The Foreign National Tax Analyst is responsible for providing guidance concerning federal and state tax withholding and reporting of payments made to individuals who are not U.S. residents. As an extension of tax compliance, international taxation involves working closely with international students, scholars, and visitors to determine their residency statuses for tax withholding purposes. In addition, this function issues Form 1042-S on an annual basis.
- Tax Residency Status
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NRA or RA
When determining tax rates for international students, researchers, and researchers present in the U.S. the University uses two tests:
The Permanent Residency (Green Card) Test The Substantial Presence Test (link: https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test)International individuals are considered residents (for tax purposes) on January 1 of the qualifying year, regardless of the month they arrived.
- J-1 visa holders, for the first two calendar years present in the U.S.
If the international individual does not satisfy either test they are considered a Non-Resident Alien (NRA) for tax withholding and reporting purposes. If the individual does satisfy one, or, both of the tests they are considered a Resident Alien (RA). A resident alien is subject to the same tax withholding and reporting requirements as a U.S. citizen or Permanent Resident, including taxation of worldwide income.
The following individuals are generally considered nonresident aliens:
F-1/J-1 students, for the first five calendar years present in the U.S. - Nonresident Alien FICA Exemption
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Non-resident alien individuals are exempt from Medicare and Social Security (OASDI) taxes, commonly referred to as FICA taxes.
This exemption applies to F-1 and J-1 students, researchers, professors, and short-term scholars in non-resident alien status. H-1B, TN, E3, O-1 and LPR visa holders are never exempt from FICA withholdings.
More information about the FICA tax liability for foreign nationals can be found on the IRS website, https://www.irs.gov/individuals/international-taxpayers/foreign-student-liability-for-social-security-and-medicare-taxes.
If you are a non-resident and FICA taxes have been withheld from your wages please contact the Foreign National Tax Analyst.
- Payment Types
- U.S. or Foreign-Source Income
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Nonresident aliens, for tax purposes, unlike U.S. citizens and residents, are only subject to tax on income that is considered U.S.-source income.
Foreign-source Income received by a non-resident alien is not subject to U.S. taxation.
Income is generally considered foreign-source if the location of the activity for which the payment is being issued is outside the U.S. A clear indication of the location of the activity is necessary on all supporting documentation for the payment to be correctly classified.
If the source of income cannot be determined at the time of payment, such as when the location of the activity is not indicated, the payment must be treated as U.S. sourced under IRS Regulations.
Royalties, such as those paid for the use of intellectual properties (industrial properties and copyrights), are taxable and considered U.S. sourced if the subject property is used in the U.S.
- Wages
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Compensation for employment. In the U.S. wages are taxed at graduated rates, meaning the amount of tax withheld from an employee’s wages is based on how much they earn. For more information about federal income taxes see IRS Publication 15, https://www.irs.gov/forms-pubs/about-publication-15.
Students
Graduate Teaching Assistantships/ Research Assistantships, any authorized on Grounds employment.For more information see “Withholding Adjustment for Nonresidents in IRS Pub. 15, https://www.irs.gov/forms-pubs/about-publication-15.
*Students from India are exempt from this procedure.
Payroll Period Add Additional
Biweekly $307.70
Monthly $666.70
Withholding Adjustment for Nonresident aliens (NRA “Gross-up”)
The IRS requires employers to add to nonresident alien employee’s wages prior to calculating income tax withholdings.Nonresident researchers, professors, lecturers, and short-term scholars’ wages are subject to:
Federal income tax
Virginia income tax
Researchers, Professors, Lecturers, and Short-Term Scholars
Salary, or, Hourly Wages.Nonresident students’ wages are subject to the following taxes:
Federal income tax
Virginia income tax
- Qualified Scholarship/ Fellowship Payments
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Scholarship/Fellowship payments are generally considered Qualified and not taxable when the payment is applied to education related expenses. Scholarship/Fellowship are generally tax-free under the following circumstances:
The student is enrolled in a degree program at an accredited university The fellowship/scholarship is used to pay the following qualified expenses, unless the terms of the fellowship/scholarship state otherwise:
- Tuition
- Fees
- Books
- Supplies (if required by all students in the course)
- Equipment (if required by all students in the course)
- Non-Qualified Scholarship/ Fellowship Payments
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Often incorrectly referred to as stipends, these payments generally are subject to 14% federal income tax withholdings. These payments typically include any payment from UVA for living expenses beyond typical tuition charges. U.S.-sourced, taxable scholarships and fellowship grants for nonresident aliens may be withheld at either a 14% or 30% rate. Non-qualified payments made to nonresident aliens in F, J, M, or Q nonimmigrant status will be taxed at 14%. Payments made to nonresident alien individuals in any other immigration status are subject to 30% withholding.
Non-Qualified Scholarship/Fellowship payments are reported on Form 1042-S.
- Honoraria
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Payments to non-UVA employees for usual academic activities. Honoraria payments are generally taxed at 30% unless a tax treaty exemption applies. The Honoraria recipient cannot be in violation of the IRS 9-5-6 rule or be in a visa status that limits payments from other institutions.
9-5-6 Rule
IRS rule that requires individuals not receive more than 9 payments from more than 5 institutions in the past 6 months. This rule is applied to any individual admitted to the U.S.
Honorarium Exception to the B-1 Tests: Visitors entering the US in B status are authorized to accept honorarium payments and incidental expenses for "usual academic activity or activities" paid by:
An institution of higher education or related or affiliated nonprofit entity A nonprofit research organization, provided that the 9/5/6 conditions are met 9/5/6 Rule for Honorarium Payments:- No more than 9 days stay at one institution
- No more than 5 institutions making honorarium payments
- Received in the prior 6 months
Honoraria Payments to nonresident aliens are reported on Form 1042-S.
Departments requesting an honoraria payment should complete the UVA Honoraria Form. The honoraria recipient’s signature is required on the form if they are a nonresident alien in B1, B2, VWB, or VWT immigration status.
Honoraria Payments to non-resident aliens are taxed at 30% unless the recipient is eligible for a tax treaty exemption.
- Prizes & Awards
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Prizes and awards are amounts received primarily in recognition of charitable, scientific, educational, artistic, literary, or civic achievement, or are received as the result of entering a contest. A prize or award is taxable to the recipient at a rate of 30% unless exempt due to a tax treaty.
Prizes and awards presented to nonresident alien individuals are reported on Form 1042-S.
- Related Policies and Resources
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HRM-008: Student FICA Tax Exemption
For additional information related to International Taxation, contact Logan Hobbs at lh7ea@virginia.edu or (434) 924-1377.