Procedure: 601-Tax Reporting and Withholding on Non-Salary Payments
Federal and State Tax Reporting
1099 Reporting--Payments to U.S. ResidentsThe following chart lists the types of payments to U.S. resident individuals, sole proprietorships, and partnerships which are reported on form 1099 to the taxpayer, the Wisconsin Department of Revenue, and the Internal Revenue Service. Total payments to a taxpayer are summed by category (services, prizes and awards, rent, and royalties) at the end of each calendar year. If payments in any category reach the UW reporting level shown below, a 1099 is produced and payments are reported to tax authorities. Each year Accounting Services prepares and mails all 1099 forms no later than January 31.
Reporting Requirements
| Type of Payment | Federal Law | State Law | UW Reporting Level |
| Services: | $600 | $600 | $600 |
| Travel on Class Code 2150 | Not reportable | ||
| Research Subjects | $600 | $600 | $600 |
| Prizes and Awards | $600 | $600 | $600 |
| Rentals | $600 | $600 | $600 |
| Royalties | $ 10 | $100 | $ 10 |
| Scholarships/Fellowships | Some payments are taxable, but none are reportable on form 1099. | ||
The following information is required on potentially reportable payments: legal name, permanent mailing address, social security number or taxpayer ID#. Sufficient description about the payment is necessary so the correct classification may be determined. This information is required for all payments on reportable categories (services, prizes and awards, rent, royalties) listed above, regardless of amount. If no social security number or tax ID is provided, payments may be subject to withholding (see withholding section of this manual). Non-reportable payments (scholarships/fellowships and student loans to UW students) require social security number for financial aid reporting purposes. If the student does not have a social security number, student ID# is required. Mailing address is not required on these payments.
1042S Reporting--Payments to Nonresident Aliens
All payments to nonresident aliens, regardless of amount, which represent compensation for services, rent, royalties, prizes and awards, training stipends, scholarships, and fellowships are reported to the individual and the Internal Revenue Service on Form 1042S. These payments must be processed on the Payment to Individual Report (PIR). All payments reportable on Form 1042S require a permanent mailing address and country of residence on the Payment to Individual Report. If the individual is claiming exemption or a special withholding rate, Form 1001, 4224 or 8233 must be attached (see withholding section in this manual). The 1042S forms will be prepared and mailed by Accounting Services no later than March 15 of each year.
A nonresident alien is an individual whose residence is not within the United States and who is not a U.S. citizen. A resident alien is an individual who is a lawful permanent resident of the United States at any time during the calendar year. This is known as the "green card" test. Alternatively, an alien is considered a U.S. resident if the individual meets the "substantial presence" test for the calendar year. Under this test, the individual must be physically present in the United States or present at least:
- 31 days during the current calendar year, AND
- 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year but only 1/3 the number of days of presence in the first preceding year and only 1/6 the number of days in the second preceding year.
However, individuals present in the U.S. under a J or Q non-student visa are considered "exempt individuals" until they have been present for two calendar years out of the last six years. Therefore, they do not begin to count days of presence toward the presence test until they are no longer "exempt individuals". Students present in the U.S. under F, J, M or Q student visas are considered "exempt individuals" until they have been in the U.S. for any part of five calendar years.
For more information on resident and nonresident status, the tests for residence, and the exceptions to them see the IRS Publication 519, U.S. Tax Guide for Aliens. You may call the Internal Revenue Service at 1-800-829-3676 (1-800-TAX-FORM) for a copy or visit the IRS page.
All categories of J-1 exchange visitors are eligible for social security numbers and should apply at a Social Security Administration office or at a U.S. Embassy or Consulate. F-1 and J-1 students who are not employed are not eligible for social security numbers, and should apply for ITINs by filing IRS Form W-7 at an IRS office or at various locations at UW. Contact a Dean’s office or Accounting Services for more information. After application has been made for either a social security number or ITIN, but the number has not yet been received, enter "applied for" and the date of application on the PIR. When the individual receives the number from Social Security Administration or IRS, (s) he must provide the number to Accounting Services.
For more information on Visa requirements and the tax issues to consider when paying non-resident aliens, see UW-Madison Handbook "Payments to Foreign Nationals".
W-2 Reporting--Meals, Moving Expenses, Educational Assistance
Meals
In general, employee reimbursements for meals are not taxable and not reportable to the IRS. The only exception is for meals not associated with an overnight stay and not related to recruiting of students or job applicants. These reimbursements are reported by Accounting Services to Payroll and Benefit Services and are included in gross income on employees' W-2 forms.
Moving Expenses
Household moving expense reimbursements may be partially taxable and included in gross income on employees' W-2 forms. Accounting Services reviews each employee's reimbursement, separating it into "Qualified/Deductible" expenses and "Non-qualified/Non-deductible" expenses, according to the guidelines in IRS Publication 521.
Educational Assistance
Reimbursements to employees for job-related training are not taxable or reportable. To qualify as job-related, the training must be:
- required by the employer or required as a condition to the retention of an established position or status (e.g., continuing professional education courses), or
- taken to maintain or improve skills required in the employee's present position.
In addition, the training cannot be required to meet the minimum educational requirements for the employee's position or qualify the employee for a new trade or business. All other training is considered career-related.
As of February 1998, undergraduate career-related tuition reimbursements are not taxable or reportable for tax reporting purposes unless they exceed $5,250 in a calendar year. Graduate level career-related tuition reimbursements are taxable and reportable for both federal and state tax reporting purposes. Additional FICA taxes will be withheld from an employee's paycheck to cover his/her share of FICA on the reimbursement.
Procedure: 601-Tax Reporting and Withholding on Non-Salary Payments