SECTION 77: Nonresident Alien (NRA) Independent Contractors and NRA Recipients of Honorarium, Rents, Royalties and Awards

1. A Canadian national might not be provided an I-94 if they are entering the U.S. as a B1 or B2 category visitor (see II.D. below).  A Canadian national lacking a validated USCIS Form I-94 may complete the MSU "Substitute Form I-94 for Use By Certain B1 Or B2 Visitors From Canada" (see Exhibit 77-B).
2. A Native American visitor needs neither a visa status nor a Form I-94 to enter the U.S.  However, as per the discussion that follows, a Native American payee is subject to income tax withholding.  With a U.S. tax identification number and proper application, a Native American may obtain exemption as a resident of a treaty country if he/she provides his/her U.S. tax identification number on the application.

1. B1 and B2 visitors cannot be paid contractual compensation.  Under very limited circumstances, they are permitted to receive non-binding honorarium, or reimbursement for documented or undocumented travel expenses.  See Manual of Business Procedures Section 70 for travel expense reimbursement policies and procedures.
2. If a B1/B2 visitor is to be paid an honorarium, or reimbursed for undocumented travel expenses he/she must satisfy certain limitations imposed by the USCIS.  The MSU form "Certification for International Visitors Entering the U.S. With B1/WB1 or B2/WB2 Visa Status" (see Exhibit 77-D) is provided to document and attest to the NRA's eligibility to receive such payments.  The NRA and an authorized departmental person must sign the form.  The limitations the NRA must satisfy are:
   1. The payment to the international visitor is an honorarium or reimbursement for documented or undocumented travel expenses.
   2. The payment relates to service that the international visitor performed for MSU that is considered to be usual academic activity (teaching, research, public service).
   3. The duration of the international visitor's stay at MSU does not exceed nine days.
   4. The international visitor has received similar payments from no more than five U.S. institutions or organizations during the previous six-month period.
3. For payments to NRA who have entered the U.S. under a B1 or B2 visa status, it is mandatory that the NRA provide either a U.S. SSN, or a U.S. Individual Tax ID Number (ITIN).  If the NRA has neither a SSN nor an ITIN, the payee must apply for an ITIN on IRS Form W-7 "Application for IRS Individual Taxpayer Identification Number" (see Exhibit 77-E).  If an IRS Acceptance Agent is available in the NRA's country of residence, they may be able to apply for the ITIN prior to coming to the U.S. (refer to IRS W-7 instructions).  (If the NRA does not have a U.S. social security number, he/she is not permitted to apply for one while visiting under a B1 or B2 visa.)  Generally, application must be made by the NRA in person at an office of the IRS.  Proof of application (copy of IRS Form W-7) must be provided with the DPV and other payment documentation.   Once the ITIN has been assigned, the NRA must provide it to Voucher Processing.

All individual recipients of compensation, honorarium or reimbursement of undocumented travel expenses for performance of personal services (excluding compensation as an employee), who choose to apply for tax treaty benefits must complete IRS Form 8233, "Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual" (see Exhibit 77-G).  NRA IC's who do not qualify for tax treaty benefits (or those who choose not to apply for them) must complete (in part) an IRS Form W-8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding" (see Exhibit 77-H) in order to document their status as an NRA.

1. IRS Form 8233 and Form W-8BEN can be obtained from the Voucher Processing Department, 360 Administration Bldg., 353-4882.  Departments may also download a copy of the forms and instructions for their use from the Controller's Office Forms Download Internet site.
2. A contractor applying for tax treaty benefits must complete IRS Form 8233 through item 14 and sign where indicated.
3. A contractor not applying for treaty benefits should complete Form W-8BEN through item 8 and sign where indicated.
4. Generally, payees holding a Type F (student) or Type J (researcher/scholar) visa who are applying for treaty exemption must also complete a supporting statement (see Exhibit 77-N) to satisfy IRS requirements.  The completed statement should be stapled to the completed IRS Form 8233.  The statement required will vary by country.  Please call Voucher Processing at 353-4882 to obtain guidance.
5. Payees holding a Type F (student) visa are seldom authorized to engage in performing independent personal services for compensation.  When "curricular practical training" is authorized, they must provide a copy of USCIS Form I-20 endorsed by the MSU Office for International Students and Scholars, or the Designated School Official (DSO) from their sponsoring U.S. university.  When "optional practical training" is authorized, they must present INS Form I-688B, or I-766 issued and approved by USCIS.
6. Payees holding a Type J (researcher/scholar) visa must present a copy of USCIS Form IAP-66 endorsed by the Designated School Official from their sponsoring U.S. university.  This approval is employer-specific, so MSU must be named as the approved employer.
7. The NRA contractor's U.S. tax identification number (U.S. social security number or U.S. Individual Tax ID Number - see discussion above at 77.II.C. and 77.II.D.3.) must be provided.  If a U.S. tax identification number has not been assigned, the contractor must apply for one and provide proof of application to Voucher Processing.  If neither a U.S. TIN nor proof of application for a TIN is provided, the NRA cannot apply for treaty benefits and the university must withhold income taxes from the payment.
8. IRS Form 8233 or Form W-8BEN (as appropriate), together with the DPV, I-94, NRAPSC, the NRAICSDD and other required documentation should be forwarded to the Voucher Processing Department, 360 Administration Building.
9. The Voucher Processing Department will review and finalize IRS Form 8233 and mail it to the IRS if the NRA has applied for tax treaty benefits.
10. If the NRA IC has applied for tax treaty benefits, the exemption from withholding must be approved by the IRS before payment is made.  It takes 10 business days for the IRS to respond to a request to exempt payment from withholding.
11. If the payee chooses not to avail himself/herself of available tax treaty benefits, a statement documenting this and signed by the payee must be included with the DPV (or on the face of it).

Foreign fiduciaries, partnerships or corporations engaged in a trade or business (and individuals providing something other than independent personal services such as rental operations – see III.A. above for individual personal services) in the United States are subject to income tax withholding.  Internal Revenue Code Section 864 includes the provision of personal service in the U.S. in the definition of engaging in a trade or business in the U.S.  Exemption from withholding may be accomplished by completing IRS Form W-8ECI, "Certificate of Foreign Person's Claim for Exemption From Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States" (see Exhibit 77-I).  Those NRA completing this form must file a U.S. income tax return.  This exemption does not apply to compensation or reimbursement of undocumented travel expenses related to personal services performed by an individual.  (Unless it relates to the conduct of a trade or business in the U.S., fiduciaries, partnerships and corporations receiving income should file IRS Form W-8BEN rather than the W-8ECI.  This would relate to receipt of royalties earned in the U.S., for example.)

1. IRS Form W-8ECI can be obtained from the Voucher Processing Department, 360 Administration Building, 353-4882.  Departments may also download a copy of the form and instructions for their use from the Controller's Accounting Forms Download Internet site.
2. Once the contractor completes IRS Form W-8ECI, the form together with the DPV, NRAPSC, the NRAICSDD and other required documentation should be forwarded to the Voucher Processing Department, 360 Administration Building.
3. The contractor's U.S. tax identification number (TIN) must be provided.  If a U.S.TIN has not been assigned, the contractor must apply to the IRS for an employer identification number (EIN) using Form SS-4 "Application for Employer Identification Number" (see Exhibit 77-J).  Application may be submitted through the mail, by fax or by phone (refer to IRS SS-4 instructions).  Individuals providing something other than personal services should apply for an ITIN from the IRS using IRS Form W-7.  Proof of application must be provided to Voucher Processing.  If a U.S. TIN is not provided, the university must withhold income taxes from the payment.

Foreign tax-exempt organizations may be exempt from withholding.  To obtain the benefit of tax-exempt status, these organizations must file IRS Form W-8EXP "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding" (see Exhibit 77-K).  This exemption does not apply to compensation or reimbursement of undocumented travel expenses related to personal services performed by an individual.

1. IRS Form W-8EXP can be obtained from the Voucher Processing Department, 360 Administration Building, 353-4882.  Departments may also download a copy of the form and instructions for their use from the Controller's Accounting Forms Download internet site.
2. Note that certain categories of declaration of tax-exempt entity status require written supporting statements from either the U.S. IRS or a U.S. attorney.
3. Once the contractor completes IRS Form W-8EXP, the form together with the DPV, NRAPSC, the NRAICSDD and other required documentation should be forwarded to the Voucher Processing Department, 360 Administration Building.
4. The contractor's U.S. employer ID number (EIN) must be provided. If a U.S. EIN has not been assigned, the contractor must apply to the IRS for one using Form SS-4 "Application for Employer Identification Number".  Proof of application must be provided to Voucher Processing.  If a U.S. EIN is not provided, the university must withhold income taxes from the payment.
5. If a foreign tax-exempt organization is not applying for exemption from withholding, they must complete IRS Form W-8BEN.  See item E.1. through E.3. below.

1. Payments to NRA artists, athletes and entertainers can be problematic.  This is a sub-category of independent personal services.  Typically, payments to artists, athletes and performers are subject to 34.35% withholding.
2. This category of NRA can be an individual, partnership or corporation, or a tax-exempt organization.  As a general rule, processing payment to the NRA will be determined by the nature of the entity (e.g., individual, corporation, non-profit entity).  See previous paragraphs for processing requirements of each category.
3. For individuals who may be eligible for reduced withholding due to a tax treaty, if the tax treaty with their country of residence contains a separate article that applies to "artists, athletes and entertainers", that article takes precedence over the "independent personal services" article.
4. For individual performers not eligible for tax treaty benefits, or for other entities, a reduced rate of federal withholding may be negotiated under an agreement prepared in accordance with IRS central withholding agreement procedure (see Exhibit 77-L) as stipulated in IRS Publication 515 "Withholding of Tax on Nonresident Aliens and Foreign Entities".  This agreement will incorporate all United States performance engagements by the NRA for withholding purposes.  The agreement must be signed by the Commissioner of the IRS, all NRA(s) covered by the agreement, and by each withholding agent (including Michigan State University).
5. If payment for the benefit of a NRA artist, athlete or entertainer is issued to a U.S. agent, withholding taxes must be deducted.  See Section 77.III.G.

Scholarships and fellowships for non-degree candidates engaged in study, training or research are subject to income tax withholding at a rate of 18.35% (14% Federal and 4.35% State).  Royalties are subject to 34.35% income tax withholding.  Recipients of scholarships or fellowships (not enrolled in a degree program engaged in study, training or research) or royalty income may be exempt from withholding.  Fiduciaries, partnerships and corporations may also be eligible for reduced withholding on royalties.  A listing of countries whose residents may be eligible for limited exemption of withholding from royalty income under tax treaty is provided (see Exhibit 77-F).   The actual treaty may not exempt any or all of the royalty income you anticipate paying to the NRA.  In order to learn the details of the tax treaty provisions for a particular country, please call Voucher Processing at 353-4882.  If the country of residence for your NRA is not listed on Exhibit 77-F, the payment will be subject to income tax withholding.

Amounts of per diem for subsistence paid by the U.S. Government Agency for International Development (USAID) to NRA engaged in a training program in the U.S. are exempt from withholding even though the amounts may be subject to income taxation.  Confirmation of USAID as the source of the scholarship must be documented by award correspondence.

The NRA recipient of a scholarship or fellowship award (including a USAID stipend) or royalty income must complete IRS Form W-8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding" whether or not they apply for tax treaty benefits.

1. IRS Form W-8BEN can be obtained from the Voucher Processing Department, 360 Administration Building, 353-4882.  Departments may also download a copy of the form and instructions for their use from the Controller's Forms Download internet site.
2. Once the recipient completes IRS Form W-8BEN, the form together with the DPV, and other required documentation (including Form I-94 for scholarship/fellowship recipients) should be forwarded to the Voucher Processing Department, 360 Administration Building.
3. The income recipient's U.S. tax identification number (TIN) must be provided.  If a U.S. TIN has not been assigned to an individual, the income recipient must apply to the IRS for a U.S. Individual Tax ID Number (ITIN) using an IRS Form W-7.  If a U.S. ITIN is not provided, the university must withhold income taxes from the payment.  Fiduciaries, partnerships and corporations and tax-exempt organizations must provide a U.S. Employer ID number to be eligible for any treaty benefits available providing for reduced withholding.  These organizations may also request exemption from tax withholding by submitting IRS Form W-8ECI or W-8EXP as appropriate, (see Section 77.III.B. and 77.III.C. above).  If W-8ECI or W-8EXP are filed, exemption will not be based on tax treaty, but rather on exemption for conduct of a trade or business in the U.S. or based on their status as a tax-exempt organization.

1. NRA recipients of rental income that is derived from property located in the U.S. are generally subject to income tax withholding.  Withholding may be avoided if they complete IRS Form W-8ECI, "Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States" (Exhibit 77-I) and file the form with the university.  A U.S. tax ID number is required.
2. See Section 77.III.B for instructions for completing Form W-8ECI.
3. If the NRA payee does not desire to or cannot complete Form W-8ECI, he/she may complete IRS Form W-8BEN to simply establish their status as a nonresident alien for tax purposes.  Income taxes will be withheld from the payment.

1. According to IRS Regulation 1.1441-1(b)(2)(ii), if the university makes a payment to a U.S. person (individual, partnership or corporation, etc.) with actual knowledge that the U.S. person is receiving the payment as an agent of an NRA individual, partnership, or corporation, the university must treat the payment as if it were made to the foreign person.  This may occur relative to  artists and entertainers.  This IRS Regulation mandates that withholding taxes be deducted from the payment made to the agent and that the entire payment be reported on IRS Form 1042S in the name of the agent.  The taxes withheld are refundable to neither the agent, nor to the NRA.
2. If payment must be made to an agent, making sure the contract(s) stipulate which payment(s) and the dollar amount(s) thereof are for the services of the agent, and which are to be passed through to the NRA recipient will be of benefit in avoiding an over withholding situation.  Alternatively, if payment is made directly to the NRA, withholding may be avoided by the NRA submitting the appropriate IRS form noted in previous paragraphs (Form 8233, Form W-8ECSI and Form W-8EXP).

Where can I obtain guidance at MSU to ensure that I make the proper arrangements for a future visit of an international guest?

The MSU Office of International Students and Scholars (OISS) is the preferred source of counseling to properly structure an invitation to an international guest. The OISS Immigration Specialist may be reached by phone at 353-1720 or by Internet. OISS will advise you on the visa requirements for your international guest considering the circumstances and purpose of the visit you are contemplating.

If payment to the international guest is anticipated (or even if there is the possibility of payment), Accounts Payable should be consulted to obtain guidance on the payment documentation required to satisfy INS and IRS rules, and to avoid misunderstandings relating to the payment. Accounts Payable may be reached by phone at 353-2011.

Are payments to all international visitors handled the same way?

No. International visitors have both an immigration status governed by the U.S. Immigration and Naturalization Service (INS), and a tax status governed by the U.S. Internal Revenue Service (IRS).

INS status is generally either "non-immigrant" or "immigrant". A "non-immigrant" is an international visitor to whom the INS has given permission to reside temporarily in the United States. Generally, a non-immigrant has represented to the INS that he/she is a permanent resident of a foreign country to which he/she fully intends to return after a temporary stay in the U.S. The IRS generally refers to these individuals as "nonresident aliens" (NRA). In order to enter the U.S. a NRA must have a visa issued by the U.S. Department of State giving him/her certain limited permissions while in the U.S. Some visas permit limited payment to the NRA. (Visitors from Canada may not be issued a visa prior to visiting the U.S., though they will need a validated INS Form I-94 if payment is to be issued to them. See FAQ item D. below.) Payments to qualified NRA are generally subject to U.S. income tax withholding unless the visitor is entitled to treaty benefits or other exemption.

An immigrant is an alien who has the right to reside permanently in the United States. Eventually, these aliens can earn a "green card" (INS Form I-551). A green card is tangible proof of immigrant status. The Internal Revenue Service (IRS) refers to these individuals as "resident-aliens". Resident-aliens do not need a visa and are paid in the same manner as U.S. citizens.

What is a visa?

A visa stamp is written evidence of permission to enter the U.S. granted by the U.S. Department of State to a non-immigrant. Typically, the visa status is recorded in the form of a stamp on one of the pages of the individual's passport. Visa status' come in different categories and give the non-immigrant different permissions and limits while they are temporarily in the U.S.

What is an INS Form I-94 "Arrival-Departure Record"?

A Form I-94 "Arrival-Departure Record" is created by the USCIS when the traveler is inspected upon arrival in the United States. The inspector endorses the USCIS Form I-94 with the date, place of arrival, the "class of admission" (which corresponds to the visa class), the length of time the traveler may remain in the United States, and any special conditions which may apply to the visit. A validated Form I-94 must be presented with any Direct Payment voucher to document the NRA visa status, date of entry and authorized length of stay. A visitor from Canada who was not issued a Form I-94 upon inspection at the border can complete a "Substitute Form I-94 For Use By Certain B1 Or B2 Visitors From Canada". See Manual of Business Procedures Section 77.

What is a U.S. tax identification number?

A U.S. tax identification number is required to provide a unique identifier to an individual who is required to report income and/or pay taxes to the U.S. federal government. In order for a NRA to qualify for exemption from income tax withholding, their U.S. tax identification number must be provided with their application for exemption. A U.S. tax identification number can take one of several forms:

ITIN: U.S. Individual Tax Identification Number. This number is issued to NRA individuals who need a tax identification number, but did not enter the U.S. under a visa status that authorizes employment. For example an F or J visa may authorize employment. A B visa does not authorize employment. An individual may obtain an ITIN by applying to the U.S. Internal Revenue Service using IRS Form W-7.

SSN: U.S. Social Security Number. This number is issued to NRA individuals who need a tax identification number, and who entered the U.S. under a visa status that does authorize employment. An individual may obtain a SSN by applying to the U.S. Social Security Administration using SSA Form SS-5 (or Form SS-5-FS if applying from the NRA country of residence).

EIN: U.S. Employer Identification Number. This number is issued to taxpayers that employ others and must report payroll taxes. It is also issued to entities other than individuals (such as partnerships and corporations). An NRA entity may obtain a U.S. EIN by applying to the U.S. Internal Revenue Service using IRS Form SS-4.

Can a nonresident alien avoid U.S. income tax withholding on taxable payments received from MSU?

In most cases, MSU is required to withhold income taxes from payments made to nonresident aliens for income earned in the United States. Those NRA who qualify under a number of different circumstances may avoid income tax withholding. The NRA must provide MSU with his/her U.S. tax identification number when completing the appropriate form.

Independent personal services: The NRA may be eligible for exemption from withholding if they qualify for the benefits of a tax treaty between his/her country of residence and the U.S. A tax treaty is an agreement between the U.S. and another nation that documents a protocol for each country (home country and host country) to follow in taxing one another's residents when that resident earns income in the "host" country. IRS Form 8233 must be completed.

Services performed by a NRA corporation, partnership or fiduciary: The NRA entity must complete IRS Form W-8ECI or W-8BEN.

Services performed by a NRA tax-exempt organization: The NRA organization must complete IRS Form W-8EXP.

Scholarships or fellowships to non-enrolled student: The NRA may be eligible for exemption from withholding if he/she qualifies for the benefits of a tax treaty between his/her country of residence and the U.S. IRS Form W-8BEN must be completed.

Royalties earned in the U.S.: If an individual, the NRA may be eligible for exemption from withholding if he/she qualifies for the benefits of a tax treaty between his/her country of residence and the U.S. IRS Form W-8BEN must be completed. If the income was earned in the pursuit of a trade or business in the U.S., a corporation, partnership or fiduciary may be exempt upon completing IRS Form W-8ECI. A NRA tax-exempt organization may be exempt upon completing IRS Form W-8EXP.

Rental income: If the rental income was attributable to engaging in a trade or business in the U.S., the income may be exempt from withholding if the recipient completes IRS Form W-8ECI.

Are Native Americans who live outside the U.S. considered to be NRA?

Yes. While Native Americans are defined as NRA if they reside outside the U.S., they require neither a visa, nor an INS Form I-94 prior to receiving payment for services rendered, etc. To avoid withholding tax, however, a Native American NRA must provide a U.S. tax identification number and complete the necessary form (as described above).

My NRA consultant tells me that MSU is his/her only client that requires this information. Is this true?

No. While some employers/payers are either unaware of the requirements, or they choose not to conform to them, all U.S. entities are required to comply to the relevant INS and IRS regulations.

My NRA consultant is subject to income tax withholding. We don't want to cause hard feelings with the NRA by issuing a check that is netted down by the withholding taxes. How can we make a payment that will result in him/her receiving a net check in the amount we originally agreed to pay?

If the necessary communication and preparations have not occurred prior to processing a disbursement voucher to pay a NRA consultant, the issue of withholding taxes can be a sensitive issue. To avoid withholding, the NRA must complete the appropriate IRS form. Either an IRS Form 8233, W-8BEN, W-8ECI or W-8EXP must be completed and filed. If any of these IRS forms are submitted, the NRA must provide his/her U.S. tax identification number to qualify for exemption. In some cases the NRA will not qualify for exemption from withholding, or he/she may refuse to apply.

If the MSU department wants to pay the withholding taxes for their NRA consultant, the department must gross-up the payment. The additional payment amount will also be reportable income and subject to income tax withholding. The formula for calculating the grossed-up amount is: (desired net amount) divided by 0.6565 (which is 1.0 – 0.3435) or, in the case of scholarship/fellowship, 0.8165 (which is 1.0 – 0.1835). This grossed-up amount will then be subject to income tax withholding at 34.35% (18.35% in the case of a scholarship/fellowship).

Any underlying contract with the NRA should be amended and signed by the original contract approvers, to reflect the additional compensation paid.

Upon filing his/her IRS 1040NR annual income tax return, the NRA may be able to obtain a refund of all or a portion of this additional withholding.