Payee’s Immigration & Tax Residency Status
The types of payments and compensation that an alien (non-U.S. citizen) may receive are governed by the Immigration and Nationality Act and regulations issued by the United States Citizenship and Immigration Services (USCIS).
Tax reporting and withholding requirements related to these payments are governed by the Internal Revenue Code and Internal Revenue Service (IRS) regulations.
To ensure compliance with both USCIS and IRS rules:
- Determine eligibility for payment based on visa status. Check visa eligibility for independent contractor payments, scholarship and fellowship payments and other non-employee payments at Alien – How to Process Payments for Non-Citizens in Related Information.
- Determine if the individual is a resident alien or nonresident alien for tax purposes. The reporting and withholding requirements for each are different. Tax residency for foreign students, employees, independent contractors and other payees can be determined using GLACIER, UCLA’s nonresident alien tax compliance system. For more information, see GLACIER: Online Nonresident Alien Tax Compliance System in Related Information.
Source of Payment
- Resident aliens are taxed on their worldwide income (from U.S. and outside sources), like U.S. citizens.
- Nonresident aliens are taxed on their U.S. source income. Payments to nonresidents that are classified as foreign source are not subject to U.S. reporting and withholding.
- Compensation payments are sourced to the country where the services are provided.
- Non-compensation payments are sourced to the country where the payer resides. If the activity (e.g., educational activity) is conducted outside the U.S., it is not considered U.S. source income.
- If some of the services relating to compensation payments were provided outside the U.S, or the activity relating to non-compensation payments was conducted outside the U.S., the Foreign Source Income Statement should be completed. See Related Information for the form and guidelines.
Income Tax Withholding & Reporting
- Unless a tax treaty provision applies, payments to resident aliens are subject to the same withholding and reporting requirements that apply to U.S. citizens.
- Wages are reported on Form W-2 (Form 1042-S if a treaty benefit is claimed). Non-wage payments are reported on the relevant Form 1099.
- Payments to nonresident aliens may be partially or fully exempt from U.S. withholding under a tax treaty with the alien’s home country. See the Alien - Tax Treaty Overview with charts for the following categories in Related Information.
- Fellowship and scholarship.
- Independent personal services.
- Payments to students and trainees.
- Federal withholding rates and reporting requirements for nonresidents:
- Wages are taxed at the graduated rates applicable to U.S. citizens and reported on Form W-2. Wages exempt under a tax treaty are reported on Form 1042-S.
- Taxable scholarship and fellowship payments to F, M, J and Q visa holders are taxed at 14% (30% for all other visa holders). These payments are reported on Form 1042-S.
- Other payments, including payments for independent personal services, royalty payments, prizes and awards, are taxed at 30% and reported on Form 1042-S.
Department Guidelines for Processing Payments
See How to Process Payments for Non-Citizens in Related Information for details on various payments, including:
- Employee wages.
- Scholarship and fellowship payments.
- Payment for independent personal services, including payments to guest speakers, consultants, performers, etc.
- Reimbursement for travel and subsistence expenses.
- Other payments such as prizes and awards, human subject payments and royalty payments.
California State Tax
- All aliens, regardless of their federal tax status, are subject to the same state income tax rules that apply to U.S. citizens.
- Payments of more than $1,500 in one year, made to independent contractors who provide services in California, but are California nonresidents, are subject to 7% state withholding and are reported on Form 592-B. See the decision chart for nonresident withholding on the FTB website.