FIN 425–04: Nonresident Alien Independent Contractors and Other Foreign Entities
To describe the policy for independent contractor payments made to nonresident alien individuals or foreign business entities
Internal Revenue Service
All payments for services, rentals, royalty, and copyright made to foreign individuals and foreign business entities
The Internal Revenue Service (IRS) requires that all independent contractor payments made to nonresident alien individuals or foreign business entities be made in accordance with IRS regulations. These regulations require that, when services are provided inside the U.S., taxes be withheld from payments made to nonresident aliens (NRAs) or foreign business entities unless the income is exempt under a provision of a tax treaty between the foreign contractor’s country and the U.S. Foreign individuals must be eligible to claim a tax treaty exemption by having a social security number (SSN) or individual taxpayer identification number (ITIN) and must have submitted for certification a completed IRS Form 8233. Foreign business entities must have an employer identification number (EIN) and must have submitted for certification a completed IRS Form W-8ECI, W-8BEN, W-8EXP, or W-8IMY.
Unless the payments made to the NRA are exempt due to tax treaty or are effectively connected with the conduct of a trade or business in the U.S. (payments to foreign business entities only) or are made to a foreign entity with U.S. tax-exempt status, and the appropriate IRS forms have been filed, all payments made to the NRA or foreign business entity will be subject to U.S. federal income tax withholding of 30 percent.
Tax regulations also require that taxable payments made to NRAs or foreign business entities be reported annually on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. A copy of the form is sent to the foreign individual or entity at the time it is filed with the IRS. The IRS requires that Form 1042-S be filed by March 15 following the calendar year in which payments were made.
The U.S. Citizenship and Immigration Services (USCIS) requires that individual NRAs be admitted to the U.S. under work authorized visa types in order to be eligible to receive payments. See FIN 425–02, “Immigration Status—Eligibility to Receive Payment,” for a complete discussion.
All foreign individuals and foreign business entities receiving independent contractor payments (i.e., performing services in the capacity of an independent contractor including guest lecturers and consultants) or payments for rentals, royalties, or copyrights are required to complete an IRS Form W-8 (W-8BEN, W-8ECI, W-8EXP, or W-8IMY) unless one is already on file with ASU. All W-8 forms and their instructions are available on the IRS Web site at http://www.irs.gov.
If the U.S. does not have a tax treaty with the foreign vendor’s country of residence that exempts independent contractor, rent, royalty, or copyright payments from U.S. federal income tax withholding, or if a valid Form 8233 or W-8 form has not been correctly completed before payment is processed, 30 percent of the total payment to the NRA individual or foreign business will be withheld by ASU and remitted to the IRS. A list of existing tax treaties between the U.S. and other countries is found in IRS Publication 901, U.S. Tax Treaties, available online at http://www.irs.gov/pub/irs-pdf/p901.pdf.
In order to be valid for tax treaty exemption, both the Form 8233 and the W-8 form require a U.S. taxpayer identification number.
Individual NRAs performing services in the U.S. are also required to complete the Alien Data Collection Form. Copies of the following items must be attached to the Alien Data Collection Form:
See FIN 421–01, “Guest Lecturers, Consultants, and Other Independent Contractors,” for a description of the general procedures followed in paying independent contractors. Listed below are procedures related to paying nonresident independent contractors.
All foreign independent contractors receiving payment(s) in a calendar year must have an IRS Form W-8 on file with the university before payment will be made. Departments can review the Advantage Vendor (VEN2) table to determine if a W-8 form is already on file with ASU for that vendor. If the W-8 form has been completed previously by the vendor, the “Tax Country” field of the VEN2 table will have an eight-digit entry indicating the country of residence and the month and year filed, e.g., UK 022005. If the “Tax Country” field is blank, a W-8 form must be completed and attached to the Vendor Entry (VE) document to set up the vendor in Advantage. The VE and W-8 form go to the Advantage Help Desk (mail code 5812, fax number 480/965–2625) for setup on the VEN2 table.
Alien individuals performing independent contractor services in the U.S. are required to complete an Alien Data Collection Form. The following information should be completed by all aliens:
If an alien believes he or she may be a resident of the U.S. for tax purposes, the individual should complete the substantial presence test section of the form; otherwise this section can be skipped. Students with an F1 visa are automatically considered nonresidents the first five years in the U.S. and should not complete this section of the form during that period. Teachers or trainees in the U.S. on a J visa for any two years during the past six are also ineligible to complete this section.
All individual aliens must check a box in the certification section (Part III) at the bottom of the form and sign the form. As noted above, copies of the alien’s I-20 (F1 students) or DS-2019 (J1 students or nonstudents), front and back of the I-94 card, the U.S. visa sticker, and the passport picture page must be attached to the form. For help in completing the Alien Data Collection Form, contact the ASU tax compliance unit at 480/965–0108.
Form 8233 is used by individual nonresident aliens (NRAs) who are eligible for tax treaty benefits to claim exemption from U.S. federal tax withholding.
Foreign business entities complete IRS W-8 form (W-8BEN, W-8ECI, W-8EXP, or W-8IMY). A brief summary of the purpose of each of these Forms W-8 is provided below, with more information and form instructions available on the IRS Web site at http://www.irs.gov.
Form W-8BEN is for Certification of Foreign Status of Beneficial Owner for United States Tax Withholding, and is for non-U.S. persons/entities to provide their identifying information in Part I and certify in Part IV that they are not U.S. taxpayers. The Form W-8BEN is also used to exempt certain types of payments such as royalties from the 30% federal income tax withholding required under U.S. tax law. For a valid tax treaty exemption, the recipient must provide a U.S. tax identification number.
Form W-8ECI is for Certification of Foreign Person’s Claim that Income is Effectively Connected with the Conduct of a Trade or Business in the U.S., and is for exemption from withholding on income effectively connected with a trade or business in the United States. It must be filled out and returned prior to the service being performed and is held on file for three years from the day the form is signed. The form stipulates that the foreign entity files yearly U.S. tax returns to report all income claimed to be effectively connected with a U.S. trade or business. In order for the form to be completed properly, a U.S. tax identification number must be provided.
Form W-8EXP is for Certification of Foreign Government or Other Foreign Organization for United States Tax Withholding, and is used by foreign tax-exempt organizations to claim and document their tax-exempt status under U.S. tax law. To claim exemption from U.S. tax withholding, foreign tax-exempt organizations must provide documentation of their U.S. tax-exempt status. Foreign entities that cannot establish their U.S. tax-exempt status will be subject to 30% U.S. federal income tax withholding from their payments.
Form W-8IMY is for Certification of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for U.S. Tax Withholding, and is used for reporting payments to “flow-through entities” such as foreign partnerships or trusts.
If you have questions regarding these forms, contact the ASU tax compliance area at 480/965-0108 or 480/965-8479. A valid U.S. taxpayer identification number is required for all forms requesting tax treaty benefits. Exemption claim forms must be submitted to the tax compliance unit for review, signature, and submission to the IRS.
After Form 8233 has been submitted to claim exemption from backup withholding under a provision of a tax treaty, the IRS has 10 working days to reject the claim. For this reason, independent contractor payments to NRAs claiming tax treaty benefits must be held until the 10-day period elapses. IRS Form 8233 needs to be typed or printed and entirely complete and accurate. Financial Services will not submit 8233 forms to the IRS that are likely to be rejected, but instead will return the form to the hosting ASU department for correction and/or resolution.
NRAs entitled to U.S. tax treaty benefits but who are unable to provide Form 8233 with a valid U.S. tax identification number can still claim tax treaty benefits (and a refund of taxes withheld) by applying for an Individual Taxpayer Identification Number (ITIN) when filing their required 104NR tax returns with the IRS. For more information on how to obtain an ITIN, please contact the tax compliance unit at 480/965-0108.
Sometimes an ASU department desires to give the independent contractor a check before leaving ASU and before the 10-day holding period has ended. Departments may have the NRA complete the Form 8233 in advance, possibly before leaving his or her home country. Approximately one month before payment is to be made, the NRA should send the completed Form 8233 directly to the tax compliance unit in Financial Services. A note indicating the ASU contact person, campus phone number, and mail code should be included with Form 8233. ASU will then submit the form to the IRS. If no rejection is received in 10 days, the department can initiate payment requests on behalf of the individual and submit each request with the proper documentation to Payables and Reimbursements for processing.
Payables and Reimbursements is required to submit all PVs requesting payment to a nonresident alien or a foreign entity to the ASU tax compliance unit for review in order to determine whether all required forms are attached. If all required documentation is provided, the payment request will be approved and returned to Payables and Reimbursements. If any documentation is missing, the department requesting payment will be notified by the tax compliance unit. Payments requesting tax treaty exemption from 30% tax withholding on IRS Form 8233 will be approved after the 10-day holding period.
If the NRA is subject to 30% federal tax withholding, the ASU tax compliance unit will approve the income portion of the payment for 70% of the requested amount and return the PV to Payables and Reimbursements for final processing.
Payment requests for visitors in an immigration status that is not authorized for work at ASU will not be approved.
Nonresident Alien Honorarium
An honorarium may be paid to NRA special guest lecturers. See FIN 425–02, “Immigration Status—Eligibility to Receive Payment,” for guidance on allowable payments to various immigration categories.
For additional guidelines on nonresident alien tax issues see the ASU Foreign Visitor Tax Guide issued by Financial Services. A copy of this guide may be obtained by calling Financial Services at 480/965–8479 or 480/965–0108.
For information on tax reporting for nonresident aliens, see:
skip navigation bar