Michigan State University
Controller's Office

Administration Bldg
426 Auditorium Rd, Rm 305
East Lansing, MI 48824
517 355-5020

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

Last updated: April 2017

I. Overview

Michigan State University carries out its mission on an international scale. As such, those with whom MSU collaborates include U.S. citizens/residents and those who are not. This section of the Manual pertains to issuing payments to those individuals and entities who are neither U.S. citizens nor U.S. residents. (This section will not address matters relating to compensating employees or issuing payments to enrolled students. For information on compensating employees, see Manual of Business Procedures Section 55 - Payroll Department. For information on issuing scholarships, fellowships or other awards to enrolled students, please contact Student Accounts – Fees & Scholarships at 355-8380.)

Issuing payments to international visitors and guests is a complex matter. The United States Citizen and Immigration Services (USCIS) administers the immigration laws of the U.S. Immigration law refers to anyone who is not a U.S. citizen as an "alien".

Immigration law categorizes aliens into three groups.

  1. Non-immigrants. These are aliens to whom the USCIS has given permission to reside temporarily in the United States. Generally, a non-immigrant has represented to the USCIS 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 U.S. Internal Revenue Service (IRS) refers to these individuals as "nonresident aliens" (NRA). It is this category of alien that will be addressed in this Section.
  2. Immigrants. These are aliens who have the right to reside permanently in the United States. Eventually, these aliens can earn a "green card" (USCIS Form I-551). A green card is tangible proof of immigrant status. The IRS refers to these individuals as "resident-aliens". Resident-aliens are paid in the same manner as U.S. citizens. Policies and procedures addressing payments to resident- aliens are included in other sections of the Manual.
  3. Undocumented aliens. This category of alien is present in the U.S. illegally (either having entered without proper authorization, or due to having violated or overstayed the terms of their entry permit). This Section will not address payments to these individuals since they cannot be issued.

Successful completion of a payment transaction to a NRA is informed by USCIS and IRS federal government regulations and by MSU policy and procedure.  Issuing payments to NRA individuals and companies for services rendered as independent contractors, guest lecturers, researchers, artists or performers; or as recipients of rents or royalties; or as recipients of scholarships/fellowships as non-enrolled students is a complex process to navigate successfully. In the course of planning for and completing these transactions, the University must meet the regulatory requirements of both the USCIS and the IRS.

A summary of requirements for the most common payments to nonresident aliens is provided in table form in Exhibit 77–A.

II. General USCIS and IRS Requirements

  1. Departments should clear the engagement of a NRA independent contractor with the Office for International Students and Scholars (OISS) Immigration Specialist BEFORE employing him/her for a compensated work engagement performed in the U.S. including payment of a contractual fee, non-binding honorarium, or undocumented travel expenses.  The phone number for OISS is 353-1720.  Accounting should also be consulted to obtain guidance on the payment documentation required to satisfy USCIS and IRS rules, and to avoid misunderstandings relating to the payment. Accounting may be reached by phone at 355-5000. Obtaining guidance in advance of inviting the NRA will help to ensure that payments you intend to make to the NRA are permissible and will avoid embarrassment or ill-will between your guest and your department.
  2. A NRA who is to be paid either a contractual fee, or a non-binding honorarium or reimbursement for undocumented travel expenses for services rendered in the United States, must have entered the United States under a visa status that permits him/her to receive compensation from MSU as an independent contractor, and must be within the visa's limitations. The NRA must provide proof of this work/compensation authorization by a copy of a validated USCIS Form I-94 "Arrival-Departure Record". A validated Form I-94 is proof of USCIS permission to enter the U.S., the date of entry, the 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. The department must submit a copy of the validated Form I-94 with the Disbursement Voucher (DV).
    1. Visitors traveling using a visa waiver might not be provided an I-94 when entering the U.S. (see II.D. below). Visitors entering the U.S. via a visa waiver must complete the MSU "Substitute Form I-94 for Use By Certain B-1, B-2, or Visa Waives Visitors (see Exhibit 77-B). U.S. Customs and Border Protection will generally place an admission stamp (oval) in the visitor’s visa or passport. A copy of the I-94 may also be obtained by the visitor from the USCIS.
    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.
  3. For payments to NRA who have entered the U.S. under a visa status that permits compensation (such as a J-1), it is mandatory that the NRA provide the department with his/her U.S. social security number (SSN).  If a SSN has not yet been assigned, the contractor must apply for one at the Social Security Administration.
  4. Payments to NRA’s who have entered the U.S. under a B-1/B-2, or Visa Waiver visa status present unique challenges.
    1. B-1/B-2, and visa waiver visitors cannot be paid contractual compensation. Under very limited circumstances, they are permitted to receive non-binding honorarium, or reimbursement for documented travel expenses. See Manual of Business Procedures Section 70 for travel expense reimbursement policies and procedures.
    2. If a B-1/B-2 or visa waiver 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 B-1/B-2 or Visa Waiver 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.
  5. Agreements to pay a contractual fee, non-binding honorarium, or undocumented travel expense reimbursement for personal services rendered by nonresident alien individuals or entities, either in the United States or abroad, must be formalized using the MSU form "Nonresident Alien Professional Services Contract" (NRAPSC).
  6. Unless exempted by a current tax treaty with an NRA's country of residence, payments for services rendered, honoraria, reimbursement of undocumented travel expenses, payment of rents, royalties or awards to an NRA are subject to federal income tax withholding of 30% and state income tax withholding of 4.25%.
  7. A listing of countries whose residents may be eligible for limited exemption under tax treaty is provided (see Exhibit 77–F). The actual treaty may not exempt any or all of the payment you anticipate making to your nonresident alien independent Contractor. In order to learn the details of the tax treaty provisions for a particular country, please call Accounting at 355-5000. If the country of residence for your nonresident alien is not listed on Exhibit 77-F, the payment made to the IC will be subject to income tax withholding.

III. IRS Forms and Filings

  1. Individual recipients of compensation:

    All recipients of honorarium or reimbursement of undocumented travel expenses for performance of personal service must complete IRS Form W–8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)" (see Exhibit 77-H) to document their status as an NRA. Any recipient choosing to apply for tax treaty benefits must also complete IRS Form 8233, "Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual" (see Exhibit 77-G).

    1. A contractor applying for tax treaty benefits must complete IRS Form 8233 through item 14 and sign where indicated in Part III. Form 8233 requires a U.S. tax identification number.
    2. A contractor not applying for treaty benefits should complete Form W-8BEN through item 8 and sign where indicated in Part III.
    3. 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 Accounting at 355-5000 to obtain guidance.
    4. 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 USCIS Form I-766 issued and approved by USCIS.
    5. Payees holding a Type J (researcher/scholar) visa must present a copy of USCIS Form DS-2019. Additionally, a letter endorsed by the Responsible Officer (RO) from their sponsoring U.S. university or research institution must be obtained. This approval is employer-specific, so MSU must be named on the letter from the RO.
    6. The original, signed in ink, paper IRS Form 8233, together with the DV cover sheet and other required documentation, should be forwarded to the Accounting Office, Hannah Administration Building, 426 Auditorium Road, Room 360.
    7. The Accounting Department will review and finalize IRS Form 8233 and mail it to the IRS if the NRA has applied for tax treaty benefits.
    8. If the NRA individual has applied for tax treaty benefits, the exemption from income tax 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 income tax withholding.
  2. Foreign fiduciaries, partnerships or corporations:

    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-E, “Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)” (see Exhibit 77-H2). This would relate to receipt of royalties earned in the U.S., for example. Business entities cannot use Form W-8BEN as that form is only for individuals.

    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 U.S. 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 That Income Is 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.

    1. Once the contractor completes either IRS Form W-8ECI or Form W-8BEN-E, the form, together with the NRAPSC and other required documentation, should be attached to the DV for payment.
    2. Using a properly completed W-8BEN-E, tax treaty benefits may be granted if the form contains either a valid U.S. or foreign tax identification number.
    3. Form W-8ECI requires a U.S. tax identification number (TIN). If a U.S.TIN has not been assigned, the contractor must apply to the IRS for an employer identification number (EIN). Individuals providing something other than personal services should apply for an ITIN from the IRS. Tax treaty benefits will not be extended by MSU unless the properly completed W-8ECI contains a valid U.S. TIN. The university must withhold income taxes from the payment absent a valid tax treaty claim.
  3. Foreign tax-exempt organizations:

    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 and Reporting" (see Exhibit 77-K). This exemption does not apply to compensation for services, or reimbursement of undocumented travel expenses related to personal services performed by an individual.

    1. 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.
    2. Once the contractor completes IRS Form W-8EXP, the form, together with the NRAPSC and other required documentation, should be attached to the DV for payment.
    3. 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". If a U.S. EIN is not provided, the university must withhold income taxes from the payment.
    4. Tax treaty claims for foreign tax exempt organizations are made using IRS Form W-8BEN-E, not W-8EXP.
  4. Artists, athletes and entertainers:
    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 34.25% 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, tax exempt 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" or “business profits” articles.
    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 (CWA) procedures as stipulated in IRS Publication 515 "Withholding of Tax on Nonresident Aliens and Foreign Entities". The CWA will incorporate all United States performance engagements by the NRA for withholding purposes. A copy of the CWA, and its Exhibit A showing MSU as a performance location, must be attached to the payment DV.
    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.
  5. Recipients of scholarships, fellowships or royalty income:

    Scholarships and fellowships for non-degree candidates engaged in study, training or research are subject to income tax withholding at a rate of 18.25% (14% Federal and 4.25% State). Royalties are subject to 34.25% 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 paid to the NRA. In order to learn the details of the tax treaty provisions for a particular country, please call Accounting at 355-5000. 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 if an individual, or IRS Form W-8BEN-E if a business entity, whether or not application is made for tax treaty benefits.

    1. All documentation regarding the payment, such as invoices, royalty schedules, scholarship details, etc. should be attached to the DV.
    2. Scholarships and fellowships are subject to U.S. tax withholding. If a tax treaty exists with the income recipient’s country, the recipient's U.S. tax identification number (TIN) must be provided on a W-8BEN to take advantage of treaty benefits to reduce withholding.
    3. Royalty income is subject to U.S. tax withholding. If a tax treaty exists with the income recipient’s country, the recipient's U.S. or foreign tax identification number (TIN) must be provided on a W-8BEN (individuals) or W-8BEN-E (entities) to take advantage of treaty benefits to reduce withholding. Organizations and business entities 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.
  6. Recipients of rental income derived from property located in the U.S.:
    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, (Exhibit 77-I) and file the form with the university.  A U.S. tax ID number is required for form W-8ECI.
    2. If the NRA payee does not desire to or cannot complete Form W-8ECI, the payee must complete IRS Form W-8BEN or W-8BEN-E to simply establish their status as a nonresident alien for tax purposes.  Income taxes will be withheld from the payment.
  7. Payments of U.S. source income made to a U.S. agent for the benefit of a NRA payee:
    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 1042-S in the name of the NRA payee.
    2. 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-8ECI and Form W-8EXP).

IV. Payment Processing and Reporting

  1. The NRA must be in the finance system as a vendor for payment to be initiated. The vendor must complete and sign form W-8BEN (individuals) or W-8BEN-E (entities). The form may then be mailed or scanned and emailed to MSU (a faxed form W-8BEN or W-8BEN-E is not allowed). Form W-8BEN or W-8BEN-E must be attached to the vendor document when the vendor is created in the finance system. After the vendor has been approved, payment can then be initiated via the Disbursement Voucher (DV). Upon receipt of the DV, relevant IRS forms and supporting documentation, Accounting will review eligibility for payment and any requested treaty benefits.
  2. If the payment is determined to be exempt from withholding, payment will be issued for the gross amount of the DV.
  3. If the payment is determined not to be exempt from withholding, payment will be issued for the net amount of the DV after deducting taxes.
  4. If the payment is determined to be subject to income tax withholding and the department would like to gross up the payment to result in an agreed-upon net payment amount to the NRA, 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 0.6575 (which is 1.0 – 0.3425) or, in the case of scholarship/fellowship, 0.8175 (which is 1.0 – 0.1825). This grossed-up amount will then be subject to income tax withholding at 34.25% (18.25% in the case of a scholarship/fellowship). The department must not enter a changed value for the payment amount. Instead, the fiscal officer should add a Note to the DV requesting that Accounting gross up the payment.
  5. IRS Form 1042-S, "Foreign Person's U.S. Source Income Subject to Withholding", is issued annually to each NRA payee, whether or not taxes were withheld. Form 1042-S reports all payments made during the previous calendar year.

V. Period of Validity for IRS Forms

  1. The IRS documents (Form 8233, W-8BEN, W-8BEN-E, W-8ECI and W-8EXP) filed by the payee have defined expiration dates.
  2. IRS Form 8233 is valid starting on the date the form is signed through December 31 of the same calendar year.
  3. IRS Forms W-8BEN, W-8BEN-E, W-8ECI, and W-8EXP are valid starting on the date the form is signed through December 31 of the third succeeding calendar year unless a change in circumstances makes any information on the form incorrect. For example, a form signed in 2014 will remain valid through December 31, 2017.

VI. Frequently Asked Questions

  1. 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 on the Web. 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), Accounting should be consulted to obtain guidance on the payment documentation required to satisfy USCIS and IRS rules, and to avoid misunderstandings relating to the payment. Accounting may be reached by phone at 355-5000.

  2. Are payments to all international visitors handled the same way?

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

    USCIS status is generally either "non-immigrant" or "immigrant". A "non-immigrant" is an international visitor to whom the USCIS has given permission to reside temporarily in the United States. Generally, a non-immigrant has represented to the USCIS 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 (or visa waiver) 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. 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" (USCIS 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.

  3. What is a visa?

    A visa 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.

  4. What is an USCIS 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 Disbursement Voucher to document the NRA visa status, date of entry and authorized length of stay. A visitor who was not issued a Form I-94 upon inspection at the border (B1/B2 or Visa Waiver visitors only) can complete a "Substitute Form I-94”.

  5. 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. 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.

  6. Can a NRA 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-E.

    Services performed by a NRA tax-exempt organization: The NRA organization must complete IRS Form W-8EXP. If only tax treaty benefits are sought, the tax-exempt organization should complete form W-8BEN-E.

    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 NRA is an entity, Form W-8BEN-E must be completed to take advantage of tax treaty benefits. 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. If only tax treaty benefits are sought, the tax-exempt organization should complete form W-8BEN-E.

    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.

  7. 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 USCIS 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).

  8. 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-8BEN-E, W-8ECI or W-8EXP must be completed with the appropriate U.S. or foreign tax identification number. 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 0.6575 (which is 1.0 – 0.3425) or, in the case of scholarship/fellowship, 0.8175 (which is 1.0 – 0.1825). This grossed-up amount will then be subject to income tax withholding at 34.25% (18.25% in the case of a scholarship/fellowship). The department must not enter a changed value for the payment amount. Instead, the fiscal officer should add a Note to the DV requesting that Accounting gross up the payment.

    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.

VII. Exhibits/Forms

  • Exhibit 77–A. Table - Summary of Requirements for Payments to Nonresident Aliens
  • Exhibit 77–A3. Non–Resident Alien Professional Personal Services Contract With Independent Contractors (NRAPSC)
  • Exhibit 77–B. Substitute Form I–94 for Use By Certain B1, B2, or Visa Waiver Visitors
  • Exhibit 77–D. Certification for International Visitors Entering the U.S. With B1/WB1 or B2/WB2 Visa Status
  • Exhibit 77–F. Table – Tax Treaty Summary
  • Exhibit 77–G. IRS Form 8233 "Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual" Instructions
  • Exhibit 77–H. IRS Form W–8BEN "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)" Instructions
  • Exhibit 77–H2. IRS Form W–8BEN–E "Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)" IRS Instructions, MSU Simplified Instructions
  • Exhibit 77–I. IRS Form W–8ECI "Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States" Instructions
  • Exhibit 77–K. IRS Form W–8EXP "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting" Instructions
  • Exhibit 77–N.  IRS 8233 Supporting Statements