Foreign Visitor Tax Guide - Section One

Definition of Terms

1.1 Candidate for a Degree
A candidate for a degree is broadly defined to include any fulltime or parttime student enrolled at ASU in a course(s) that may lead to a degree, whether or not the student's particular educational program leads to a degree.

1.2 Employee Wages
Employee wages are payments for services that an individual performs or carries out for the university as an employee. Services performed by an employee are subject to the direction and control of the university, its faculty, or staff. Employee wages are not the same as payments made to a foreign visitor for independent contractor payments. See the discussion of independent contractor payments at Section 1.10 below for the definition of nonemployment related services. Employee wages can only be paid to foreign visitors who have been granted an appropriate employment authorization and visa status by the Bureau of Citizenship and Immigration Services (BCIS) to allow them to be compensated for services. See further discussion at Sections 2.1 and 2.2 of this guide.

1.3 Fellowships and Scholarships
Fellowship or scholarship payments are made to assist a person in pursuing a course of study or research. Since 1987, the IRS allows amounts paid to individuals as qualified scholarships and fellowships to be excluded from taxable income (meaning the payments are not taxable) if the following two requirements are both met: The scholarship or fellowship is awarded to a candidate for a degree (see Section 1.1); and The scholarship or fellowship is used to pay for (i) tuition and fees required for enrollment or attendance at ASU, and/or (ii) other mandatory fees, books, supplies, and equipment required to be used by all students in a particular course of study.

Fellowship or scholarship payments made to foreign visitors may include a combination of the following:

• tuition, fees, books, and courserelated materials
• stipends for living expenses including meals, lodging, and other personal items
• medical insurance premiums paid to insurance companies
• airfare purchases from airline companies or travel service providers.

Portions of fellowship and scholarship payments that are used for meals, lodging, nonmandatory medical insurance, travel, personal living expenses, or other noncourse related expenses are often referred to as scholarship stipends, and must be included in taxable income unless excluded by tax treaty. Also, fellowship or scholarship payments made in exchange for employment related services, including teaching and research services, are taxable unless a tax treaty exclusion applies.

A post-doctoral fellowship award is made to an individual to further her/his pursuit of a course of study or research beyond the doctoral level. The entire postdoctoral fellowship award must be included in taxable income.

Acceptance by foreign exchange visitors or students of fellowships and scholarships does not require work authorization by the BCIS. If off-campus employment is involved in the fellowship or scholarship, foreign students should check with the ASU Office of International Students and Foreign Exchange Visitors should check with the ASU Office of International Programs prior to accepting such off-campus employment, since BCIS work authorization might be needed.

1.4 Stipends
Direct financial support payments are sometimes referred to as stipends which, per Webster's Dictionary, are sometimes defined as wages. At ASU stipends are defined as a sum of money periodically paid and can be either employee (or independent contractor) compensation or a financial support (scholarship or fellowship) payment depending upon the specific circumstances. When referring to stipends, the qualifying words Compensatory or Scholarship should be used to effectively communicate the correct meaning to the term stipend. For example, Compensatory Stipend is a stipend paid for services and Scholarship Stipend is a stipend paid that has no compensation components associated with it.

1.5 Assistantships
Assistantships at ASU include graduate research, teaching, and research positions. These positions involve work for compensation, and require inclusion on ASU's payroll. Some foreign exchange visitors and foreign students may accept these positions without separate work authorization. However, with few exceptions, most other nonimmigrant status holders may not. Students should check with the ASU Office of International Students and Foreign Exchange Visitors should check with the Office of International Programs before accepting any such positions since BCIS work authorization might be needed.

1.6 FICA
FICA (an acronym for the Federal Insurance Contribution Act) is a tax that is assessed against employee wages paid to individuals who are residents for tax purposes. This is a separate tax from the federal income tax and is used to fund the retirement and medical benefits paid by the Social Security Administration. One-half of this tax (7.65% of wages) is withheld from the payments to the individual, while the other one-half of this tax (also 7.65% of wages) is paid by the university. Special rules and an expanded discussion of this tax are included below in Sections 4, 6 and 7.

1.7 Immigrant (Resident Alien for Immigration Purposes)
An immigrant, or resident alien for immigration purposes, is a "green card" holder and is often referred to as a Permanent Resident (PR), the term which we will use in this guide. A PR is a non-U.S. citizen who has been authorized to live and work in the U. S. indefinitely. It is also a status which one must hold before being eligible to apply for U. S. Citizenship.

1.8 Department of State (DOS)
The DOS, operating through U.S. Consulates and Embassies outside the U.S., has the exclusive authority to issue visas. Visas do not guarantee admission to the U. S., but only allow one to present himself/herself to the BCIS for physical entry to the U.S. Entry will be granted if BCIS finds that the person's intent conforms to the visa, i.e., a person with a tourist visa is not actually intending to go to school or work.

1.9 Bureau of Citizenship and Immigration Services (BCIS)
The BCIS, part of the U.S. Department of Homeland Security (DHS), is responsible for admitting foreign nationals into the U.S. Upon admission, which usually happens after presenting a visa issued by the DOS, BCIS issues foreign nationals status in the nonimmigrant category in which they seek entry and for which they qualify.

1.10 Independent Contractor Payments
Independent contractors are not the same as employees. In order for an individual to be compensated as an independent contractor at ASU, the following five criteria must all be met:

1. The university does not control or direct the performance of the task; i.e., the individual is and will continue to be free to use whatever means he or she deems appropriate to accomplish the task
2. The task or service being performed is outside the regular expertise, duties, and/or consulting independence of existing university employees
3. The individual is conducting, in an independent manner, a business, trade, occupation or profession and is responsible for:
   • tools and materials required to perform the task, and
   • hiring/managing/terminating any subcontractors or assistants that are required to complete the task
4. The task is of short duration and is not indicative of an ongoing relationship (Contractual relationships that are longer than thirty days generally, indicate that an employee/employer relationship, rather than an independent contractor relationship, exists), and
5. A written agreement exists with the university which spells out the task or service(s) to be performed. The agreement or related documents must contain:
   • Contractor name, address, telephone number
   • U.S. citizenship status (non-U.S. citizens must include visa type, work authorization status, and number of days present in the U.S.)
   • Corporate status (corporation, partnership, sole proprietor, not-for-profit)
   • Nature and location of services to be performed
   • Performance schedule (starting and ending dates)
   • Department contact person and address.

If the relationship between the university and the provider of the service or product does not clearly meet all of the consultant/independent contractor criteria above, the individual must be hired as an ASU employee.

Independent contractor payments can only be received by foreign visitors whose visa status allows the receipt of such payments as a matter of law. If the independent contractor is known to be a foreign national, special care should be taken to make certain that the individual is truly an independent contractor.

1.11 Internal Revenue Service (IRS)
The IRS is the U.S. government agency that collects taxes. To facilitate this process, the IRS issues various forms, such as withholding allowance certificates, income tax returns, etc. which are used to help foreign visitors pay the taxes that apply to them. The IRS is also the part of the U.S. government that determines how much is owed for individual income taxes, and whether an organization that pays income to a foreign visitor is required to withhold tax from that income.

1.12 Nonimmigrant (Nonresident for Immigration Purposes)
A nonimmigrant, or nonresident for immigration purposes, is a person who is not a citizen or a PR of the U.S. and has been admitted to the U.S. under one of the nonimmigrant categories for a temporary stay that will end when the purpose of that stay has been met.

1.13 Nonresident (for Tax Purposes)
A nonresident for tax purposes is a person who is not a U.S. citizen and who does not meet either the "green card" test or the "substantial presence" test described in IRS Publication 519, U.S. Tax Guide for Aliens. Both of these tests are discussed in detail in Section 4 of this guide and the website for Pub 519 and other publications are found in Appendix 2 of this document.

1.14 Resident (for Tax Purposes)
A resident for tax purposes is a person who is not a U.S. citizen and who meets either the "green card" test or the "substantial presence" test described in IRS Publication 519, U.S. Tax Guide for Aliens. Both of these tests are discussed in detail in Section 4 of this guide and the website for Pub 519 and other publications are found in Appendix 2 of the document.

1.15 Taxable Income
Any money paid to a foreign visitor or paid to a third party on their behalf on which taxes are required to be paid to the U.S. government is taxable income. Employee wages and stipend payments are considered taxable income. State, county, and federal income tax will be withheld by ASU from these payments at the appropriate rate.

1.16 Taxes
Taxes are paid by individuals earning money in the U.S. Taxes are used to support the various functions of the U.S. government.

1.17 Travel (Transportation, Meals, and Lodging In Transit)
Travel payments can be made to foreign visitors in payment for, or reimbursement of, a number of travel related expenses including the cost of meals, lodging, and transportation costs such as air fare and automobile rental, and other related expenses incurred while in transit. There is no distinction between amounts paid directly to travel service providers, such as airlines, and payments made directly to the foreign visitor. ASU understands the tax laws to allow that travel expenses that are paid or reimbursed by the university in order to transport a foreign visitor to or from the university will not be considered taxable income as long as the traveler accounts to the university by providing actual receipts and substantiation of the business purpose of the travel.

1.18 Withholding
Withholding means that the taxes a foreign visitor is obligated to pay to the U.S. government will be taken out of the paycheck or compensatory stipend check by ASU, then sent to the U.S. government, as required by law.