Nonresident Alien Students Federal Tax Information Who is a Nonresident Alien (NRA)
A Nonresident Alien (NRA) is an individual who has not passed the Permanent Resident card test (green card test) or the substantial presence test. Tax status determinations are made using the Glacier Tax Compliance system. These determinations are based on an individual’s visa type and their presence in the United States. All international visa holders must have an active profile in Glacier to be in compliance with IRS requirements to receive payment.
Nonresident Alien (NRA) Scholarship and Fellowship Income
Scholarships
For tax purposes, Scholarships fall into two categories: qualified and non-qualified. Qualified scholarships provide funds that can only be used towards qualified educational expenses. The IRS defines qualified educational expenses as tuition, mandatory fees, and other related required expenses paid for an eligible student to enroll and attend an educational institution. Qualified scholarships are not taxable and should be paid through a student’s account. This exemption from tax withholding on qualified scholarship income applies to all recipients regardless of tax status.
Non-Qualified scholarships provide funds that have no restrictions on how the money can be applied. Any portion of a scholarship that is applied to expenses that are not considered qualified expenses is taxable and must be paid through the Payroll Services office. Non-qualified scholarship income is taxed at a flat rate of 30% for federal withholding. If the recipient is an F, J, or M visa holder, that rate drops to 14% for federal withholding. State taxes are also withheld based on the amount paid and the relevant tax tables. There may be tax treaty benefits that can be applied for some recipients based on their country of tax residency that would allow the payment to be exempt from federal withholding in accordance with the terms outlined in the relevant treaty article. To claim a tax treaty benefit, the recipient must have a valid U.S. social security or ITIN number.
Once a nonresident alien becomes a resident alien there is no longer any withholding obligation on their non-qualified scholarship income and it can be paid through their student account.
Fellowships
The IRS defines a fellowship payment as an amount paid to an individual for the purposes of study or research. The income from this type of payment may be used to cover any type of expense incurred. For a payment to be considered a fellowship payment there can be no services required of the recipient in order to receive the payment.
Fellowship income is always taxable to individuals that hold the tax status of nonresident alien (NRA) and must be paid through the Payroll Services office. Fellowship income is taxed at a flat rate of 30% for federal withholding. If the recipient is an F, J, or M visa holder, that rate drops to 14% for federal withholding. State taxes are also withheld based on the amount paid and the relevant tax tables. There may be tax treaty benefits that can be applied for some recipients based on their country of tax residency that would allow the payment to be exempt from federal withholding in accordance with the terms outlined in the relevant treaty article. To claim a tax treaty benefit, the recipient must have a valid U.S. social security or ITIN number.
Once a nonresident alien becomes a resident alien, there is no longer a withholding obligation on fellowship income, and it can be paid through their student account.
Tax Reporting
Federal withholding for non-qualified scholarship and fellowship income paid to NRA individuals is reported on the 1042-S form. State withholding for these types of payments is reported on the W2 form. Recipients will need both forms to complete their tax return accurately. W2 forms are issued by the state no later than January 31st and 1042-S forms are issued by the state no later than March 15th.
Additional Resources
Contacts
- UMD Payroll Services: 301-405-7477. cdiggs78@umd.edu
NRA Glacier Tax Compliance System
College Park uses the Glacier System for Non Resident Alien (NRA) Tax Compliance for most visa types.
Eligibility for Glacier
- Some protected statuses do not go through Glacier. These are: Deferred Action (DA), Asylee (AS), Refugee (RF), Temporarily Protected (TP), and Permanent Resident (PR).
- There are two different citizenship status forms (CSFs) for employees under a protected status. One is for Permanent Residents, and the other is for all other protected statuses (titled, “Glacier Exempted Visa Classifications”).
- Tip sheets are attached to these CSFs indicating what else are required from these individuals.
Glacier System Instructions for unit payroll representatives
To get the foreign national into the Glacier System, email Cara Diggs with the following information:
- Employee’s name
- Email address
- UID (not needed for honoraria payments)
Within 24-48 hours, a new hire record will be created in the Glacier system, and the new hire will receive an email with instructions for logging into the system, creating their profile, and completing payroll tax forms.
Once the new hire completes the system profile, he/she should print the forms and forward them to the unit payroll representative.
The payroll representative should review the packet and make sure:
- All forms are signed.
- The employee has properly completed the W4 form.
- All forms indicated on the tax summary report are present including copies of all necessary immigration forms.
Once verified, send the complete packet via mail to Payroll Services, Attn: Cara Bradley. Do not send W4s or any other forms separate from the Glacier packet unless previously discussed with Cara.