NRA Tax & PeopleSoftNRA Tax & PeopleSoftMary Fortier, NRA Tax Manager
Did You Know . . .Did You Know . . .• Maryland is ranked 11th state with most foreign
students
2004-05 2005-0613,439 12,887
(Open Doors Report, 2006 Fast Facts, Institute of International Education, retrieved 10/22/07 from http://opendoors.iienetwork.org/file_depot/0-10000000/0-10000/3390/folder/50084/Open+Doors+2006_FastFacts_FINAL.pdf)
NRA MythsNRA Myths• A one-time process
– Identify person & everything is done
• It’s between the individual & IRS– Underwithholding reconciled through tax return
• Some people are too “important”– Can’t subject them to the process
• We have few foreign students & scholars– Few NRAs means will never be audited
• NRA Office likes to be referred to as “N-Rat”
NRA FactsNRA Facts• NRA population is an ever-changing group
– Requires constant management
• Withholding agent responsible for NRA tax withholding & reporting (not individual)– Agent incurs back tax withholding fees plus penalties & fines– IRS monitors the following:
• Inconsistent tax reporting• Website information (events, speakers)• Omission of Taxpayer ID #
• NRA* does not like others using this acronym– Might want to say Nonresident Alien Tax
*National Rifle Association
NRA ScopeNRA Scope
NRA TAX
AUDITS(Federal & State)Risk management
TAXPAYER ID #(Social Security Agency/ITIN Unit)
SSN or ITIN
IMMIGRATION (Dept. of Homeland Security & ICE)
Legal Work Authorization
I-9 PROCESS (Department of Labor)
Within three days of hire
TAX ANALYSIS/MONITOR (Internal Revenue Service)
All payments
TAX TREATIESMonitor limits & Annual renewal
TAX WITHHOLDING/REPORTINGFederal, FICA, State Laws
FAIR LABOR STANDARDS ACT
Pay for work performed
IRS Tax Categories*IRS Tax Categories*
1 US Citizen
2 Permanent Resident Alien
3 Resident Alien for Tax Purposes (RA)
4 Nonresident Alien for Tax Purposes (NRA)
• Individual’s choice
• Worldwide income taxed
• NRA withholding formula
• Not individual choice
• Only US income taxed
*Terms are all IRS categories and not immigration definitions
IRS Income Types & CodesIRS Income Types & Codes• Dependent Compensation – Employee (17, 18, 19)
– Service/work required– Includes wages, salary, travel payments
• Independent Compensation - Non-employee (16)– Service/work required– Includes consulting fees, guest speaker fees, honoraria, travel payments
• Scholarships – Students (15)– No service or work required and may include independent educational activity– Includes tuition, room and board, stipend or living allowance, travel payment, books/supplies
• Royalties (12)– Passive income
• Miscellaneous (50)– No service required– Includes prizes and awards
IRS Required NRA WithholdingIRS Required NRA Withholding• Employee - Single, 1, NRA*
– NRA means that agents add a “non-cash” amount to total of wages paid
• Total wages earned = $200 (Bi-weekly period)• Add $102 (IRS Publication 15, p. 14)• Withhold tax at $302 amount
– Amounts differ based on type of payroll period
• Independent Compensation – 30%*
• Scholarships – 14%*
*Unless exempt by tax treaty
TU NRA Tax SystemsTU NRA Tax Systems
• Glacier Software (NRA Tax Office)– Tax analysis, NRA monitoring, tax treaty limits
• PeopleSoft (Payroll & Bursar’s Office)– Tax status, tax withholding, payroll earnings
• Central Payroll Bureau– POSC/payroll reports, tax reporting, SSN verification
How to Identify Tax CategoryHow to Identify Tax Category
US Citizen
Permanent Resident Alien
*Must ask question consistently to everyone
Question
Are you a US Citizen or Permanent
Resident Alien?*
Yes
No
Tax AnalysisNRA or RA
Nonresident Alien for Tax Purposes (NRA)
Withholding Agent Responsible
Individual Responsible
Immigration Status
Resident Alien for Tax Purposes
When to Identify Tax CategoryWhen to Identify Tax Category• Employees
– Question part of I-9 process (Human Resources)• Complete Tax Residency Status Form
– US Citizen – Permanent Resident Alien – N = Not indicated (Other)
– If N, go to NRA Tax Office for tax analysis
• Non-employees – Question on all payment forms (Accounts Payable)– If answered no, then paperwork sent to NRA Tax Office
• Non-qualified Scholarships – Report 2x year (Bursar’s Office) requested by NRA Office
PeopleSoft – Coding Tax StatusPeopleSoft – Coding Tax Status• Tax Status Codes
• 1 US Citizen• 3 Permanent Resident Alien• 5 Nonresident Alien for Tax Purposes• 6 Resident Alien for Tax Purposes• N Not indicated• Blank
• Enter in Citizenship Status FieldPath = Home > Build Community > Identification Data> Use > Citizenship/Passport Data
PeopleSoft – ReportsPeopleSoft – Reports• Run bi-weekly Payroll report
– Monitor employees• Tax status of N, 5, 6• Tax Treaty Limits• FICA• Other taxes/issues
• Social Security Number reports– SSN vs. ITINS– No number
• Identify scholarship recipients– N, 5, & 6– Tuition, fees, scholarships, book grants
University Internal Audits
Maureen Higgins, CPA, MS TaxationInternal Audit
University System of Maryland
Internal Audit Office• Conducts financial, operational, compliance,
investigative, information systems, and follow-up reviews of the USM's institutions to ensure they are operating effectively, efficiently, and in accordance with applicable policies, standards, regulations, and laws.
• Provides services to the Regents, the Chancellor and
management to assist them in meeting their legal, fiduciary, and management responsibilities.
Internal Audit FunctionAudit Process:
• Assessing Risk• Selecting the Area to Audit• Conducting a Preliminary Survey• Evaluating the Control Environment• Performing the Audit Field Work• Issuing an Audit Report addressing Audit Issues
and Recommendations
Common NRA Audit Areas
Nonresident Alien:
• Employees• Student Workers• Independent Contractors• Grants, Scholarships & Fellowships
Common NRA Audit Areas• Determination of Tax Status “NRA”• Accuracy of NRA Withholding Tax• Timeliness of Tax Deposits• Documentation of Income Tax Treaty Benefits• FICA Withholding
Internal Controls• Documentation & Records Retention• Policies & Procedures• Software Assistance or Manual Processes
– Determining Tax Residency– Monitoring Treaty Benefits– Current Laws– Reporting necessary IRS Forms– Monitoring Immigration Changes
• Reconciliations & Reviews• Training Personnel• Communication between Departments
Anticipate IRS Audits• Statute of Limitations & Records Retention• Immigration and Tax Residency Documentation• Accuracy of Form W-4• Form 1042-S Supporting Documentation • Search for Unreported Transactions• Treaty Eligibility Support
– Form W-8BEN – Form 8233
IRS Audits for NRA Tax
Dave Foreman, Tax ManagerOffice of the Comptroller
University System of Maryland
Comptroller’s Office
• Prepare financial statements & tax returns• Coordinate audit process of financials/grants• Facilitate IRS audits within USM system• Assess tax liability• Negotiate agreements with IRS• Assist in system-wide policy setting in
financial matters
IRS Audit – CY 2001
• The following payment types were reviewed:
– Employees– Independent contractors– Scholarships/fellowships/grants
IRS Audits – Information Collection• CY 2001 following requested for respective
payment type:– Immigration status– Copies of Form IAP-66/DS-2019– Date of entry into US– Service contracts– Copies of Forms 1042-S and W-2 issued– Copies of Tax Treaty Forms– Copies of Form W-4– Copies of Form W-9– Date of payment, check or voucher numbers & payment amount– Scholarship analysis documentation
IRS Findings – CY 2001• Rules lacking full compliance, especially
employees
• Need to:– Identify all aliens on Payroll– Document foreign origin & work authorization– Determine NRA vs. RA
IRS Findings – CY 2001 continued• Follow withholding rules for NRAs
– NRA cannot write “Exempt” on W-4 (federal part)– “Single” filing status only allowed– May claim only 1 person exemption on W-4 (unless treaty
exempt)– Need to back out standard deduction benefit (NRA)– Treaty benefit requires Form 8233 sent to IRS/5 days– If cannot secure W-4 as above, must withhold as “Single”,
zero exemptions– Report treaty exempt wages on 1042-S; also on W-2
USM Future Objectives• Assess needs of USM institutions for NRA Tax
support
• Develop policies & procedures on USM level & for Internal Audit purposes
• Create training tools & reference materials (manual) for institutions to use
QUESTIONS?QUESTIONS?