HONORARIUM PAYMENTS

by Paula N. Singer, Esq. 

Academic institutions have been paying honorarium payments to foreign guest speakers, including foreign heads of state and other foreign dignitaries, for decades. Because of their concern about unauthorized employment of aliens and the complex and time-consuming procedures required to obtain work-authorized status, institutions urged Congress to enact legislation legalizing the existing situation. Congress finally complied, enacting section 431 of the American Competitiveness and Workforce Improvement Act (ACWIA) of 1998. ACWIA amended section 212 of the Immigration and Naturalization Act (INA) by noting;

“(q) Any alien admitted under section 101(a)(15)(B) may accept an honorarium payment and associated incidental expenses for usual academic activity or activities (lasting not longer than 9 days at any single institution), as defined by the Attorney General in consultation with the Secretary of Education, if such payment is offered by an institution or organization described in subsection (p)(1) and is made for services conducted for the benefit of that institution or entity and if the alien has not accepted such payment or expenses from more than 5 institutions or organizations in the previous 6-month period.”

Section (p)(1) defines institutions and organizations as an institution of higher education or a related or affiliated nonprofit entity or a nonprofit research organization or a Government research organization.

On May 30, 2002, INS issued proposed regulations. Although regulations are not binding until they become final, the proposed regulations offer helpful definitions.

Covered Aliens

ACWIA covers aliens admitted on a temporary visit for business (B-1) or a temporary visit for pleasure (B-2). Also covered are aliens admitted under the visa waiver program (VWB and VWT respectively), aliens from Canada exempt from the visa requirements, and aliens whose activity venue is covered by a valid border-crossing card.

Honorarium Defined

The American Heritage Dictionary defines an honorarium as “A payment given to a professional person for services for which fees are not legally or traditionally required.” The proposed regulations define an “honorarium” as a gratuitous payment of money or any other thing of value to a person for the person’s participation in a usual academic activity for which no fee is legally required. The immigration service's interpretation that an honorarium not be “legally required” is inconsistent with the current practice of agreement in advance on a speaker fee.

An honorarium may be of any dollar amount with no minimum or maximum dollar amount required. An honorarium is altogether different from a salary that an alien receives on a continuing basis. The proposed regulations describe honorarium recipients as neither an employee nor a contractor for services of the sponsoring institution. However, an honorarium recipient for tax purposes is generally considered an independent contractor. (Alien employees of the organization may also receive an honorarium payment.)

Usual Academic Activities

The regulations propose a broad definition of “usual academic activities” that includes lecturing, teaching and sharing knowledge, performances, master classes, readings, and meeting of boards or committees that benefit the institution. However, they place limitations on the commercial nature of events such as performances. Events must be open to students and/or the general public free of charge with no sale of general admission tickets for the activity to be a “usual academic activity.”

Limits on Frequency of Activities

During a 6-month period, an individual may accept an honorarium and reimbursement of associated expenses from no more than 5 organizations, and that the event may not last more than 9 days at any single institution (called the “9/5/6 Rule”). The alien may be at the institution longer than 9 days, however. The number-of-days limitation applies only to “the event.”

The proposed regulations define a “single institution” to include an institution that has more than one campus. However, an institution will only be treated as a single institution if the individual is paid with one honorarium payment for the same activity, such as the same lecture, that is repeated at multiple campuses. If the alien receives honoraria from multiple campuses for different activities, such as different lectures at each campus, each activity resulting in an honorarium payment must be charged against the overall 5 visits allowed during the 6-month period.

U.S. Tax Implications

Honorarium payments made to nonresident recipients are subject to 30 percent withholding unless a tax treaty exemption applies. Honorarium recipients wishing to claim a tax treaty exemption from the withholding tax must provide a completed and signed Form 8233 prior to payment. These payments must be reported on Form 1042-S (not Form 1099).

Paula Singer, Esq., Co-founder and Chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer LLP, Newton, MA, has over 25 years of experience providing advice and compliance services to individuals and their employers, and payers on cross-border matters.

Watch for Volume 3, Number 3 for a discussion on “Permissible B-1 Visitor Activities.”

Q. Can we reimburse travel expenses for a B-1, Visitor for Business, who is coming to the institution for a meeting?

A. ACWIA did not change the rules that otherwise apply to B-1 (and VWB) visitors who may accept reimbursement for expenses regardless of whether or not the alien’s activities have exceeded the 9/5/6 Rule. However, expense reimbursements for B-2 (and VWT), Visitor for Tourism, visitors are limited to those who qualify under the 9/5/6 Rule. Eligible B-2 visitors may be reimbursed incidental expenses related to the B honorarium activity but not for expenses for days unrelated to either the event or the reasonable travel days related to the event.

Summer NRA Training

Sign up now! Don’t miss out on Windstar’s summer session on NRA Training scheduled for August 1-4 at the Boston Marriott Newton. Get up-to-date info on changes to IRS rules and regulations, including W-4s and Acceptance Agent applications.

U.S. Tax Guides Updated

U.S. Tax Guides for Foreign Persons and Those Who Pay Them™ by Paula N. Singer, Esq., are now updated with new IRS rules, procedures, and forms.

Windstar Will Dock at these Upcoming Trade Shows

New England Payroll Association
Foxwoods Resort & Casino
Mashantucket, CT
June 7-8

Paula Singer, Esq. will speak on Procedural Aspects of Cross-border Assignments at 8:30 am on June 8.

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Texas Association of State Senior College and University Business Officers
Houston, TX
June 11-13

Paula Singer and Linda Dodd-Major will present Understanding Payments to Foreign Nationals at 4 pm on June 12.

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Healthcare Financial Management Association’s 2006 Annual National Institute
Gaylord Palms Resort & Convention Center
Kissimmee, FL
June 17-21, 2006
Booth #1920

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Texas Association of Community College Business Officers
Adolphus Hotel
Dallas, TX
June 21-23, 2006

Richard Adams will present Understanding Payments to Foreign Nationals at 1:15 pm on June 22.

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Balance Consulting’s 2006 National Form 1099 Information Reporting Conference
Crystal Gateway Marriott
Arlington VA
July 16-19, 2006

Paula Singer, Esq. will present Nonresident Alien Issues for Higher Education and Royalties for Media, Entertainment, Film Companies, Theatre. She will participate on a panel, Higher Ed/Nonprofits Networking & Peer Discussion.

©Copyright 2006 by Windstar Technologies, Inc. Windstar reserves all rights to this electronic material. Information contained in this publication is based on the best information available at the time of publication.  While believing the information in this publication to be accurate, Windstar accepts no legal responsibility for its accuracy.