Accounting Services | University of Wisconsin

Procedure: 601-Tax Compliance, Reporting and Withholding on Non-Salary Payments

Federal Tax Withholding

Backup Withholding on Payments to U.S. Residents

Payments to U.S. residents for services, prizes and awards, rents, and royalties are generally not subject to federal tax withholding. However, withholding will apply at the rate of 31% in either of the following circumstances:

Payment recipient fails to provide a U.S. Taxpayer Identification Number (Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Federal Employer Identification Number (FEIN or EIN), or
Internal Revenue Service notifies Accounting Services to begin withholding for the taxpayer due to incorrect U.S. Taxpayer Identification Number, or
IRS W-9 form is not completed, signed, and submitted prior to the payment

The State of Wisconsin does not require backup withholding when the recipient's U.S. Taxpayer Identification Number is not provided. However, withholding of state tax may apply to payments made for entertainment or public speaking services (see Wisconsin Entertainer Tax section).

Withholding of Federal Tax on Payments to Nonresident Aliens (NRA)

Payments to nonresident aliens which are compensation for services, rent, royalties, prizes and awards, training stipends, scholarships, and fellowships are subject to federal tax withholding unless exempted by federal law or treaty. Following are descriptions of income that may be exempt from withholding.

Each item is discussed in detail in the upcoming sections.

Travel Reimbursements

Travel reimbursements are exempt from withholding if receipts are provided and attached to the Payment to Individual Report (PIR) or e-reimbursement forms. The transaction should be coded to a travel account code and documentation supporting the transaction must be maintained and available for review and audit purpose. For further instructions, contact Accounting Services Tax Compliance Office at (608) 262-0582.

Non-U.S. Source Income

Non-U.S. source income is exempt from withholding and reporting. Personal service income is considered non-U.S. source if the service takes place outside the United States. The place where services are performed determines whether the income is subject to withholding regardless of where the contract was made, the place of payment, or the residence of the parties. If you are making a payment on which the source is unclear (services provided partially in the U.S. and partially in another country, for example), be sure to provide complete details on the PIR so Accounting Services may properly calculate the amount subject to withholding.

Rental income on properties outside the U.S. is considered non-U.S. source and is exempt from withholding and reporting.

Scholarships, fellowships, and participant support payments from foreign governments, granting agencies or International agencies are considered non-U.S. source and are exempt from withholding and reporting. In addition, scholarships, fellowships and participant support payments made to students and/or participants for study or research done outside of the U.S. are exempt from withholding and reporting.

Exemptions by Tax Treaty

Income may be exempt under a tax treaty between the United States and the payee's country of residence or citizenship. Withholding will not apply if the payee files form W-8BEN (for scholarships/fellowships) or 8233 (for non-scholarships/fellowships)(described below) with the University.

Form 8233 is used by nonresident aliens to claim exemption from withholding on compensation for services when the exemption is based on a tax treaty. The form is available on the Internet at the IRS page or contact Accounting Service Tax Compliance Office at (608) 262-0582. The form is completed by the Nonresident Alien (NRA) claiming exemption. Before accepting this form, review it for completion and accuracy. If the form is incomplete, the exemption from withholding will be denied. The form is considered incomplete without a valid U.S. Taxpayer Identification Number. If you know of any reason that any of the statements on the form are false, do not accept the form. The UW is not federally required to give treaty benefits.

Completed forms 8233 should be attached to the PIR. A new form must be completed each calendar year. If a form is not filed, taxes will be withheld unless the payment is otherwise exempt and the exemption is supported by official documents from the IRS.

If the individual has a U.S. Taxpayer Identification Number (Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Federal Employer Identification Number (FEIN or EIN), it should be entered on the form. If the number has been applied for, but has not yet been received, enter "applied for" and the date of the application in the space provided. When the individual receives the number (s)he should send it to Accounting Services Tax Compliance Office, 21 N Park St., Suite 6234, Madison, WI 53715-1218. Individuals who do not have a U.S. Taxpayer Identification Number cannot be paid until application for a number has been made. For more information, contact your Dean's office or Accounting Services Tax Compliance Office.

Form W-8BEN is used to claim exemption from withholding on payments for scholarships. It is also used to claim exemption from withholding or a reduced withholding rate on payments for rents or royalties due to the existence of a tax treaty. A U.S. Taxpayer Identification Number is required. Completed forms W-8BEN must be attached to the PIR. A new form must be completed each calendar year. If a form is not filed, taxes will be withheld unless the payment is otherwise exempt and the exemption is supported by official documents from the IRS.

Participant Maintenance Payments on A.I.D. Grants

Amounts of per diem for subsistence paid by the U.S. Government (directly or by contract) to a nonresident alien engaged in a training program in the United States under the Mutual Security Act of 1954 are not subject to withholding. This exemption applies to all maintenance payments on Agency for International Development (A.I.D.) training grants. The exemption applies to maintenance payments only--travel and other expenses are not exempt under this rule.

Income Connected With a U.S. Trade or Business

Withholding is not required when income is effectively connected with a U.S. trade or business and the payee has filed Form 4224, including the payee's U.S. taxpayer identification number. This exclusion does not apply to income for personal services provided by an individual. The completed form should be attached to the PIR.

Participant Maintenance and Travel Expenses

IRS regulations allow business deductions if an individual has established a tax home through regular employment in a foreign country, and intends to return to similar employment in the same country at the end of a temporary stay in the United States. Deductible expenses include transportation (airfare and local), lodging (rent, utilities, and hotel, but not telephone), and a meal allowance. IRS Publication 519 (U.S. Tax Guide for Aliens) outlines the requirements in further detail.

The University is not required to withhold taxes on this type of payment, if the nonresident student or grantee is present in the U.S. under an F, J, M or Q VISA and files IRS Form W-4 with the University. On the W-4 form, the student or grantee may deduct away-from-home expenses (meals, lodging and transportation), if he or she expects to be away from his or her tax home for one year or less. If you are dealing with participants whom you believe meet these qualifications, contact Accounting Services at 262-0582 for further information.

Procedure: 601-Tax Compliance, Reporting and Withholding on Non-Salary Payments