Taxation for Foreign Nationals: Key Guidelines and Resources

Key guidelines & resources

Contributed by Azamat Akhmedov

Understanding the complexities of foreign national taxation at UVA is essential for compliance and financial planning. Key concepts include tax residency, taxable payments, tax treaties, and compliance requirements.

Understanding Tax Residency

One of the primary considerations is the distinction between immigration and tax residency. While immigration status and tax residency are related, they are determined by different criteria. Tax residency is assessed through the Substantial Presence Test, which considers the number of days an individual has been present in the U.S. over a specific period. Individuals exceeding 183 days in a taxable year generally become tax residents. However, exemptions apply for F-1 and J-1 students (for their first five years) and J-1 scholars (for their first two years).

Taxable Payments for Foreign Nationals

The most common types of taxable payments at UVA include:

• Non-qualified scholarships and fellowships (stipends) – Subject to taxation for non-residents.

• Awards and honoraria payments – Honoraria payments, often given to visiting lecturers and peer reviewers, are taxed at a 30% federal rate.

• Non-qualified travel reimbursements – If travel expenses do not meet the IRS’s bona fide business purpose criteria or lack proper documentation, they become taxable.

• Royalties – Frequently processed at the end of the year, these are also taxed at a 30% rate.

• Wages for student and scholar employment – While taxable, F-1 and J-1 students and scholars are exempt from Medicare and Social Security taxes during their non-resident period.

Tax Treaty Considerations

Tax treaties between the U.S. and over 60 countries may partially or fully exempt certain payments from taxation. However, tax treaty benefits are not automatic—they must be requested before payment processing. Additionally, recipients must have a U.S. tax identification number (ITIN or SSN) to qualify for treaty exemptions.

Honoraria Payments and Compliance

Compliance for honoraria payments follows the 9-5-6 Rule, which states that an individual cannot have spent more than nine days performing services in the U.S. at any one institution, and cannot have received honoraria from more than five U.S. institutions in the past six months. Proper documentation is essential, including a completed Honoraria Payment Approval Form, ensuring compliance with federal regulations.

Travel Reimbursements for Non-Employees

Non-employee travel reimbursements are generally not taxable if they serve a bona fide business purpose. However, independent graduate research travel, which does not meet this criterion, is considered taxable.

Tax Reporting and Resources

Form 1042-S is used to report taxable payments made to foreign nationals. UVA issues these forms in February each year, including reports of income exemption under tax treaties.

To assist departments and individuals navigating foreign national taxation, key UVA policies and IRS resources are available. While UVA employees can provide general guidance, they cannot offer tax advice to individuals.

For further inquiries, we're happy to provide guidance on specific cases involving foreign national taxation.  Reach out to us via askfinance@virginia.edu