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Date: October 9, 2008

Bulletin Number: CU-345

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Subject

Payment of Nonresident Alien Independent Contractors for Providing Service (Honoraria) to The City University of New York (CUNY)

Purpose

To inform agencies of the procedure to pay honoraria to independent contractors who are nonresident aliens.

Affected Employees

Independent contractors who are nonresident aliens who provide a service to CUNY.

Note:IRS Publication 1779 provides information in determining whether an individual providing services is an independent contractor or an employee.

Payroll Bulletin No. 845 - Agency Compliance with Internal Revenue Service (IRS) Policy Regarding Worker Status Determinations - provides guidelines and procedures for determining if a worker should be treated as an independent contractor or an employee.

Effective Date(s)

Immediately.

Background

In accordance with IRS Publication 519, if there is no employee-employer relationship between CUNY and the person providing the service, the compensation is subject to the 30% rate (or lower rate as determined by a tax treaty) of withholding for Federal income tax.  Nonresident aliens who perform a short term service to CUNY but who are not considered employees or staff of CUNY must be taxed using Income Code 16.

In order to tax a nonresident alien independent contractor correctly, the individual must be paid using the PayServ system and not the NYS Central Accounting System.  The payment must be reported on Form 1042-S (Foreign Persons U.S. Source Income Subject to Withholding).  This form is issued through PayServ.
Independent contractors who are not nonresident aliens hired by CUNY should be paid through the NYS Central Accounting System.  These payments are reported on Form 1099-Misc (Miscellaneous Income).


OSC Actions

OSC has created a new Bargaining Unit, Benefit Program and Earnings Program in order to pay and withhold taxes for nonresident alien independent contractors correctly.

To process honoraria for nonresident aliens, OSC has created the following data:

  • Bargaining Unit:  HN – Honorarium Nonresident Alien
  • Union Code:  HNN – Honorarium Non Represented (not tied to a union)
  • Benefit Program:  HNR-Honorarium Nonresident Alien
    • Not tied to any Benefits or Deduction Codes
    • Federal Taxes withheld at 30% unless Tax Treaty entered on Employee Tax Data.
    • Plan Type:  7R – No-Retirement Option
  • Earnings Program:  HNR – Nonresident Alien Honorarium
    • Earnings Code (WWW - Honorarium) required.  This earns code is paid on the Time Entry page using an amount.
      • Code is tied to Income Code 16
  • Job Code:  019404 – NRA Visitor – Honorarium

Agency Actions

CUNY Central Office must set up positions in order to pay these nonresident alien independent contractors.  The positions must be set up in the CUNY Part-Time agency, 7XXX2, with the following attributes:

  • Effective = 9/1/08
  • Line Number = TBD
  • Department = 7XXX2
  • Dept Location = 7XXX2
  • Position Location = TBD
  • Employee Type  = H
  • Holiday Schedule  = 10DY
  • Pay Basis Code = FEE
  • Bargaining Unit = HN
  • Earnings Program = HNR
  • Job Code = 019404
  • Grade =  600
  • Salary Plan = UNA
  • Standard Hours = 40
  • Max Head Count  =  9999
  • Position Pool ID = TBD
  • JC = Other
  • Position FTE = 1.00

To appoint a nonresident alien independent contractor, agencies must:

  • Appoint the nonresident alien independent contractor using the action of Hire.  If the nonresident alien independent contractor has a terminated record in PayServ, the agency must use the Rehire or Concurrent Process, as appropriate. 
  • Contact OSC if the nonresident alien independent contractor has an active record in PayServ.
  • Terminate the nonresident alien independent contractor immediately as this payment is for non-State workers and the nonresident alien independent contractor cannot  remain in Active status in the PayServ system.
  • Complete the Federal Tax Data page for the nonresident alien independent contractor using the Special Tax Withholding Status of “Non-Resident Alien: Tax Treaty/NR Data” and ensure that Income Code 16 is populated in the Eligible Income Code field.

The nonresident alien independent contractor will be issued a Form 1042-S at the end of the calendar year.  If the independent contractor’s country of residence has an existing income tax treaty with the United States, the agency must obtain a properly completed Form 8233 at the time of appointment.  The original Form 8233 must be mailed within five (5) business days of receipt to:

Internal Revenue Service
International Section
P.O. Box 920
Bensalem, PA  19020-8518

Agencies must provide one copy of the completed Form 8233 to the nonresident alien and keep one copy for their records.  Each copy of Form 8233 must include any attachments submitted by the nonresident alien.

Payments are submitted upon completion of the work.  To process the payment for the nonresident alien independent contractor, the
agency must submit the Earns Code WWW on the Time Entry page as follows:

  • Earns Code - WWW
  • Begin Date - first day worked
  • End Date - last day worked (often the same)
  • Amount - amount in employee’s contract

For each payment, the agency must provide the Earnings Operations section with documentation approving the payment, with dates worked, and documenting that the nonresident alien is a qualifying independent contractor and does not meet the criteria to be considered as an employee.


Questions

Questions regarding reporting or withholding may be directed to the Payroll Deductions mailbox.  Questions regarding payment may be directed to the Non-Executive Audit mailbox.