International Taxation – Individuals
International Tax Compliance
All persons receiving payments from a US source, whether they are US residents or internationals, are subject to US taxation. There are specific regulations and processes required for determining the tax withholding for international persons and various factors come into play in determining the percentage of the tax withholding. In certain situations, tax treaties may exist that exempt a person from US taxation.
There are four definitions that are important to the international tax process:
- Non-Resident Alien: Defined by US immigration laws and generally means any person who is not a US citizen, US national, US resident, asylee, refugee or permanent resident. Non-resident aliens are also called “international persons,” or “foreign nationals.”
- US Resident: Defined by US immigration law and generally means any person who is a US citizen, US national, asylee, refugee or permanent resident.
- Non-Resident Alien for Tax Purposes: Defined by US tax regulations and simply means any international person who has not been physically present in the USA for the amount of time required to warrant treatment as a Resident Alien for Tax Purposes. The substantial presence test and/or the visa status of an international person is used to determine when this categorization ends.
- Resident Alien for Tax Purposes: Defined by US tax regulations and simply means any international person who has been physically present in the USA for the amount of time required to warrant treatment as a Resident Alien for Tax Purposes. Resident aliens for tax purposes are taxed in the same manner as US residents. They can use the same filing statuses and claim tax allowances just as a US resident could. In addition, worldwide income must be reported.
Payment Types To Foreign Nationals
All payments made to foreign nationals are considered immediately subject to U.S. tax withholding. While there are some exceptions to this general rule, departments, colleges, administrators and foreign nationals should be made to understand that taxes may have to be deducted from honoraria, speaker fees, non-qualified scholarships/fellowships, travel reimbursements, royalty payments, awards, stipends and other miscellaneous payments. Due to the documentation required to process payments made to foreign nationals and the time it takes to review payment information, it is advisable to begin collecting the required documentation as soon as department is aware of their foreign national status.