Tax Reporting Requirements for Non-Payroll Payments

Tax Reporting Requirements for Non-Payroll Payments

Taxpayer Identification Numbers

For non-payroll payments requiring tax reporting, a payment will not be made until the payee has provided the taxpayer identification number (Federal Employer Identification Number, Social Security Number, or Individual Taxpayer Identification Number) necessary for tax reporting.

Forms Used to Solicit Taxpayer Identification Numbers

A W-9 form is the most commonly used form to solicit a taxpayer identification number from a U.S. person (see below). While a W-9 form is not strictly required by the IRS for 1099-MISC reporting, it is the most reliable method of obtaining the reporting information, as it identifies the legal name of the payee.

A payee that is a foreign person (see below) cannot submit a W-9 form, as it requires the signature of a U.S. person. Non-U.S. persons must submit an IRS Form 8233 or the appropriate W-8 form. A foreign individual performing independent or dependent personal services in the U.S. would use an IRS Form 8233. A foreign individual receiving a non-service payment (e.g., rent or royalties) would submit a IRS Form W-8BEN. A foreign corporation, partnership, or estate would submit an IRS Form W-8BEN-E. A foreign government would submit an IRS Form W-8EXP. Please see Publication 515 for additional information.

Who Qualifies as a U.S. Person?

A U.S. person is either a U.S. citizen; a resident alien for tax purposes; a partnership, corporation, company, or association created in the United States or under the laws of the United States; any estate (other than a foreign estate); or a domestic trust.

A foreign person includes a non-resident alien (an individual who is neither a U.S. citizen nor a resident alien for tax purposes); a foreign corporation, partnership, trust, estate, or government; or an international organization.

Payees Exempt from Tax Reporting

Corporations, governments, and not-for-profit entities generally do not require tax reporting, such as the annual filing of a 1099-MISC form. Notable exceptions include payments for legal or medical services, which require tax reporting regardless of the type of entity.

Foreign persons (see the definition above) do not require tax reporting if the service was performed outside the U.S.

Foreign corporations, governments, and not-for-profit entities are not exempt from reporting for services performed in the U.S., even in those situations where their U.S. counterparts would be exempt. However, withholding can be avoided if a completed W-8BEN or W-8EXP is attached and there is an applicable tax treaty.

Withholding of Taxes for Payments on Services

Withholding of taxes generally is not necessary for non-payroll payments if the payee is a U.S. person (see above). However, U.S. persons who have reportable income and who have have not provided a matching name and taxpayer identification number are subject to withholding of 24% for federal taxes.

Non-resident aliens performing services in the United States are subject to withholding of 30% for federal taxes unless: 1.) they provide a U.S. Social Security Number or Individual Taxpayer Identification Number, 2.) their country has a tax treaty with the U.S., and 3.) they have not exceeded the maximum allowable number of days in the U.S. allowed by an applicable tax treaty. (As the maximum allowable number of days in the U.S. usually is 183 or less, ISU students rarely qualify for the exemption.)

Non-resident aliens who qualify and wish to apply for exemption from tax withholding need to complete an IRS Form 8233. Non-resident aliens who realize they do not qualify can skip completing the IRS Form 8233 and simply submit to the withholding by providing a permanent foreign address on an attachment to the Supplier Invoice. Non-resident aliens usually would qualify for at least a partial refund of taxes withheld by filing a U.S. tax return, although filing a U.S. tax return will require either a U.S. Social Security Number or an Individual Taxpayer Identification number.

Other non-U.S. persons (including foreign corporations, partnerships, trusts, estates, or governments; or international organizations) may qualify for an exemption from withholding by submitting the appropriate W-8 form.

Disclaimer: The information above is not intended as legal advice. Please refer to www.irs.gov for additional information. Iowa State University does not provide assistance with the preparation of tax returns.