Alien - Royalty Payments
A royalty is a payment for the right to use a copyright on a book, periodical, articles, etc. The royalty can also be for the use of patents, trademarks, formulas and goodwill.
Sourcing a payment is essential to the tax withholding obligations of a nonresident alien. A royalty payment is sourced by its type:
- Industrial Royalty - for use of natural resource it is where the property is located.
- Copyright Royalty/Motion Picture and Television Royalty - for use of copyright, etc. it is where the property is used.
Tax Reporting and Withholding
- U.S. sourced Royalty payments to nonresidents are subject to 30% Federal Tax withholding, unless exempted, or reduced under a Tax Treaty.
- U.S. sourced Royalty payments are reported at year end on Form 1042-S. Form 1042-S is issued by Payroll Services through the GLACIER on line tax reporting system.
- A foreign sourced royalty payment is not subject to withholding or reporting.
Tax Treaty Exclusion
- Industrial royalties (Income Code 10)
- Motion Picture and Television Royalties (Income Code 11)
- Copyright Royalties (Income Code 12)
Under certain tax treaties, different rates may apply to royalties for information concerning industrial, commercial and scientific expertise.
Steps to Process a Royalty Payment to a Foreign Individual
- Step 1: Determine Correct Classification of Royalty
This is important to note for any tax treaty consideration.
- Industrial Royalty Payment: Payment for the right to use items such as patents, trademarks, formulas or goodwill.
- Copyright Royalty Payment: Payment for the right to use copyrighted materials, such as books, periodicals, articles and plays.
- Step 2: Determine if a GLACIER record is required
- If foreign individual is a United States Permanent Resident, Refugee or has Asylee status: Individual must complete IRS Form W-9. Submit to Accounts Payable with any other documents required by BruinBuy. No GLACIER record is required.
- All other foreign individuals must complete a GLACIER Record.
- Step 3: Determine if individual has a U.S. Tax ID Number
If individual does not have a SSN or ITIN, and is present at UCLA: Contact UCLA Tax Services (310-794-0538) to set up an ITIN appointment during the time that the visitor is at UCLA. Please refer to ITIN Guidelines in related information for more detail.
- Step 4: Complete the Initial GLACIER© Online Entry Form
- A GLACIER record can be requested, no more than 30 days in advance.
- Initial GLACIER© Online Entry Form will begin the GLACIER process by instructing for Payroll Services to set up a GLACIER record for the individual.
- Step 5: Provide the following information to the foreign individual
- An email from email@example.com with GLACIER logon information will be sent to them. This email is not spam or phish so that they should not ignore it or delete it.
- They must complete their GLACIER Tax Record in a timely manner in order to receive payment. Enter the Relationship Type and Income Type as follows:
- Relationship Type: Royalty Recipient.
- Income type based upon the type of Royalty being paid.
- Industrial Royalties or
- Copyright royalties
- Once completed: print, sign, date and submit the required tax forms and supporting information indicated on their GLACIER Tax Summary Report to Payroll Services.
- Step 6: Process a BruinBuy Order
Be sure to:
- Note in BruinBuy comments that “The Initial GLACIER Information Form was submitted to Payroll Services on [Insert Date]”
- Add Michael Sattin in Payroll Services as a reviewer on the BruinBuy order
- Enter “I” in the DOC TO AP field on your BruinBuy order
- Appointments can be scheduled with Payroll Services to assist foreign individuals with any GLACIER issues and/or to review GLACIER forms and documentation.
- Contact Payroll Services Nonresident Tax Compliance Administrator for more information.