Honorarium Payments to Visiting Scholars
Please be advised that all determinations on payments to visiting foreign nationals are made on a case-by-case basis. Even a small difference in an individual’s circumstances can dramatically alter the tax and/or immigration law situation.
A foreign national in B-1 tourist or VWP (Visa Waiver Program) status is legally permitted to accept an honorarium payment and/or reimbursement of expenses without violating U.S. Immigration law. However, this is a separate issue from whether the foreign national has to pay taxes on the payment. In the eyes of the IRS, income is income regardless of whether it is in the form of an honorarium, or payment for services, or a reimbursement of expenses, such as travel expenses. It is not uncommon for a university to pay a speaker for travel expenses (airfare, hotel, etc), but not compensate the speaker for his or her services. There is no law to prevent a university from doing this, but the payment is not considered a tax-free gift to the speaker; it is income.
Tourist, B-1 or VWP scholars who are the recipients of an honorarium and/or an expense reimbursement are considered engaged in self-employment activities for U.S. income tax purposes. Self-employed tourists may be exempt from tax under the Self-employment Income Article of an applicable income tax treaty. Most treaties have these provisions. This assumes that the visitor is a nonresident alien. The only way to accurately determine whether someone is a nonresident alien is to have the person run their information through Artic. It is crucial to use Artic because Artic will tell MSU about specific tax forms that need to be completed when a person is from a particular country. For example, Artic often creates an honorarium statement that the foreign national will need to claim a treatise exemption. It also creates a record based on the data that is enter; if an individual returns to MSU in the future, there will be an accurate record that can be built upon in Artic.
U.S. tax law includes procedural requirements that must be met in order to benefit from treaty exemptions from withholding taxes. In order to claim an exemption from tax on income (either employment or self-employment), the recipient is required to submit a completed and signed Form 8233. To be valid, the form must include a U.S. taxpayer identification number- a SSN or ITIN. The payor (Montclair State University) must review and sign the Form 8233 and submit it to the IRS at the address provided in the form's instructions. B-1 and VWP recipients of an honorarium or reimbursement and other self-employed individuals must submit a Form 8233 through each payor.
ITINs are impossible to get prior to the time that a visitor files a tax return with the IRS. While, in theory, there is a procedure for requesting an ITIN pre- tax return, the truth is that ITINs are never granted pre tax return. Additionally, the Social Security Administration does not provide a receipt letter for ITIN applications (as they do for Social Security numbers). The only way to obtain an ITIN is to file a tax return. Accordingly, foreign nationals cannot avail themselves of treatise benefits until after they have filed at least one tax return and actually obtained an ITIN.
Honorarium recipients all receive a Form 1042S from MSU by March 15. They must have 30% withholding reported on the Form 1042S (unless they submit a Form 8233 and an ITIN). Failure to do so can lead to significant university liability in the case of an audit, and audits are not infrequent. Montclair State University is bound by these regulations.
In sum, an honorarium or reimbursement of an expense can be paid to a foreign national without an ITIN. But it that case, taxes (30%) must be withheld. If the recipient wants to invoke his/her right to get the payment tax-free under a treatise, he/she must obtain an ITIN. They will not be able to get an ITIN until they have filed their first U.S. tax return (Montclair State will provide Form 1042Ss by March 15, enabling a visitor to file a tax return).
Procedure for International Scholars without SS#
1. Contact Sheri Walter (email@example.com) in the Finance and Treasury Office and provide her with the Scholar's name and email address
2. Sheri Walters will email the scholar to set up a Glacier account, which will confirm whether tax must be withheld from the honorarium.
Note: Glacier will probably require a photocopy of passport and visa and may require a visa clearance statement from International Services.
2. Prepare a new vendor form for the scholar, indicating "foreign scholar, no social security number" on that part of the form.
3. Prepare a check requisition for the honorarium (with a copy of event publicity and invitation letter), If the Global Education Center is the fiscal agent paying the honorarium, Global Ed will sign the form and then send it to Sheri Walters. Since there is neither a SSN nor a ITIN, tax will probably be withheld.
4. Prepare a check requisition for any travel reimbursement with receipts and a copy of the invitation letter. If the Global Education Center is the fiscal agent paying the expense, Global Ed will sign as fiscal agent, and then send it Sheri Walters. Tax will not be withheld from travel reimbursements.