Honorarium Payments to J-1 Exchange Visitors

by Paula N. Singer, Esq. 

Under the American Competitiveness and Workforce Improvement Act of 1998 (ACWIA), higher education institutions and non-profit or governmental research entities may make honorarium payments to foreign national visitors only in B-1/VWB or B-2/VWT immigration status for "usual academic activities." Although the ACWIA does not apply to J-1 Exchange Visitors, certain J-1 Exchange Visitors may provide and be compensated for services by organizations other than their sponsor or designee within the guidelines of their Exchange Visitor Program (EVP).

J-1 Exchange Visitors

The Exchange Visitor’s Form DS-2019, Certificate of Eligibility for Exchange Visitor (J-1) Status, issued by the EVP sponsor describes the EVP guidelines of J-1 Exchange Visitors. Exchange Visitors may receive compensation from their sponsor, or their sponsor's designee, for employment when the activities are part of the EVP. J-1 Exchange Visitors may engage in activities at other organizations if those activities are anticipated by their EVP. (One group of J-1 Exchange Visitors, those in the Summer/Work Travel Program, may work for any organization as long as they meet the conditions of their EVP.) Immigration rules deem Exchange Visitors who engage in unauthorized activities to be in violation of their program status with the result that their participation in their EVP is subject to termination.

It is the responsibility of the Responsible Officer (RO) of the EVP to advise Exchange Visitor participants of:

• The restrictions that may be placed on their activities,
• The limitations of their employment, and
• Opportunities they may or may not be eligible to pursue while in the United States.

The immigration rules specifically provide opportunities for J-1 Professors and Research Scholars to participate in, and to receive payment for, certain activities for other organizations as long as the conditions for this exception are met. (See 22 CFR 62.20(g)).

Professors and Researchers

J-1 Professors and Research Scholars may participate in occasional lectures and short-term consultations for other organizations, unless these activities are disallowed by their program sponsor.

The lectures and consultations must satisfy three conditions:

1. They must be directly related to the objectives of the primary EVP
2. They must be incidental to the EVP activities
3. They cannot delay the completion date of the EVP

In order to obtain authorization for such activities, a Professor or Research Scholar must present to his or her (RO):

• A letter from the officer of the organization receiving the services setting forth the terms and conditions of the offer to lecture or consult, including the duration, number of hours, field or subject, amount of compensation, and description of the activity, and
• A letter from his or her department head or supervisor recommending the activity and explaining how it would enhance their EVP.

The RO must then review the letters and make a written determination whether such activity is warranted and satisfies the criteria for these activities stated above. The authorization, if granted, must be given in advance of the Exchange Visitor engaging in the proposed activity.

Immigration rules specify that any payments received by a Professor or Research Scholar for these activities must be as an independent contractor. The payments that Professors and Research Scholars receive for such activities are typically referred to as "honorarium payments" even though they are not covered by the B honorarium rules.

Income Taxation of Honorarium Payments

U.S. tax rules consider payments for activities not under the supervision and control of an organization receiving the services to be self-employment income. Therefore, honorarium payments to Professors and Research Scholars are taxed as self-employment income.

Honorarium payments made to nonresident aliens for tax purposes are subject to 30 percent withholding (unless an exception applies). Honorarium payments to resident aliens for tax purposes are subject to backup withholding at 28 percent if the recipient fails to provide a U.S. Social Security number (SSN) or individual taxpayer identification number (ITIN). Honorarium payments are reported on Form 1042-S for nonresident aliens and Form 1099-MISC for resident aliens.

All income tax treaties allow an exemption from tax for self-employment income as long as treaty conditions are met. For exemption from withholding, the recipient must submit a valid Form 8233 to the payer prior to payment.

Most Professors and Research Scholars generally will not qualify for treaty benefits for honorarium payments for one or more reasons:

• They have not maintained tax residency status in the treaty country. The treaties provide no exception for Professors and Research Scholars for this benefit.
• They have become resident aliens for tax purposes. Most treaties do not allow benefits to resident aliens on self-employment income.
• The treaty does not allow the benefit for self-employment income attributable to a fixed base (such as an office) in the United States.
• Their U.S. days of presence exceed the maximum number specified for this treaty benefit.

Nonresident aliens with self-employment income (including such income exempt from tax under a treaty) must submit a Form 1040NR tax return. Resident aliens must submit a Form 1040 but only if their worldwide income from all sources exceeds the applicable threshold.

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 5, Number 1 for "FICA Exceptions for J-1 Exchange Visitors."

Q: Is an honorarium payment made to a an individual in G-4 who has an employment authorization document treated the same as an honorarium made to a B visitor or J-1 Professor or Research Scholar?

A: Yes, self-employment income of individuals in G-status is subject to income tax in the same manner as that of B visitors and J-1 Professors and Research Scholars. The special tax law exemption for individuals sponsored by international organizations only applies to employment compensation paid by the sponsoring organization.

Honorarium recipients may be eligible for a tax treaty benefit if they meet the treaty conditions and submit a Form 8233 which includes an SSN or ITIN prior to payment.

2008 Nonresident Alien Tax Training Dates Announced

The dates and locations for Windstar’s 2008 Nonresident Alien (NRA) Tax Training workshops are final. The locations and dates are below:

April 22nd - April 25th
Embassy Suites Logan Airport
Boston, MA

August 5th - August 8th
Hilton Dedham
Dedham, MA

December 9th - December 12th
Hilton Dedham
Dedham, MA

Windstar's experts will provide substantive training on immigration rules related to paying foreign nationals, determining tax residency, the special withholding and reporting rules for wages, scholarship, and fellowship grants that apply to nonresidents, and exemptions from tax under the law and treaties.

Agendas will be available three months prior to each training. You can find complete registration and hotel cost information by visiting the NRA Training page of the Windstar website.

Learn More About Tax Navigator’s Web-based data collection module -- FNIS™ -- with a Free Web Demonstration

Windstar will offer a free web demonstration on the Foreign National Information System (FNIS) Wednesday, January 9th at 1:00 pm ET. Email Paul Carpinella at paul.carpinella@windstar.com to register.

FNIS is a web-based data collection and forms delivery module that saves time and increases accuracy of information for foreign national students, workers, and exchange visitors. FNIS allows the collection of data entered by foreign nationals via the web and transfer of this data into the International Tax Navigator®. In addition, organizations can deliver data and completed IRS forms from Tax Navigator to their FNIS website with ease. Foreign nationals can then view and print completed forms for signature and submission allowing for correct and timely processing of tax treaty exemptions

Don’t miss the opportunity to learn how to further streamline your NRA tax processing.

Newly Revised Windstar Users Website Launched

IRS Announces Streamlined Approach to International Tax Processing

The IRS has streamlined its approach to international taxation processing by creating increased cross-functional communication within the IRS. The new approach involves three strategic goals:

• Enhanced enforcements of tax laws - via improving examination coverage, strengthening information reporting, improving cooperation with treaty partners, encouraging tax professionals to adhere to tax laws, and detecting and deterring criminal financial activity occurring offshore and in cross border transactions.
• Improving taxpayer service - via enhancing customer service options, delivering targeted education to taxpayers, and investigating current forms and areas of confusion.
• Modernizing the IRS - via improving employee skills, improving reporting systems, and developing measurement systems to assess tax gaps and progress in reducing those gaps.

With the IRS' increased attention to this area, it is important to have a solid understanding of your responsibilities and proper practices. Windstar Publishing tax guidebooks can offer comprehensive resources for understanding these complex requirements. Visit shopping.windstar.com to view our full line of tax guidebooks.

Windstar Will Dock at These Trade Shows in 2008

The Higher Education Users Group (HEUG) Alliance 2008
MGM Grand Hotel
Las Vegas, NV
March 10th - 13th, 2008

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International Accounts Payable Professionals (IAPP) 18th Annual Forum
Manchester Grand Hyatt
San Diego, CA
April 20th - 24th, 2008

* * * * * * * * * * * * * *

American Payroll Association (APA) 26th Annual Congress
Austin Convention Center
Austin, TX
May 13th - 17th, 2008

* * * * * * * * * * * * * *

NAFSA 2008 Annual Conference and Expo
Washington Convention Center
Washington, DC
May 25th - 30th, 2008

* * * * * * * * * * * * * *

For the latest in trade show information, check in future issues of Crow's Nest or visit http://www.windstar.com/public/events.html.

©Copyright 2007 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.

Since 1995 educational institutions, hospitals, research institutions, and corporations have relied on Windstar Technologies, Inc. to deliver the expertise to comply with the U.S. tax residency rules, tax rates, and special tax exemption rules under the law and U.S. treaties.  When government agencies require information about foreign nationals in the workplace, Windstar provides straightforward analysis and reporting.  Comprehensive software for analysis and reporting, expert knowledge, and unparalleled customer service combine to make Windstar the first choice for nonresident alien tax compliance.

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