U.S. Citizenship and Immigration Services (USCIS) and the Internal Revenue Service (IRS) impose complex regulations for payments to foreign nationals. (The USCIS refers to foreign nationals as nonresident aliens). Since 9/11/2001, enforcement of these laws has been vigorous. Failure to follow these regulations can result in penalties, including the revocation of SDSU Research Foundation’s privilege to sponsor foreign national visitors. We need to ensure that the following procedures are used consistently.

First, it must be determined if the recipient is a U.S. citizen, permanent resident alien (green card holder) or a foreign national. Permanent resident aliens have been granted permanent residency in the U.S. and have a green card. They are taxed on their worldwide income, exactly like U. S. citizens. They should already have a social security card. Their Red ID or SDSU ID number should be entered on the payment document and normal payment procedures apply.

Anyone who is not a U.S. citizen or permanent resident alien is considered a nonresident alien or foreign national. Foreign nationals are taxed only on their U.S. source income, but generally at a higher rate of tax than U.S. citizens and permanent resident aliens.

Second, it must be determined if the payment to the foreign national is for a travel reimbursement or for a non-payroll payment such as for services, prizes and awards, or a scholarship/fellowship.

Third, if the payment is a travel reimbursement, it must be determined if it is paid to the foreign national acting in a compensatory or non-compensatory capacity. A compensatory capacity would relate to services such as an independent contractor or an honorarium recipient (whether paid or not). A non-compensatory capacity would relate to a scholarship or fellowship that requires no service (other than for the recipient’s training such as with an NIH grant).

To assist projects with determining residency and tax status, flowcharts outlining SDSU Research Foundation policies and procedures are included in the Foreign National Forms section at AP Forms

Travel payments paid to foreign national independent contractors and honorarium recipients (or others who would normally be compensated) are not subject to withholding taxes if paid according to SDSU Research Foundation travel payment policies and procedures. Some visa types do not allow a foreign recipient to receive compensation or travel payments.

Note: Due to IRS and USCIS regulations, SDSU Research Foundation is required to reimburse the foreign national directly for travel expenses. Therefore, project personnel should not incur travel costs on behalf of the visiting foreign national.

For other non-payroll payments paid to foreign nationals such as honoraria, independent contractor services, prizes and awards, scholarships/fellowships, etc., a completed registration through PaymentWorks is required (or an SDSU Research Foundation Foreign National Information form must be maintained in SDSU Research Foundation’s files, prior to PaymentWorks). IRS Form W-8BEN Certification of Foreign Status of Beneficial Owner for United States Tax Withholding must also be completed. All nonresident payees complete an IRS Form W-8BEN. This form is used to establish that the payee is not a U.S. citizen or permanent resident alien, that the payee is the rightful recipient of the income and if applicable, that the payee may be eligible for tax treaty benefits.

Per IRS guidelines, U.S. sourced taxable scholarship or fellowship payments that do not represent compensation for services are not subject to withholding when paid to U.S. citizens and residents, but they are subject to withholding when paid to foreign nationals. The federal withholding tax rate is 30%. However, the federal withholding tax rate may be reduced to 14% (or a lower treaty rate) if you are a foreign national student, researcher, or grantee who is temporarily present in the United States with an "F," "J," "M," or "Q" visa and has a U.S. Social Security Number (SSN) or Individual Tax Identification Number (ITIN).

If, immediately before arriving in the United States, you were a tax resident of a country that has an income tax treaty with the United States, then you may be eligible for benefits under the applicable treaty, such as an exemption from tax, with respect to your scholarship or fellowship, including a specified amount that represents compensation for services.

If the payee claims to be a U.S. citizen or permanent resident alien but has a foreign address, has an ID number that begins with “999” or if you believe the payee may not be a U.S. citizen or permanent resident alien, refer them to the SDSU Research Foundation Accounts Payable department for review.

Note that payments to foreign nationals for work performed outside of the United States are neither reportable nor taxable. If this is the case, projects/departments should indicate this on the face of the payment document or attach a detailed memorandum to the payment document explaining that the work is being performed outside of the U.S. The payee must provide a completed and signed form W-8BEN submitted through PaymentWorks.

What documents should be obtained to process a foreign national payment?

• Completed registration through PaymentWorks is required (or an SDSU Research Foundation Foreign National Information form, prior to PaymentWorks)
• Completed and signed IRS Form W-8BEN
• Completed and signed IRS Form 8233 Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, (if providing independent personal services and requesting tax treaty benefits)
• Copy of current passport
• Copy of current visa (or border crossing card). Residents of Canada, Mexico, or a visa waiver country not required to present a copy of a visa.

Disbursements to foreign nationals are processed only after a complete packet of documentation is received and reviewed for compliance with IRS and USCIS regulations.

The payment service manager is responsible for the federal and California withholding deposits and prepares all required returns.

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