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Date: June 2, 2006 Bulletin Number: SU-123
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Subject

Payment and Reporting of SUNY 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

SUNY 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 on 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. This process will enable OSC to produce a separate Form1042-S for a nonresident alien student and allows for the same student 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.
Note:
Nonresident alien scholarship payments should be submitted only for “F,” “J,” “M” or “Q” Type 1 (one) visa holders.

Agencies should no longer report unqualified scholarships for nonresident aliens to the Central Accounting System for payment.

Effective Date

Paychecks dated June 8, 2006 (Institution).

OSC Actions

The following data has been created for this process:

New Company
SCL (SUNY Scholarships)

New Agencies
DeptID 28XX5 (see Attachment A) will be used for each college or university.

Pay Cycle
Institution Extra Lag

Position Number
One multi-filled Position Number (see Attachment A) has been created for each DeptID. The following attributes have been assigned:

• DeptID - 28XX5
• Company - SCL
• Title - Scholarship Recipient
• Job Code - 018758
• Bargaining Unit - 71
• Earnings Program - SCH
• Pay Basic Code - FEE
• Max Head Count - 9999
• Position Pool ID - 001

Earn Code
VVV (Scholarship Income Code 15) for use on the Time Entry
page.


Agency Actions

Agencies are responsible for appointing a nonresident alien student to the new Company (SCL). 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, either online or through the Automated Interface process, appointing the student to the new 28XX5 DeptID using the Position Number 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 Rcd Number, appointing the student to the appropriate 28XX5 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 28XX5 DeptID to another 28XX5 DeptID.
• If the student does not have a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), the agency should create a temporary ID number for the EmplID field. The SSN 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.

Tax Information
Agencies must populate the Employee Tax page as follows:

Federal Tax Data
• Company: SCL (default)
• Insert a Row
• Effective Date: Must be the date after 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

  • FWT Additional Amount

Amount: $15.30

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:
    o 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/ ITIN), tax will be calculated at 14%.
    The following fields must be populated:
    o 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: VVV
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. The rosters must be e-mailed to Darlene Koniowka at dkoniowka@osc.state.ny.us or faxed to 518-474-2601 before the payroll is processed.

Removing Students from PayServ

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

 

Report of Check Return for Refund or Exchange

Checks that need to be returned to OSC for any reason should be returned using the AC 230 process.

Agency Certification

Each agency must provide an AC 2822 (Payroll Transaction Authorization Form) with the approved signatures for the new agency before the first payroll is processed. Additionally, the agency must submit the AC 3202 (Payroll Certification Form) each pay period thereafter.

Direct Deposit

There will be no direct deposit for these payments.

Deductions

There will be no deductions 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:

  • Payroll Expenditure Charge Register for Separate Checks (NHRP726)
  • Employee Expenditure Charge Register Report for Separate Checks (NHRP727)

Payroll Register and Employee's Paycheck

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


Questions

Questions regarding Position Data may be directed to the Position Management mailbox.

Questions regarding Tax Data may be directed to the Payroll Deductions mailbox.

Questions regarding the processing of payroll transactions may be e-mailed to the Payroll Audit mailbox.