Written by Dwaine Cook.
As NC State University’s international population continues to grow, both the university and the global community feel its impact. In this article, we will talk about processing payments for foreign individuals, which involves additional considerations compared to payments for U.S. citizens or entities. Here’s what’s important to know.
Payments to Foreign Individuals
Payments to foreign individuals differ from those to U.S. citizens due to specific immigration laws and IRS regulations. PaymentWorks, our vendor onboarding and processing platform, helps us review necessary documentation before a foreign national becomes a supplier, allowing us to determine if payments are permissible for specific visa types under immigration rules.
Foreign nationals require more documentation than U.S. citizens, enabling the Tax Compliance team to determine both eligibility and tax implications. Because of these additional documentation needs, processing payments for foreign nationals takes extra time. This delay ensures that the university has all required paperwork. Additionally, the IRS mandates a substantial presence test to determine whether the supplier is classified as a nonresident alien for tax purposes. Nonresident aliens are subject to federal tax withholding (with income reported on a 1042-S form), whereas resident aliens are not and receive a 1099 form instead.
Certain visa restrictions can also limit the types of payments foreign nationals can receive, adding complexity to the payment process and sometimes extending processing times.
Payments to Foreign Entities
Payments to foreign entities are generally simpler than those to foreign individuals but still have specific requirements.When services are provided within the U.S., resulting in U.S.-sourced income, additional complexities can arise.
U.S. tax treaties with various countries may reduce or eliminate withholding requirements. If a foreign entity is set up in PaymentWorks, the Tax and Compliance team may need additional information on the payment type or location of services. They ensure IRS tax forms are complete and accurate to potentially reduce or eliminate withholding for both the university and its departments.
References
International Suppliers Tax FAQs
Guide For Foreign Individuals (Payment Works)