Acceptance Agent
An acceptance agent is usually an entity (such as IU) which has made a written agreement with the IRS to help foreign visitors obtain Individual Taxpayer Identification Numbers (ITINs) or Employer Identification Numbers (EINs) from the IRS. IU is an acceptance agent for ITINs. It can assist with completing the ITIN application and can certify that it has inspected the official documents required by the application.
Candidate for a Degree
For tax purposes, a candidate for a degree is broadly defined by IRS to include any full-time or part-time student enrolled at an institution that grants degrees. Every IU student, whether or not his or her particular educational program leads to a degree or is labeled degree, non-degree, or certificate, is therefore a candidate for a degree.
Certificate of Compliance: "Sailing Permit" (IRS Forms 1040C and 2063)
A Certificate of Compliance, or "Sailing Permit," is a form that a foreign visitor must file with the IRS to demonstrate that he or she has paid all applicable U.S. taxes before leaving the U.S. Holders of F-1, J-1, H-3, and H-4 visas are not required to obtain the Certificate of Compliance if their only U.S. source income was:
- allowances or payments to cover study expenses (including travel, maintenance, and tuition), or
- wages from authorized work (including practical training).
Permanent residents (green card holders) and all nonresidents with visa status other than those noted above must still obtain a Certificate of Compliance from the IRS before leaving the U.S.
The following information will be useful to foreign visitors who must obtain a Certificate of Compliance before leaving the U.S.:
- IRS Form 2063 is required if the foreign visitor owes no U.S. tax at time of departure.
- IRS Form 1040-C is required if the foreign visitor owes U.S. taxes at time of departure.
- The appropriate form should be obtained and filed at least 14 days before departure, but no more than 30 days before departure.
- The appropriate form can be obtained from the local IRS office. An IRS employee will provide assistance in completing the form.
DS-2019 Form
Form DS-2019 is a document that supports a J-1 visa. The form is prepared for students or scholars by the university or organization that is acting as sponsor. Generally, foreign visitors receive this form abroad and take it to a U.S. consulate when they apply for a J-1 visa. Question 3 on the form shows the period for which the form is valid. Question 4 will identify whether the holder is a student, a professor, a research scholar, or a short-term scholar. Other options are available; these are the most common at IU.
Employee Wages
Employee wages are payments for services that an individual performs or carries out for the university as an employee or while on the university payroll. Services performed by an employee are subject to the direction and control of the university, its faculty, or staff. Employee wages are not the same as payments made to a foreign visitor for independent contractor payments. See the discussion of independent contractor payments at Section 1.7 below for the definition of non-employment related services. Employee wages can be paid only to foreign visitors who have been granted an appropriate employment authorization and visa status by the Bureau of Citizenship and Immigration Services (BCIS).
Fellowships and Scholarships
Fellowship or scholarship payments are made to assist someone in pursuing a course of study or research. Fellowship or scholarship payments made to foreign visitors may include a combination of the following:
- Tuition, fees, books, and course-related materials
- Stipends for living expenses including meals, lodging, and other personal items
- Medical insurance premiums paid to insurance companies
- Air fare purchases from airline companies or travel service providers
Even if they are called fellowships, payments made to individuals for providing a service to the university are considered by IRS to be employee wages, not fellowships. Any amount of a fellowship or scholarship that is paid in exchange for employment-related services, including teaching and research services, is taxable unless a tax treaty exclusion applies.
For years beginning with 1987, amounts paid to individuals as qualified scholarships or fellowships can be excluded from taxable income (meaning the payments are not taxable) if the following two requirements are both met:
- The scholarship or fellowship is awarded to a candidate for a degree. All students taking courses at IU qualify under IRS definitions. (See Section 1.1.)
- The scholarship or fellowship is used to pay for (1) tuition and fees required for enrollment or attendance at IU, or (2) other mandatory fees, books, supplies and equipment required by all students in a particular course of study.
Portions of fellowship and scholarship payments that are used for meals, lodging, non-mandatory medical insurance, travel, personal living expenses, or other non-course related expenses must be included in taxable income unless the individual qualifies for a tax treaty provision that excludes such payments from taxation.
Post-doctoral fellowship awards are made to individuals to further their pursuit of a course of study or research beyond the doctoral level. The entire post-doctoral fellowship award must be included in taxable income.
FICA Tax
FICA is short for the Federal Insurance Contribution Act. FICA tax is assessed against employee wages paid to individuals who are resident aliens for tax purposes. FICA tax is separate from federal income tax and is used to fund the retirement and medical benefits paid by the Social Security Administration. One half of this tax (7.65% of wages) is withheld from payments to the individual. An equal amount is paid by the university.
I-20 Form
Form I-20 is a document that supports an F-1 visa. Only students receive an I-20. The form is published by the Immigration and Naturalization Service and prepared for IU students by Indiana University. Generally, new students receive this form abroad and take it to a U.S. consulate when they apply for an F-1 visa. At Question 2, you can find the name of the university; for IU students, Indiana University must be indicated here. Questions 3 and 4 indicate the degree and course of study of the student and the period that the form is valid. Authorization for on-campus work is not noted on the I-20. Authorization for off-campus curricular practical training is noted on Page 4 of the I-20. Authorization for optional practical training is also noted on Page 4 of the I-20, but the student must also show a valid EAD. See Section Six for more details about these types of work.
Immigrant (Resident Alien for Immigration Purposes)
An immigrant, or resident alien for immigration purposes, is a "green card" holder and is often referred to as a permanent resident. An immigrant, or resident alien, is a non-U.S. citizen who has been authorized to live and work in the U.S. indefinitely.
Immigration and Naturalization Service (INS)
The INS (part of the Department of Justice) was transitioned into the Department of Homeland Security on March 1, 2003. See United States Citizenship and Immigration Services (USCIS).
Independent Contractor Payments
Independent contractor payments are made for services performed by foreign visitors when those services are outside the scope of employment. Independent contractors are not employees. In order for an individual to be treated as an independent contractor and not an employee, all of the following tests must be met:
- The foreign visitor must not be under the direction or control of the university, its faculty, or staff, in regard to the means and method that are being used to perform services for the university.
- The service or task being performed is of short duration and will not result in the foreign visitor entering a long-term working relationship with the university.
- A written contract or agreement exists that identifies the services that are to be performed.
Independent contractor payments can be made only to foreign visitors who have been granted the appropriate work authorization and visa status by the INS. They must have I-94 marked with status that allows payment.
Internal Revenue Service
The Internal Revenue Service (IRS) is the U.S. government agency (part of the Department of the Treasury) that collects taxes. The IRS issues various forms-withholding allowance certificates, income tax returns, and so on-which are used to collect information from foreign visitors and help them calculate and pay the taxes that apply to them. The IRS is also the part of the U.S. government that determines how much you owe in taxes, and whether an organization that pays income to a foreign visitor is required to withhold specific amounts from that income (see Section 1.15).
Nonimmigrant (Nonresident for Immigration Purposes)
A nonimmigrant, or nonresident for immigration purposes, is a person who is not a citizen or permanent resident (“green card” holder) of the U. S. and has been admitted to the U.S. for a temporary stay that will end when the purpose of that stay has been met. A student in status on an F-1 visa is an example of a nonimmigrant.
Nonresident Alien (for Tax Purposes)
A nonresident alien for tax purposes is a person who is not a U.S. citizen and who does not meet either the "green card" test or the "substantial presence" test described in IRS Publication 519, U.S. Tax Guide for Aliens.
Resident Alien (for Tax Purposes)
A resident alien for tax purposes is a person who is not a U.S. citizen and who meets either the "green card" test or the "substantial presence" test described in IRS Publication 519, U.S. Tax Guide for Aliens.
Taxable Income
Any money paid to a foreign visitor or paid to a third party on the visitor's behalf on which taxes are required to be paid to the U.S. government is called taxable income. Employee wages, independent contractor payments, and stipends are considered taxable income. IU will withhold FICA tax, and state, local, and federal income tax from these payments at the appropriate rate.
Taxes
Taxes are payments to the U.S. government by individuals earning money in the United States. Taxes are used to support the various functions of the U.S. government.
Travel (Transportation, Meals and Lodging in Transit)
Travel payments can be made to foreign visitors in payment for, or reimbursement of, a number of travel-related expenses including the cost of meals, lodging, transportation costs such as air fare and automobile rental, and other related expenses incurred while in transit. There is no distinction between amounts paid directly to travel service providers, such as airlines, and payments made directly to the foreign visitor. IU understands the tax laws to allow that travel expenses that are paid or reimbursed by the university in order to transport a foreign visitor to or from the university will not be considered taxable income as long as the traveler accounts to the university by providing actual receipts and substantiation of the business or scholarly purpose of the travel. If the university pays travel expenses to you in advance, you must enter the U.S. on a visa status that permits such payments, and you must provide appropriate documentation of that status. If you do not, you are required to repay the amount advanced.
USCIS
The INS was transitioned into the Department of Homeland Security on March 1, 2003, with responsibility for the various aspects of immigration work divided into three bureaus. Immigration customer service functions are now performed by the United States Citizenship and Immigration Services (USCIS). Enforcement responsibilities are centered in the new Bureau of Immigration and Customs Enforcement (BICE). The Bureau of Customs and Border Protection (BCBP) includes U.S. Border Patrol and immigration inspections border enforcement programs. These bureaus set the restrictions for most visa categories. The Department of State sets the regulations for the J exchange visitor visa program.
Withholding
U.S. law generally requires that income tax and social security tax be paid before wages are given out to the employee. Indiana University, by law, must subtract required taxes from an employee's pay before it pays the employee. When you receive a paycheck or direct deposit notice from the university, the stub will tell you how much has been withheld to pay each tax. The university sends the amounts withheld to the U.S. government, as required by law.
Withholding is based on an estimate of what an individual's tax will be. When you complete your tax return, if more taxes have been withheld than you owe, you can claim a refund. If the IRS agrees that you have computed your tax correctly, it will pay you the amount of the appropriate refund, either by check or electronic funds transfer. If less tax has been held than you owe, you must pay the amount that you owe when you submit your return. If the amount is large, you may have to pay a penalty.
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