Who is a Non-resident Alien (NRA)?
Are there exceptions to the Substantial Presence Test?
What are tax treaties?
How are NRA's employed on the MU campus?
What are the procedures when an NRA is hired
by an MU department?
What if the NRA employee does not have a Social
Security Number?
Are scholarships and prize awards taxable?
Filing tax returns
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Who is a Non-resident Alien? |
Two U.S. government agencies, the U.S. Immigration
and Naturalization Service (now known as BCIS) and the U.S. Internal
Revenue Service (IRS) use the term non-resident alien.
BCIS Definition:
Persons who reside temporarily in the United States in non-immigrant
status are known by BCIS as non-resident aliens. The most
common non-immigrant statuses at MU include F-1, F-2, J-1, J-2,
H-1B, and TN.
IRS Definition:
For IRS purposes, a non-resident 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.
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Are there exceptions to the Substantial Presence Test? |
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 NRA's, 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. Therefore, as
NRA's, FICA withholding will not be required and tax returns
must be filed on the Form 1040NR or 1040NR-EZ until two years of
physical presence have been completed.
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What are tax treaties? |
The United States currently has tax treaties with more than 50
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 MU 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.
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How are NRA's employed on the MU campus? |
Most students in F-1 and J-1 immigration status may be
employed for up to 20 hours per week when school is in session
and up to full-time during authorized vacation periods. Employment
is limited to on-campus jobs only, without additional authorization
from either the U.S. Immigration and Naturalization Service (BCIS) or a
staff member of the International Center.
Employment of postdoctoral researchers and others in J-1 non-student
status is also common. Persons in J-1 non-student status are
eligible for full-time employment at MU and may be in
benefit-eligible positions.
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What are the procedures when an NRA is hired by an MU
department? |
When a department decides to hire an NRA, all
routine "new hire" paperwork should be completed with no delay.
The W-4 must be completed with name, address, SSN and a signature and date.
(The figures on the W-4 are irrelevant to the "new hire" process for an
NRA.)
There is no requirement to have an SSN at the time of hire for a
newly-arrived NRA.
The new employee must e-mail Judy Todd, the
MU Nonresident Alien Taxation Specialist at
ToddJ@missouri.edu.
The e-mail subject line will read, "New employee" and
the body of the message should include the employee's full name (as in the
passport) and the employee's date of birth. The employee will receive
further instructions by e-mail.
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What if the NRA employee does not have a Social Security Number? |
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 U.S. Immigration
and Naturalization (now called BCIS) database. While modifications are
being made to the system to provide for more expeditious review, this
process currently may take as long as 2-3 months.
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.
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Are scholarships and prize awards taxable? |
Scholarships made to NRA students will be taxable
income for any portions of the scholarship greater than the
student's educational expenses or any amount provided directly to the
student by cash or check. Educational expenses include
resident and non-resident fees, student activity fees, information technology
fees, and any additional fees required by an academic department.
The portion of scholarship or prize award determined to be
taxable will be withheld at a minimum of 14% unless there is a
tax treaty that exempts the scholarship income from withholding.
Nonresidents with taxable scholarship income will be contacted by
Judy Todd with instructions.
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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 will arrive at the home address of the
employee in mid-January. The Form W-2 is essential for filing
a tax return.
Form 1042-S:
All non-resident 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 mid-March.
Therefore, persons with the above types of income may not file
a tax return until AFTER they have received Form 1042-S.
Nonresidents living in Columbia may seek tax return assistance
through the MU NRA VITA site each spring, according to information
that will be provided at
http://cashiers.missouri.edu/nra.htm at the beginning of 2006.
Nonresidents outside Columbia will be provided assistance via
e-mail and fax whenever possible. Prior to leaving Columbia,
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 until
June 15 to file their tax return.
Yearly volunteers are needed to assist other international students
and researchers with tax return preparation under the Internal
Revenue Service Volunteer Income Tax Assistance
program (IRS NRA VITA site). Volunteers will be trained and certified
to assist with preparation of nonresident alien tax returns. To
volunteer or for additional information, please contact the MU NRA VITA
site Coordinator, Judy Todd at
ToddJ@missouri.edu.
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Other useful information may be obtained by visiting the
MU International Center
website.
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