Taxation of Wages

A student who performs a service or produces a product in exchange for pay receives "compensation" for his or her work and is generally considered to be an employee of the University. This employee compensation may take the form of wages or salary (depending on permanency, level of employee benefits, job duties, etc.). Wage and salary payments, in the University context, can be broken down further into such categories as student employment, work-study, teaching assistantships, and others. All such payments are processed through Payroll Services.

Payments received in connection with the past, present or future performance of services by a non-resident alien student are taxable income, subject to federal and state income tax withholding by the University unless a tax treaty applies.

If Wages Are Not Completely Exempt from Tax Based on Treaty

If no tax treaty exists or the treaty does not exempt the total amount of wages, the wages received by nonresident alien students are subject to the same graduated/progressive Federal income tax withholding tables to which U.S. citizens and residents are subject, with a few important and required exceptions. Federal and state income taxes are withheld throughout the year based on the Form W-4, Employee's Withholding Allowance Certificate, completed by the student through an appointment with the Tax Department. Nonresident alien students must follow a different set of instructions when completing the Form W-4 (discussed below). Even if an income tax treaty allows an exemption from withholding, a Form W-4 should still be completed because (1) the treaty exemption is never claimed on the Form W-4 and (2) treaty provisions may have dollar limitations.

Non-resident alien students who receive payments that are not completely exempt from income tax withholding under a tax treaty will receive a Form W-2, Wage and Tax Statement, from GW. Form W-2 is also provided to the IRS.

Tax Treaty Available

Students from countries that have a tax treaty with the U.S. that includes a wage article may claim exemption or a reduction of income tax withholding if the payment meets the requirements of the treaty and the student completes the required forms with the University's Tax Department. The taxes covered under a treaty exemption include Federal, Virginia, and/or D.C. tax. Maryland does not recognize tax treaties.

In order for the University to consider granting a tax withholding exception under a treaty provision, the student is required to complete IRS Form 8233, Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual (PDF). Additionally, students must complete a country-specific statement that details the terms of the treaty. Both forms, along with a list of applicable tax treaties, are available at the Tax Department.

The University has the right to reject a Form 8233 if it has reason to believe that such exemption is not warranted or if the form is completed inaccurately. In addition, the University will only accept exemption requests from students who are considered to be nonresident aliens under the Substantial Presence Test. GW will not make residency determinations under provisions of a treaty, will not administer treaty exemptions for resident aliens and will not issue Form 1042-S once a student is a resident alien under domestic law. If you believe that you continue to qualify for exemption from tax after becoming a resident alien, such claims become your responsibility. The University's responsibility is then to treat you primarily as it would a U.S. citizen. As a resident alien, you may claim "exempt" on Form W-4, subject to its conditions; but again, justifying the exemption before the IRS on Form 1040 (PDF) (or Form 1040NR series, if claiming exemption while a dual-status alien in year of departure) will be your responsibility.

Since Forms 8233 and the country-specific statement must be submitted by the University to the IRS for their review and approval, it is imperative that these and all other tax documents be completed at the time of hire to avoid, if possible, the withholding of tax or the delay of paychecks. Students must, however, have Social Security Numbers before any exemption from withholding can be granted. Payments, which are subject to the Form 8233 exemption, require a minimum of 10 days for processing. Form 8233 and the country-specific statement must be resubmitted to the IRS prior to the beginning of each year in which the student remains a nonresident alien and as long as treaty provisions apply.

The University reports wage payments, which are exempted from withholding based on an income tax treaty, on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for that portion of the payments. The income reported on the Form 1042-S will not be duplicated on Form W-2. Form 1042-S is also provided to the IRS.

Non-resident alien students are responsible for reporting their exempt and taxable payments and remitting any tax due with their personal income tax return at the end of the year on Forms 1040NR or 1040NR-EZ and the corresponding state forms.

Finally, non-resident alien students on F-1, J-1, M-1 or Q-1 status, who comply with the terms of their status, are exempt from FICA (Social Security and Medicare tax) on payments of wages for certain periods. Once a nonresident student becomes a resident alien, the general "student FICA" exemption will apply (discussed later).

Nonresident Alien Student Employee's Detailed Instructions for Completion of Form W-4:

DO NOT use the instructions on the front or back of the actual Form W-4. Those instructions, although not made entirely clear from the form itself, apply only to U.S. citizens and residents. The following instructions come from a combination of sources including U.S. statutes, regulations and income tax treaties.

Complete the bottom half of the Form W-4 in the following way (leave the top half of page 1 and all of page 2 blank):

Lines 1 and 2 - Local Address and Social Security Number. All student employees must have a U.S. Social Security Number. If you don't have one, you must apply for one in person at the U.S. Social Security Administration Office using Form SS-5, Application for a Social Security Card.

Line 3 - Every nonresident alien MUST check the Single marital box on this line (or the Married, but Withhold at Higher Single Rate box) - even if you are married. You may NOT check the Married box. This is required by statute because nonresidents are required to file their income tax returns, Forms 1040NR or 1040NR-EZ, separately from their spouse and children.

Line 4 - Check this box if it applies to you.

Line 5 - Every nonresident student MUST claim one (1) withholding allowance on Line 5, unless you are from:

• Canada or Mexico or are a U.S. National. Additional allowances are permitted for spouse (if married) and dependents (e.g., children);
• South Korea or Japan. Additional allowances are permitted for spouse (if married) and, generally, dependents (e.g., children) that live with you in the U.S.; however, if you have any income from non-U.S. sources, you must prorate additional exemptions. (See IRS Publication 519 (PDF) or the actual treaty for more information.)
• India. Students are generally permitted one additional allowance for the standard deduction, one for a spouse (if married) and one each for children who are U.S. citizens or residents.

The above exceptions for South Korea, Japan, and India are based on the respective tax treaties with those countries. The exceptions for Canada and Mexico are based on domestic U.S. Law. Even if you are eligible to claim more than one allowance on Line 5 based on the above rules, you must still check the Single box on Line 3. U.S. tax law requires this.

Line 6 - Every nonresident student, except for students from India, MUST request an additional amount of federal income tax withholding on Line 6 of Form W-4. Effective January 2000, the additional withholding for a bi-weekly pay period is $15.30 (double for monthly). Simply enter $15.30 on line 6. This is required by IRS administrative procedure because nonresidents are not permitted (by statute) to claim a standard deduction when filing their federal income tax returns, Forms 1040NR or 1040NR-EZ. The U.S.-India treaty permits qualified students a standard deduction, so they are not required to request the additional withholding.

Line 7 - Leave this line blank because this condition applies only to U.S. citizens and resident aliens.

NOTE: On the next line, employees must sign and date the form.

Line 8 - Leave blank.