Understanding Non-Resident Tax Withholding

Two types of payments can be made to non-resident aliens who are not employees:

These payments may be subject to withholding based on applicable federal and California State tax laws and regulations.  

Federal (IRS) Tax Laws


IRS Publication 901- U.S. Tax Treaties provides direction on making payments to residents of foreign countries, and describes when it is allowable to exclude these payments from Federal income tax withholding. If the U.S. does not have a tax treaty with the payee’s country of tax residence, or if the U.S. has a tax treaty but the individual does not provide both the ITIN (SN) and 8233 Form (Exemption from Withholding on Compensation for Independent Personal Services), then UCSF Accounts Payable must withhold 30% from the payment and remit it to the IRS.

List of Countries with Tax Treaties

See the IRS website for a list of U.S. Income Tax Treaties.  If a country is listed but has no treaty article cited, contact Accounts Payable for instructions.

California (CA) State Withholding Tax Laws


The UC Accounting Manual directs that honorarium payments to residents of foreign countries who perform services in California or who received income from California sources are subject to State income tax withholding. Non-California residents, including U.S. citizens who are residents of other states, are subject to State income tax withholding of 7% of gross if the total payments excel $1,500 during the calendar year. See State of California Franchise Tax Board publication FTB Publication 1017, Resident and Nonresident Tax Withholding Guidelines for more details.

Example of California State withholding:

Date / Description

Amount

April 1, 2015 - First honorarium payment

$500

August 15, 2017 - Second honorarium payment

$1,100

Total 2015 payments to date

$1,600

7% withholding on $1,600

$112

Net payment

$988

October 1, 2015 - Third honorarium payment

$600

7% withholding on $600

$42

Net payment

$558

Gross-Up of Amount


If withholding is required, departments have the option of “grossing up” the payment amount requested so that the individual will receive the full amount promised in the net payment.

Gross-Up Example

  • A $250.00 honoraria payment would be grossed up to $357.14 if total calendar year payments are less than $1,500. Federal withholding of 30% is required.
  • A $250.00 honoraria payment would be grossed up to $376.14 if total calendar year payments have exceeded $1,500 requiring 30% Federal and 7% CA State withholding.

Summary of Applicable Withholding


Tax Treaty? Visitor holds document types: Withholding from honoraria payments: Withholding from travel reimbursement payments:
Country with Tax Treaty If the visitor has Doc-A and Doc-B only
  • 30% Federal withholding
  • California State withholding may be required in some situations
  • No Federal withholding
  • No California State withholding
If the visitor has Doc-A, Doc-B, Doc-C, and Doc-D
  • No Federal withholding
  • California State withholding may be required in some situations
Country without Tax Treaty If the visitor has Doc-A, Doc-B, and Doc-C (if available)
  • 30% Federal withholding
  • California State withholding may be required in some situations
  • No Federal withholding
  • No California State withholding

Document Types:

Doc-A: Proof of Visa Status or I-94 (Arrive-Departure document completed by Customs Agent when entering the US; visa type is usually noted on this document)

Doc-B: Certificate of Academic Activity

Doc-C: Social Security Number (SSN), Individual Taxpayer ID Number (ITIN), or Application for IRS Individual Taxpayer Identification Number (W-7)

Doc-D: IRS 8233 Form (Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual)