1. What should I do if I want to invite an international person to the College?
The Business Office needs to review immigration status and tax residency every time an international visitor provides services to the College (including volunteer services) and/or receives compensation, an honorarium, reimbursements, grants, in-kind benefits (room, board, travel costs), waived fees, expenses paid by the College, or any other benefits from the College. This review must take place before contracts are signed, promises are made, or costs are paid on behalf of the potential visitor.
Please ask the potential international visitor to complete the International Visitor Information Form and send the form to Lisa Crawford in the Business Office. She will check the immigration status to make sure the activity is authorized by immigration, will determine tax residency, and will work with you and the visitor to minimize taxes.
2. May we assume that all international visitors with social security numbers are allowed to work for or receive benefits from the College?
If the visitor has a social security number it means she/he was legally permitted to work for someone at some time in the U.S., but it does not mean she/he is allowed to work for or receive benefits from The College of Wooster now.
3. Must an international visitor have a social security number before working for the College or receiving payment from the College?
The visitor would have to obtain a social security number before he/she could be an employee of the College but would not need a social security number to receive payment as an independent contractor. The issue is that there are few visas that allow an international visitor to work as an independent contractor. Please check with Lisa Crawford in the Business Office, before inviting the potential visitor to campus.
4. We want to invite an international visitor who was previously employed at the College to give a lecture or performance. What has to be done?
Although the person was permitted to work for the College in the past, we cannot assume that he/she is permitted to work for the College in his/her current status. Please ask the individual to complete the International Visitor Information Form and contact the Financial Analyst.
5. May we pay an international person for services performed outside the U.S.?
Services performed outside the U.S. are not subject to U.S. immigration laws, so immigration status is not an issue and international visitors may be paid. If the international person is a U.S. resident for tax purposes, there may be taxes due. In all cases, a contract must be completed so the College has a proper paper trail of the financial transactions.
6. May the College reimburse or pay travel expenses of an international visitor?
The ability to reimburse travel expenses depends on whether the activity for which expenses are to be reimbursed or paid is permitted under the immigration status of the individual. If the activity is not allowed, reimbursement of expenses would be considered illegal compensation under immigration laws—even if the reimbursement is tax-free under tax laws. That does not change if the expenses are paid directly by the College (for example, purchasing an airline ticket for the visitor) or if the benefits are provided in-kind (for example, providing a room and meals while in Wooster). Therefore, the International Visitor/Vendor Information Form must be completed to determine if it is permissible to reimburse the individual or provide in-kind benefits.
7. Why is the College withholding on payments made to international visitors.
The College withholds only when the law requires withholding.
Withholding is required for payments to nonresident individuals and foreign companies that provide services in the U.S. or receive grants, royalties, interest, etc. sourced in the U.S.—unless there is a tax treaty or other exception that applies and is properly claimed before the payment is made. Withholding is also required for payments to permanent residents and residents for tax purposes who do not provide a taxpayer identification number and are receiving reportable payments (payments for services, rents, royalties, interest, grants, etc.).
8. There is a tax treaty between the U.S. and the country in which a visitor has tax residency. Doesn’t that mean there is no withholding?
Tax treaties may exempt certain types of income from tax, but there are two conditions that must be met before a treaty can be used to avoid withholding: (1) the treaty has to provide a benefit for the particular type of payment and (2) the recipient of the payment has to qualify to claim the treaty benefit. To qualify for a treaty benefit, the benefit has to be properly claimed in writing before the payment is made and the individual or entity claiming the benefit must have a U.S. taxpayer identification number.
The Financial Analyst will check for treaty availability and assist with the paperwork.
9. The College has a contract with a U.S. agent or organization who is representing an international visitor. Since the College is paying the agent, isn’t it the agent’s (or organizations’) responsibility to make sure the person they represent is allowed to work for the College and to withhold taxes?
The agent should make sure the person is permitted to work for the College and the agent could be penalized if taxes are not properly withheld. But the College is the direct beneficiary of the services and is primarily responsible for ensuring that persons working for it are legally permitted to do the work and for withholding. The College could be liable for taxes, fines and other penalties if taxes are not properly withheld and/or if the visitor is not authorized to work for the College.
10. The College has a contract with an agent who is representing a foreign person. According to the contract, the College will make one payment for services directly to the agent, one payment for services directly to the foreign person, and will reimburse the agent for travel costs of the foreign person. There are no treaty benefits available. Which payments are subject to withholding?
All of the payments are subject to 30% withholding. The IRS does not allow foreign persons to avoid withholding by splitting the compensation with an agent. Withholding and tax reporting would be handled as if the payments for services were made directly to the foreign person. (This is in Reg. 1.1441 that was issued for payments on and after January 1, 2001.) In addition, the IRS does not allow tax-free treatment when an agent is reimbursed for the travel costs for someone they are representing, even if the reimbursement is paid to a 501(c)(3) charitable entity.
11. How are taxes handled if a payment was supposed to be taxed but the tax was not discovered until after the check was mailed?
If the College learns of a taxable payment to an international visitor after the payment is made (or provides in-kind benefits–room, meals, airline ticket–that are taxable), the payment will be “grossed up” or increased to cover the taxes due. The additional amount paid for the taxes also becomes taxable. The entire amount will be taken from the account to which the original payment was charged.
12. What is an individual taxpayer identification number (ITIN)?
An ITIN is issued by the IRS to a foreign person who is not eligible for a social security number but will be filing an income tax return or claiming treaty benefits. The number is only valid for Federal income tax purposes—it does not give the person the right to work in the U.S.
13. What are the implications of a contract from an agent that says something like: “It is agreed that as full compensation for the services mentioned herein (the College) will pay NET OF ALL TAXES…”?
The “net of all taxes” phrase has the potential to surprise you with unexpected costs. It means that if we determine any withholding is required, the withholding is above and beyond the amount stated in the contract. For example, if the College signs a contract with this phrase agreeing to pay $5,000 for a performer and later finds out 30% withholding is required, the actual cost for that performance will be $7,142.86. (The taxes will be an addition to the agreed-upon fee.)
So when might the College be required to withhold on these contracts? There are two cases.
The most common is when the agent is representing an international visitor. Even though the contract is made with the agent, and even though the check is payable to the agent, the IRS requires that we ignore the agent and withhold 30% as if the check were going directly to the international visitor (unless there is a tax treaty available that is properly claimed before the payment is made).
The other time withholding could be a problem is if the agent refuses to give the College their taxpayer identification number after the contract is signed. Reportable payments to U.S. persons who refuse to provide a taxpayer identification number may be subject to backup withholding of 28%. This has not been a problem at the College—but you should be aware of the possibility.