive certain payments
        May not receive benefit of applicable tax treaty (Up to
         37% withholding)
        May not file tax return to claim refund of withheld
         income taxes

                        DAY TWO     Taxable Payments Made
Nov-10                      through the Vendor System         49
               Nonresident Alien Tax Issues
                Miscellaneous Visa Issues
   VISA Provisions
       An alien’s activities may not violate provisions of his/her Visa
       See alien policy link for discussion of various visa
        classifications (p.14, or summarized in Appendix C, p.69)
             http://www.ucop.edu/ucophome/policies/acctman/t-182-27.pdf
   B-1, B-2 visas and WB, WT visa waiver
       For short term visitors for business, pleasure, tourism
       With limitations may be paid honoraria, related expenses
            See our fill-in form Nonresident Alien (NRA) Guide,
                              Questionnaire & Forms,
              http://www.accounting.ucsb.edu/pdf/ap_NRA.pdf

                             DAY TWO     Taxable Payments Made
    Nov-10                       through the Vendor System                50
         Nonresident Alien Tax Issues
               Responsibilities
   Host department must obtain form UC W-8BEN
    and work with visitor to complete documents
   Ideally, all tax issues and any withholding
    amounts should be disclosed in contracts,
    engagement letters
   Alien must correctly complete all required
    documentation or be subject to NRA income tax
    withholding (up to 37%, or ―gross-up‖) — see
    ―Gross-Up‖ table in training materials
   Accounting must ensure alien payments are
    properly reported and applicable taxes withheld

                   DAY TWO     Taxable Payments Made
Nov-10                 through the Vendor System       51
            Nonresident Alien Tax Issues
             Scenarios & Questions
 See class handouts:

         NRA DOCUMENTATION & INCOME TAX
             WITHHOLDING SCENARIOS




                       DAY TWO     Taxable Payments Made
Nov-10                     through the Vendor System       52

				
DOCUMENT INFO
Description: Accounts Payable Training Seminars document sample