Nonresident Alien Payments
Many, although not all, of our international students and researchers at UMKC are nonresident aliens (NRA) for tax purposes. Persons who are nonresident aliens for tax purposes are generally taxed at much higher rates on all U.S. source income than are resident aliens and citizens. Therefore, it is important for NRAs to have a basic understanding of the U.S. tax system and how to minimize over taxation.
Nonresident Alien Definition
Two U.S. government agencies, the United States Citizenship and Immigration Services (USCIS) and the U.S. Internal Revenue Service (IRS) use the term nonresident alien.
USCIS definition
Persons who reside temporarily in the United States in non-immigrant status are known by USCIS as nonresident aliens. The most common non-immigrant statuses at UMKC include F-1, F-2, J-1, J-2, H-1B, and TN.
IRS definition
For IRS purposes, a nonresident alien is any non-citizen or legal permanent resident who has not resided in the U.S. for more than 182 days in any given year, as evidenced by the Substantial Presence Test (SPT). Persons who meet the SPT will be taxed primarily the same as legal permanent residents and citizens, which may include withholding of FICA from employment compensation.
Persons in F and J student status are exempt from counting days toward the Substantial Presence Test for a period of five tax years. Therefore, as NRAs, FICA withholding will not be required and tax returns must be filed on the Form 1040NR or 1040NR-EZ.
Persons in J-1 non-student status are exempt from counting days toward the SPT for a period of two tax years.
Information for Nonresidents
The majority of payments for Nonresident Aliens are processed through payroll. Our department will perform a tax assessment for individuals receiving these payments to determine their taxable nature and provide as many benefits to the employee receiving the payment, as possible.
NRA Tax Specialist site:
https://hr.missouri.edu/payroll/tax-information-nonresident-aliens
NRAs and Social Security Numbers
A Social Security number is not required from nonresident employees before they are allowed to begin work. However, a Social Security number is required before a foreign employee can benefit from a tax treaty exemption from withholding.
On July 1, 2002, the Social Security Administration (SSA) was mandated to verify Social Security number applicants with a United States Citizenship and Immigration Services (USCIS) database. While modifications are being made to the system to provide for more expeditious review, this process currently takes approximately 2 weeks. Because of this new system, the SSA requires that newly-arrived nonresidents wait 10 days after their U.S. arrival before submitting an application for a Social Security number.
Tax Information
Tax Treaties
The United States currently has tax treaties with more than 60 countries. These treaties are designed to decrease the likelihood that the NRA will be taxed on the same income both in the U.S. and the country of tax residency. Treaty benefits will not be honored unless appropriate treaty forms are completed and on file in Payroll.
Working for an investigator at UMKC who received a grant is considered compensation for services, which is covered under the independent personal services article of a treaty. This is because the institution or the investigator is deemed to be the recipient of the grant, not the NRA.
Student Treaties
Tax treaty benefits for students receiving compensation for employment are generally limited to a specific amount of income for each tax year (usually between $2,000 and $5,000 per year). Most treaty benefits will end once the student becomes a resident alien for tax purposes, so most treaty benefits will last no more than five years, with only a few exceptions.
Tax treaty benefits for scholarship income may also be available for students, even if there is not a corresponding treaty for compensation income.
Non-Student Treaties
Tax treaties for non-students are generally not limited to a specific amount of income, but are limited by a specific number of years. In some cases, if a non-student remains in the U.S. beyond the period covered by the treaty (usually two years from the date of entry), a “retroactive clause” in the treaty requires payment of all taxes that were previously exempt. It is, therefore, important to monitor these dates and treaty benefits carefully.
Recipients of a research grant may be eligible for tax treaty benefits on the maintenance allowance provided in the grant, and should initiate a tax review immediately upon receipt of the grant.
Filing Tax Returns
Each year between mid-January and April 15, persons who have income in the United States (including international students and researchers) are required to file income tax returns. Tax returns provide an opportunity to apply for money that was withheld in amounts greater than the actual tax liability to be refunded to the applicant.
Form W-2
All employees who have taxable income from employment in the United States will receive a Form W-2, which is a statement of earnings. This form may be available through the University MyHR system as long as “consent” has been provided in the MyHR system. If consent has not been provided, the W-2 will be sent by mail through the U.S. Postal Service to the last known mailing address. The Form W-2 is essential for filing a tax return for persons with taxable wage (job) income.
If a nonresident alien was employed at another U.S. location during the tax year, it is important to make sure the other employer has a recent address so the Form W-2 from that employer is received timely.
Form 1042-S
All nonresident aliens who have scholarships that are greater than the amount of their fees or have tax treaty exempt wages will receive a Form 1042-S, which is a statement of that type of income received during the year. Persons who have only a TA or RA fee waiver or a scholarship less than their semester fee charges will not be issued a Form 1042-S. The NRA will receive this Form 1042-S before March 15. Therefore, persons with the above types of income may not file a tax return until after they have received Form 1042-S.
Prior to leaving Kansas City, students and researchers with income must provide a forwarding address to the NRA Taxation Specialist to ensure timely delivery of Forms W-2 and 1042-S.
Persons who are outside the United States on April 15 have an automatic extension until June 15 to file their tax return. However, this is NOT an extension for payment, so if a nonresident owes taxes, they should submit the return by the April 15 deadline.
Tax Return Form Glossary
W-2
This form shows taxable income received in the form of wages. It lists the total income and all the taxes that have been withheld, which may include Federal, State, Local, Social Security and Medicare taxes.
W-2 forms are employer-specific, so if you had a job anywhere during the tax year other than the University of Missouri – Kansas City you will have a Form W-2 from that employer you will also need to be able to file your tax return.
Your UMKC Form W-2 will be made available through MyHR . Once in MyHR system, follow this path: Main Menu, Self Service, Payroll and Compensation, View Your W-2 Form
If you do not have a W-2 from the University of Missouri – Kansas City, there could be several reasons:
- You did not provide “consent” in the MyHR system for the form to be made available to you in early January. As a result it will be mailed to you at your last known address. If the form is lost in the mail, you will be able to print a copy from the MyHR system on or after February 15th.
- You had no compensation (job) income during the tax year. (If you began working at the end of last year, but your first paycheck was received this year, you will not receive a Form W-2 for last year.)
- Your income was paid through the student account as a scholarship, which means it will be reported on Form 1042-S, rather than a W-2. (The Form 1042-S will be explained later.)
- Your income was exempt from all withholding during the year because of a tax treaty between the United States and your country of tax residency. Tax treaty-exempt income is reported on Form 1042-S, which will be explained later.
If the Form W-2 you received shows no Federal or State withholding, but shows Social Security and Medicare withholding, this is normal for persons who are residents for tax purposes, but who are still exempt from Federal and State withholding because of a tax treaty.
If the Form W-2 you received shows Social Security and Medicare withholding, but you are in F-1 or J-1 status AND are a nonresident alien for tax purposes, you may be eligible for a refund of this withholding.
1042-S
This form is issued to primarily document two sources of income:
- Scholarship income, whether taxable or not and
- Any income that is exempt from withholding because of a tax treaty
The Form 1042-S will be available electronically through the FNIS system between the end of January and mid-February. If you have provided consent to the FNIS system for this form to be provided to you electronically, you will receive an e-mail notification the day it becomes available for you to print. If you have not provided consent in the FNIS system and would like to, please e-mail Emma Satterfield at SatterfieldE@umkc.edu who will send you the necessary information so consent can be provided. If you have not provided consent and do not want to have forms delivered electronically, they will be mailed to the last known address on file in the NRA taxation database at UMKC sometime by or before the regulatory deadline of March 15.
If you are eligible for a tax treaty exemption, but you did not sign and return the necessary forms during the tax year, all of your income will have been taxed and reported on a Form W-2, so you will not have a Form 1042-S.
1099-G
This form is issued by the State of Missouri (or another state where you worked) to document a state tax refund from the previous tax year. This income may be taxable for this year.
1099-INT
This form is issued by your bank, and shows the interest you received on deposits in your bank account or CD. Bank interest is not taxable for nonresident aliens, so you do not need to consider this form in preparing your tax return, if you are a nonresident alien for tax purposes. (Put this form in your “tax file” and keep it with other documentation as part of your tax records for the year.)
1099-MISC
This form is used most commonly used to show “independent contractor” income. Sometimes, students who work off-campus jobs are given this form to document job income instead of the W-2. When companies report earnings on this form, it means that no US or state taxes have been prepaid on your behalf. Therefore, if the income shown on the Form 1099-Misc is very large, you may owe taxes when you file the return, because these taxes were not prepaid on your behalf.
If you did work as an “independent contractor,” you will want to maintain a file throughout the year of expenses related to the work, because some of these expenses may decrease the taxable nature of this income.
Charitable Contributions Statement
This may be in the form of a letter or actual receipts documenting contributions made to US charities. Examples of US charities include houses of worship, places that will take clothing and furniture donations and special funds set up to aid in disaster relief (like the 2011 tsunami in Japan and the 2010 earthquake in Haiti and the Philippines typhoon in 2013).
Charitable giving, under current tax laws, is subtracted from taxable income. Therefore, if you plan to make contributions and would like to receive a tax benefit, make the contributions in such a way that you have a receipt. Most charities will provide receipts. If your donation is monetary, you can make the contribution by check, which can also serve as your receipt.
1099-R
This form is used to report distributions from annuities, retirement plans, IRAs or pensions. Recently, more US institutions have been requiring employees to contribute to retirement plans. When the employee quits working for the institution, a refund of the retirement contribution may be received and is then reported on Form 1099-R. If you had an internship, it is possible the company for which you worked will send you a Form 1099-R if you were required, under the terms of your employment, to contribute to a retirement plan and then received a refund when you left the company.
1099-DIV
This form documents dividend income, which must be included when you calculate your taxable income for the tax return.
1098-T
This form is issued by educational institutions in the United States to facilitate U.S. taxpayers (not nonresidents) make application for the Hope and Lifetime Learning Tax Credits. For nonresidents, often institutions do not even create these forms, as they are not needed for tax purposes until someone has become a resident for tax purposes and is, therefore, eligible for these tax credits. You may reprint your 1098-T form from Pathway.