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Date:February 5, 2008
Bulletin Number: CU-329
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Subject

Payment  and Reporting of CUNY Nonresident Alien Scholarships Subject to IRS Withholding and Reporting Requirements

Purpose

To inform agencies of the procedures to process nonresident alien scholarships in PayServ.

Affected Employees

CUNY nonresident alien students who receive scholarships.

Background

A scholarship is an amount given to an individual for study, training or research; it does not constitute compensation for personal services.  According to Internal Revenue Code Section 117, payment of a qualified scholarship to a nonresident alien is not reportable and is not subject to Federal income tax withholding.  A scholarship is considered a qualified tax exempt scholarship if the amount paid to an individual is used for tuition and fees required for enrollment or attendance at an educational organization, as well as for fees, books, supplies, and equipment required for courses of instruction at the educational organization.  IRS regulations require that records must be kept demonstrating that qualified scholarship funds were actually expended for qualified tuition and required fees.

However, the portion of a scholarship paid to a nonresident alien which does not constitute a qualified scholarship (i.e. “unqualified”) is subject to withholding and reporting requirements.  A scholarship is considered unqualified if the amount paid to an individual is used for travel, room and board.  These payments are reportable on Form 1042-S and may be subject to nonresident alien tax withholding.  The withholding rate on an unqualified scholarship is 14% or the income tax treaty rate for nonresident aliens temporarily in the United States on “F,” “J,” “M” or “Q” visas.

In order to report this income separately, OSC has established a new Company, CSR.  Establishing the new company enables OSC to produce a separate Form1042-S for nonresident alien students and allows for these students to be paid regular earnings that are taxed under other income codes.  Only unqualified scholarships for nonresident aliens will be reported using this new Company.  If the employee has regular earnings under a different income code, a separate Form 1042-S will be issued.

Note:
Nonresident alien scholarship payments should be submitted only for “F,” “J,” “M” or “Q” Type 1 (one) visa holders.

Effective Date(s)

Institution Paychecks dated February 28, 2008.

OSC Actions

OSC has created the following data for this process:

New Company
CSR (CUNY Scholarships)

New Agency Codes
DeptID 7XXX5 will be used for each new agency code.

Pay Cycle
Institution Current

Position Number
A multi-filled Position Number Add link here has been created for each DeptID.  The following attributes have been assigned:

  • DeptID – 7XXX5
  • Company – CSR*
  • Title Code – 9704997*
  • Job Code – 019405*
  • Narrative Description – Scholarship Recipient*
  • Bargaining Unit – C5 (CUNY Scholarship Recipient)*
  • Union Code – C5N (CUNY Scholarship Recipient)*
  • Benefit Program – C5N (CUNY Scholarship Recipient)*
  • Earnings Program – CSR (CUNY Scholarship Recipient)*
  • Pay Basis Code – FEE
  • Max Head Count – 9999
  • Position Pool ID – 555

Earn Code
CSR - CUNY Scholarship IC 15* (for use on the Time Entry
Page)

*Denotes new value to be used exclusively with the Scholarship agencies.

Agency Actions

Agencies are responsible for appointing a nonresident alien student to the new Company (CSR).  To do so, the agency must use the following process:

  • If the student does not have a record in PayServ, the agency must process a Hire transaction, appointing the student to the new 7XXX5 DeptID using one of the Position Numbers assigned to the DeptID.
  • If the student already has a record in PayServ, the agency must process the transaction as a Concurrent Hire in the next available Employee Record Number, appointing the student to the appropriate 7XXX5 DeptID and using the Position Number assigned to that DeptID.
  • PayServ will not allow Rehire or Transfer where the Company differs from the prior row; therefore, the agency cannot use an existing Record Number to rehire a student to process this payment.  A Rehire can be used only after a nonresident alien scholarship record has been created and terminated.  A Transfer can be done only from one 7XXX5 DeptID to another 7XXX5 DeptID.
  • If the student does not have a valid Social Security Number (SSN) or Taxpayer Identification Number (TIN), the agency should create a temporary ID number for the EmplID field.  The National Id field must remain blank.
  • No Pay Change Request is required.
  • Enter the Tax Data as indicated below.
  • Enter the Time Entry payment as indicated below.

Note:
All Hires or Concurrent Hires must have an effective date prior to the date that agencies will enter a Time Entry transaction.  For example:  If the agency is entering a payment into the system on 2/4/08, the Hire or Concurrent Hire effective date and action date must be prior to 2/4/08. FICA Status:  Agencies must select the “Exempt” status from the box in the job data panel, under the payroll tab.

Tax Information

Agencies must populate the Employee Tax page as follows:

Federal Tax Data
 
  • Company:  CSR (default)
  • Insert a Row
  • Effective Date:  Must be a date after the hire date
  • Special Tax Withholding Status:  Select Nonresident Alien; Tax Treaty/NR Data

The following fields default and have no effect on the tax calculation for scholarship payments:
Federal Withholding Status
  Tax Marital Status: Single
Withholding Allowance: 0

Note: Federal income tax on scholarship payments is calculated at zero percent (in most cases) when there is an income tax treaty between the United States and the student's country of residence.  For countries that do not have an income tax treaty with the United States, Federal income tax is withheld at 14% provided the nonresident alien is in the U.S. temporarily on an "F," "J," "M" or "Q" visa.

  • If the student has all required paperwork (i.e.  SSN/ITIN and Form W-8BEN)

The following fields must be populated:

  • Tax Treaty/NR Data

    • Date of Entry:  (from Form W-8BEN)
      Eligible Income Code:  Enter Code 15
      Country:  Enter country from Form W-8BEN
      Treaty ID:  Select appropriate Treaty ID
      Treaty Exp Date:  (populates automatically when appropriate Treaty ID is entered)
      Form W-8BEN Recd?:  Select Yes
      W-8BEN in Effect Date:  (from Form W-8BEN - must be prior to pay period end date

  • If the student does not have valid paperwork (i.e.  No Form W-8BEN or W-8BEN does not have a valid SSN/TIN), tax will be calculated at 14%.

The following fields must be populated:

  • Tax Treaty/NR Data

    Date of Entry:  (from Form W-8BEN)
    Eligible Income Code:  Enter Code 15
    Country:  Enter country from Form  W-8BEN
    Treaty ID:  Select appropriate Treaty ID
    Treaty Exp Date:  (populates automatically when appropriate Treaty ID is entered)
    Form W-8BEN Recd?:  Select NO
    W-8BEN in Effect Date:  (from Form W-8BEN - must be prior to pay period end date)

State Tax Data
  No action required

Local Tax Data

  No action required

Time Entry Payments

To pay the scholarship payment to eligible students, enter the following information on the Time Entry page:

Earnings Begin Date:

Pay Period begin date

Earnings End Date:

Pay Period end date

Earn Code:

CSR

Amount:

Enter the amount of the scholarship

Note:  The agency must provide a roster each time the payments are entered into PayServ.  The roster information must include the amount of the scholarship payment and the amount paid to the student during the Academic Year to Date. 

Removing Students From PayServ

The agency must remove a student from PayServ when the student is no longer receiving a scholarship payment.

Report of Check Return for Refund or Exchange
AC 230s (Report of Check Return for Refund or Exchange) should not occur on a frequent basis.  A completed and signed AC 230 must accompany payroll checks that are returned to OSC for any reason, with the reason clearly noted.
Direct Deposit
Scholarship payments are not eligible for direct deposit.
Deductions

No deductions will be taken from these payments.

Year End Processing

Separate 1042-S forms will be created for each student’s scholarship payments and other earnings covered under an income tax treaty, if applicable.  A Form W-2 may be issued if the student also received earnings not covered under an income tax treaty.

Control-D Reports
The following Control-D reports will provide agencies with information regarding these payments:

 

  • NHRP726 Payroll Expenditure Charge Register for Separate Checks
  • NPAY002 Payroll Register
  • NHRP727 Payroll Expenditure Charge Register for Separate Checks

Payroll Register and Employee's Paycheck

The Earnings Code CSR and the amount will be displayed on the payroll register.  The description “Scholarship IC 15” and the amount will be displayed on the paycheck stub.

Questions

Questions regarding this bulletin may be directed to the University Manager of Payroll Systems and Operations at CUNY Central Office.