Archive for August, 2019

  • Hiring nonresident employees at your school? Here’s how to ensure you are tax compliant

    Withholding tax on nonresidents working in US universities

    The number of international students in the US spiraled over 1 million in 2018.

    And with many of these students also working part-time at their chosen schools, the proper documentation and withholding on payments to nonresidents has become an increasingly important topic for educational institutions in recent years.

    If you’re reading this blog, you’re probably all too familiar with the tax complexities of onboarding a nonresident at your school.

    As a Withholding Agent, it’s your responsibility to ensure your nonresident employees have the correct amount of tax withheld from their pay.

    In this guide we’ll cover everything you need to know to ensure the process goes smoothly including:

    • the forms your new employee must fill out when they start work
    • how to handle tax treaty entitlements
    • and what you can do to ensure you are withholding the correct amount of tax

    We’ll also be sharing some tips and tricks which will make life easier for your entire payroll department!

    So let’s get into it!

    Determining residency

    Determining US tax residency status

    The first thing you should do when you hire a new foreign student, scholar, researcher or professor is determine their residency status for tax purposes.

    Keeping in mind that it is against federal law to hire illegal aliens, there are three types of residency status categories to consider for any new employee:

    • US Citizen or US Resident Alien
    • Dual Status Resident
    • Nonresident Alien

    So how can you tell the difference between a Resident and Nonresident Alien?

    Resident aliens are taxed on their worldwide income (similar to US citizens).

    Nonresident aliens are only taxed on US source income and certain foreign source income that is effectively connected with a US trade or business.

    A dual status resident is a person that was both a resident alien and a nonresident alien in the same tax year.  Respectively, dual status residents are taxed as nonresident alien for the part of the year they are nonresident alien and as a resident for the rest of the year.

    There are three residency tests under which a person can be considered resident for US tax purposes:

    US Citizenship Test

    If the person has US citizenship by birth or naturalization, they are treated automatically as a resident taxpayer for tax purposes.

    Green Card Test

    Green card applications for nonresidents

    A Green Card (USCIS Form I-551) is a permanent resident card.

    It gives the holder the right to reside permanently in the US and to work without restrictions.

    Your employee will be deemed a resident alien for tax purposes during a tax year if they are granted a Green Card at any time during that year.

    Substantial Presence Test

    If your foreign employee is not a US citizen and doesn’t have a Green Card, they can still claim resident alien status if they pass the Substantial Presence Test.

    The test requires the person to have been physically present in the US for at least 183 days over a three year period including:

    • The number of days in the US for the current year (must be at least 31)
    • 1/3 the number of days in the US for the preceding year
    • 1/6 the number of days in the second preceding year

    It’s important to note that the following days don’t count towards the Substantial Presence Test:

    • Days the nonresident was an exempt individual. These are most days the nonresident was in the US as a teacher, student, or trainee on an ‘F’, ‘J’, ‘M’, or ‘Q’ visa (five years for F visas and two years for the rest)
    • Days commuted to work in the US from a residence in Canada or Mexico (as part of a regular commute from Canada or Mexico)
    • Days that the nonresident was in the US for less than 24 hours when they are in transit between two places outside the US
    • Days that the nonresident was in the US as a crew member of a foreign vessel
    • Days that the nonresident was unable to leave the US because of a medical condition that arose while in the US
    • Days in the US under a NATO visa as a member of a force or civilian component to NATO

    If your new employee is not a US citizen, does not have a Green Card or can’t the Substantial Presence Test, it’s pretty likely that they should be categorized as a nonresident alien for tax purposes.

    Identifying payment type

    withholding tax for nonresident working in the USA

    After you have determined the tax status of your new foreign employee, the next step is to work out their sources of income. This will help you to work out how much tax must be withheld from their income.

    A resident alien’s income is generally subject to tax in the same manner as a US citizen.

    They must report all of their wages, interest, dividends or other compensation for services, income from rental property or royalties, and other types of income (from all sources within and outside the US) on their US tax return.

    A nonresident alien’s income (subject to US income tax) can be divided into two categories:

    1. Income that is effectively connected with a trade or business in the US
    2. Income that is not effectively connected with a trade or business in the US

    The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to US citizens and residents.

    Income that is not effectively connected is taxed at a flat 30% (or a lower treaty) rate.

    Below are some of the most common tax codes that nonresident aliens employed in US universities will be categorised under:

    Income Code 18 – pay for dependent personal services

    Dependent personal services are personal services performed in the US by a nonresident alien as an employee rather than as an independent contractor.

    This code is for people that are not students, trainees, researchers or teachers.

    Income Code 19 – pay for teaching

    Tax for nonresident teachers US

    This code relates to compensation for nonresident alien teachers, professors, researchers and scholars by a US university or other accredited educational institution for teaching or research work at the institution.

    Income Code 20 – pay during studying and training

    Code 20 is a very common tax classification for nonresident aliens who are hired by US universities.

    This code refers to pay (as contrasted with remittances, allowances, or other forms of scholarships or fellowship grant) for personal services performed while a nonresident alien is temporarily in the US as a student, trainee, or apprentice, or while acquiring technical, professional, or business experience.

    Fixed, Determinable, Annual, or Periodical (FDAP)

    This category is used to report US source income that does not come under any of the other income categories.

    Examples of income that may be reportable under this category include:

    • Self-employment
    • Interest
    • Commission
    • Royalties

    Withholding of Tax

    If you employ international students in your university you are responsible for ensuring that the correct amount of tax is withheld from each nonresident pay check.

    Salary paid to employees under Income Codes 18, 19 or 20 must be withheld and reported at graduated rates. You generally must withhold 30% on income reported under FDAP.

    Sprintax TDS simplifies nonresident tax withholding. Find out how

    Tax Treaties

    The US has bilateral income tax treaties with a number of foreign countries.

    If you employ a resident of a country that has a tax treaty with the US, they may be entitled to lower tax rates or even exemption from withholding.

    These reduced rates and exemptions vary among countries and specific items of income.

    The US has tax treaty agreements with each of the following countries:

    US tax treatys

    Employing a nonresident who is a citizen of one of the above countries? You can find more information about their tax treaty entitlements here.

    Sprintax TDS can help you manage your nonresident’s tax treaty entitlements. Learn more here

    Key documents

    Every nonresident employee is required to fill out certain tax documents in order to ensure tax is withheld correctly from their pay. The type of document that must be completed depends largely on the employee’s personal circumstances.

    Form W-4

    W-4 tax withholding

    You should provide your new nonresident alien employee with a Form W-4 on or before their first day of work. The purpose of this form is to determine how much tax should be withheld from their pay check.

    It’s crucial that the employee’s Form W-4 is completed correctly. Incorrect W-4s can result in a build of tax liability.

    Form 8233

    Form 8233 for nonresidents

    Form 8233 must be filed by all nonresident aliens who receive non-compensatory scholarship or fellowship income and personal services income (including compensatory scholarship or fellowship income) from the same withholding agent. Form 8233 is used to claim a tax treaty withholding exemption for part or all of both of these types of income.

    W-8BEN

    W-8BEN nonresident tax form

    Nonresident aliens that earn income from one or more US source can utilize the W-8 form in order to claim tax treaty benefits. The point of this form is to notify the IRS that the nonresident should not be taxed in the traditional way.

    There are a variety of W-8 forms and each is fairly complex. The W-8BEN is the most common type used by nonresident employees.

    Other important documents

    Form SS-5

    Nonresidents can use this form in order to request a Social Security Number (SSN) and card. You will need your nonresident employee’s SSN in order to report their wages to the government.

    Form W-7

    This form is used by nonresidents to apply an Individual Taxpayer Identification Number (ITIN). Nonresidents who aren’t eligible to receive a Social Security Number, but need to file a federal tax return, require an ITIN.

    Form W-9

    This form certifies that a taxpayer identification number (TIN) is correct and confirms that a nonresident is not subject to backup withholding.

    All of these forms can be prepared easily online with Sprintax TDS. Learn more.

    How Sprintax TDS will make your life easier

    Sprintax TDS for payroll offices

    Let’s face it. Managing the tax obligations of your nonresident student employees is tricky.

    The solution?

    Sprintax TDS!

    With Sprintax TDS you can seamlessly manage the tax profile of your nonresidents all in one user-friendly and affordable platform.

    Our system ensures that students and scholars have the correct amount of tax withheld from earnings and reported to the IRS.

    How does Sprintax TDS work?

    Sprintax TDS nonresident tax withholding

    With customizable user reports, you can determine in real time the tax residency of your nonresidents and their entitlement to tax treaties. It also gives you instant access to the relevant tax forms you need such as W4, 1042-S, 8233, W-8Ben and more.

    Sprintax TDS makes life easy for foreign students, scholars, teachers, researchers and trainees too.

    A simple questionnaire will collect all of the necessary tax information from your nonresident employees. And if any queries arise for your students, our live chat team are available 24/7 to offer support – leaving less work for you and your team.

    Based on the information provided by your nonresident employees, Sprintax TDS will calculate the correct tax withholding and determine whether they are eligible for tax treaties or deductions.

    Each user also has the option to transfer their information from Sprintax TDS into our Tax Preparation System which will seamlessly prepare their Federal and State tax returns – eliminating the stress of end of season reporting.

    Benefits of choosing Sprintax TDS

    • Calculates tax withholding for non-resident international students, scholars, and professionals
    • Determines residency for tax purposes
    • Calculates tax withholding rates
    • Generates tax forms such as 1042-S, 8233, W-4, W-8Ben and more
    • Tax treaties built-in
    • Cloud based product – no software installs necessary. Simply log in to your Sprintax TDS account from anywhere at any time

    Over 400 schools have chosen Sprintax to manage the tax compliance of their nonresidents.

    Find out how Sprintax TDS can make a big difference to your University. Contact us today to book a Free Demo

     

    Subscribe to the Sprintax Blog!

    US tax can be confusing. Especially for nonresidents!

    That’s why, if you’re an International Student or J-1 participant in the US, or you work in a University International Student Office, you should subscribe to the Sprintax blog.

    You’ll find tons of useful content for nonresidents. We cover tax, student life, acclimatizing to the US and much more.

    So what are you waiting for? Sign up today and never miss a thing!





    Subscribe to the Sprintax Blog!

    US tax can be confusing. Especially for nonresidents!

    That’s why, if you’re an International Student or J-1 participant in the US, or you work in a University International Student Office, you should subscribe to the Sprintax blog.

    You’ll find tons of useful content for nonresidents. We cover tax, student life, acclimatizing to the US and much more.

    So what are you waiting for? Sign up today and never miss a thing!





  • The Ultimate International Student Freshman Survival Guide

    International Student Survival Guide

    Congratulations! You have been accepted into college or university in the US.  That makes you one in around 1 million international students studying in the USA.

    Moving to the US to study is a big decision. It takes courage to move to a new place where the language and culture can be very different to what you’re used to in your home country.

    American’s refer to their first year of college as their freshman year, and your freshman year in the US is going to be a lot of fun – as long as you’re prepared.

    There are plenty of challenges that you may face, especially in your first few weeks in the US… but not to worry, Sprintax are here to help make sure you start your first week of college prepared for just about anything.

    Start planning before you leave your home country

    Our first piece of advice is to prepare as much as possible before you leave your home country. This means getting your documents in order, working out your finances and finding a suitable place to live.

    Bring the correct documents

    The last thing you want is to get in trouble with Customs and Immigration when you arrive in the US. Make sure you have all the documents that you need to enter the country and start university. Be sure to bring the following items:

    • Passport and visa documents
    • Driver’s license
    • Health and travel insurance documents
    • Prescriptions for any medication you need
    • Prescriptions for glasses or contact lenses
    • Documents from the college or university where you will be studying i.e. confirmation of enrolment

     

    Money management

    Like many international students moving to the US, this may be the first time that you have to manage your own money. The last thing that you need is to be under financial stress while studying – avoid this stress by making a budget.

    You might be surprised to find that food, books and tuition are more expensive than you expected. We recommend researching living costs in the town or city you’re moving to.

    Track what you earn and what you spend

    Create a spreadsheet, keep a notebook or download an app and use it to keep track of your incoming and outgoing finances. This will help you to avoid overspending.

    How much money you will need depends on a) where you live and b) your lifestyle

    Budget breakdown

    Here’s a basic breakdown of what you can expect financially as an international student:

    • Income (this may be from work, from your parents or both)
    • Accommodation
    • Costs associated with accommodation (furniture, bed lined, electrical appliances, cleaning products)
    • Bills (phone, electricity, water, gas, internet, TV)
    • Transport (public transport, taxi fares, care expenses, fuel, insurance, tax, car maintenance)
    • Education costs (college tuition fees, textbooks, stationery, printing, photocopying)
    • Health costs (insurance, doctor, optician, glasses, physiotherapist, dentist)
    • Food (groceries, dining out, lunch from the cafeteria)
    • Recreation (travel, movies, nights out, nightclubs, gym, concerts)
    • Personal (clothing, sanitary products, cosmetics, haircuts, shoes)

    Taxes

    If you are studying in the US, there’s a good chance you’re working there too. It’s common for international students to take up employment to earn some extra money while studying and if you’re working in the US you have to pay taxes. You can take care of your US taxes by filing a tax return by the tax filing deadline (15 April).

    Why pay taxes?

    If you fail to file your US tax return it can affect your ability to re-enter the US at a later date. You may also have to pay fines and penalties.

    Tax can be confusing

    We understand that the US tax system can be confusing for international students. That’s why Sprintax offers a 24/7 live chat service. Our chat team are on hand day and night to guide our customers and answer all of their questions throughout the tax preparation process.

    When you’re a non-US citizen working in the US you have to figure out how to file your taxes correctly. There are a number of factors that affect how you file. For instance, your residency status. As a non-US citizen, you are most likely considered a ‘nonresident alien’ for tax purposes unless you meet the green card test or the substantial presence test. It is also possible to have a dual-status residency in some circumstances. You must then find out what forms you need to complete to file a fully compliant tax return.

    If you need help preparing for tax season, read our blog post ‘5 Things Every International Student Can do to be Ready for Tax Season’.

    If you’re still confused about filing your US taxes, Sprintax are here to help. We will review your circumstances and determine your residency status for you before helping you prepare your fully compliant US tax return.

     International Student Survival Guide

    Language

    Get to know American slang

    Slang is a term for a very informal language that is most commonly used while speaking rather than writing. It’s the kind of language that you might use when you’re ‘hanging out’ with your friends.

    It’s difficult learning a new language without having to make sense of different slang terms you hear. Our advice is always to ask if you’re unsure. Don’t be embarrassed to let people know that you don’t understand. Asking for help will allow you to pick up these phrases much faster. Many Americans will be impressed to find you can speak two languages and most will be happy to help you learn.

    So what are some popular American slang terms?

    Hanging out

    You might have noticed that we used the term ‘hanging out’ with your friends. To hang out with someone means to spend time with them in a casual setting.

    If someone invites you to their home to play video games they might ask;

    “Do you want to hang out and play video games at my apartment later?”

    You can also use hanging out to describe spending time at a certain place. So for instance;

    “I am going to hang out at the park after class”

     

    Cool

    Cool is almost an internationally used term but if you’re not familiar with its meaning, cool means that something is ‘good’ or ‘ok’.

    “The DJ at the party last night played some cool music”

    “Your friend Dave is cool. We should hang out with him again next weekend.”

     

    Screw up

    To screw something up means to make a mistake.

    “Oh no, I screwed up the last question on the exam paper”

     

    My bad

    This phrase is used to let someone know that you’ve made a small mistake.

    “I bought you the wrong brand of potato chips at the store, my bad

     

    Hit

    The word ‘hit’ is usually an action verb but Americans sometimes use it differently. Let’s look at some examples:

    “I’m going to hit the books later” (I’m going to study later)

    “That guy hit on me last night” (meaning “that guy was flirting with me last night”)

    “If you want help with your math homework you can hit up my friend Jessica” (meaning “if you want help with your math homework you can contact my friend Jessica)

     

    Get in touch

    To get in touch with someone means to contact them.

    “You can get in touch with the Student International Office from 09:00-18:00”

     

    Cram

    Cramming generally happens when you have not given yourself enough time to study for an exam, so at the very last minute (usually the day or night before the exam) you study a lot.

    “I haven’t studied all week for my exam tomorrow. I’m going to the library to cram all night.”

     

    Hangover

    A hangover describes how you feel the day after drinking a lot of alcohol.

    “I have a very bad hangover. I’m going to stay in bed and watch movies all day.”

    Tip: Before you go to America watch popular TV shows from the US to get to know the language.

     

    Making Friends

    One of the best things about moving to the US is making new friends. The best way to make new friends in college is to take part in activities. Your college campus will have lots of events going on and there are endless opportunities to meet new people. Joining an on campus gym or club is always a good way to start.

    A college club or society is a group of students that meet up and take part in activities based on shared interests. You might find that there is a film club, a drama club, a history club, a physics club etc.

    If you enjoy sports then you’re in luck, joining a school’s sports teams is an excellent way to make friends.

    Most universities dedicate the first few weeks of term to fun activities and parties that take place on campus. This is intended to freshmen make new friends and feel comfortable starting in a new school.

    You will be part of a large student population and not it’s not just American citizens. In fact, the US has more international students than any other country. If you do find yourself making friends with people from your own country, be sure to speak in English as much as possible so that you get a lot of practice in.

     

    Student accommodation

    Living in student accommodation is a great way to meet new people. You will also mix with native English speakers on a daily basis, giving you more opportunities to get to know the language. Try to secure a place in a college dormitory or some form of student accommodation.

    Tip: Put yourself out there and don’t be afraid to start a conversation with someone new.

     

    International Student Survival Guide

     

    Dealing with culture shock

    You may be excited to start studying in the US but you should know that it will take some time to adjust to the cultural differences. Your surroundings will change and you might even change but don’t worry, that’s normal! Culture shock is used to refer to the experience of getting used to a new unfamiliar culture and it’s common for international students.

    You may even experience being ‘homesick’ this is when you start to miss home. Most people who move away from home experience this feeling at some point so don’t worry. It’s normal to miss your friends, your family or your favourite foods from home. If you feel that this is affecting you and making you feel angry or very sad, make an appointment with an on-campus counsellor or talk to your friends about it.

    Be as open-minded as possible. Try new foods, listen to new types of music, and hang out with people you don’t usually hang out with. Your time in the US is all about trying new things.

    Get advice from your peers

    Do you have a relative, a neighbour or a friend who has studied in the US? Contact them or get in touch with them and ask them about their experience. They can give you great advice about what to expect.

     

    Watch out for scams

    You could end up being scammed especially when it comes to finding rented accommodation. Never exchange money until you have seen the accommodation. Unfortunately there are a lot of people out there who like to take advantage of people from outside the US.

    Have fun!

    The most important advice that we can give you is to have fun. Studying in the US is something that many can only dream about. It’s a once in a lifetime opportunity and you should make the most of it.

    Be confident in yourself and you will have a lot of wonderful experiences that you will remember for the rest of your life.