Foreign Employees and
Foreign Vendors
Federal Tax Withholding Form
and Procedures
WHY DO YOU NEED TO KNOW
THIS?
Foreign vendors such as international guest
speakers, consultants, etc. may be
contracted for an STC event.
Foreign vendor companies may be used to
buy goods or services.
Foreign employees may be hired.
FOREIGN PERSON
 Non resident alien individual; Foreign corporation;
Foreign partnership; Foreign trust; Foreign estate; and
any other person that is not a US person
 May be subject to Nonresident Alien tax withholding.
 Taxed differently than payments made to U.S. citizens or
resident aliens.
 U.S. withholding agents are required to generally withhold
30% from the gross payment to be made to foreign vendors for
U.S. sourced income unless the country of the foreign vendor
has a tax treaty with the U.S. that will allow for a reduced
withholding rate.
 May be subject to Nonresident Alien tax reporting.
RESIDENT OR NONRESIDENT
ALIEN (INDIVIDUALS ONLY)
 Taxed differently and therefore, determining ones tax
status prior to payment is essential to accurately
report the individual’s tax liability to be in compliance
with IRS tax laws.
 Nonresident Alien
 Individual who is not a U.S. citizen or a resident alien.
 Taxed under special laws – NRA withholding
 Resident Alien
 Individual who is not a citizen or national of the U.S.
 Meets the green card test or the substantial presence test for the
calendar year.
 Taxed the same as U.S. citizens
RESIDENT ALIEN
 Foreign person may be a resident alien by meeting
either the Green Card Test or the Substantial Presence
Test for the calendar year.
Green Card Test
Individual was a lawful permanent resident of the US at any
time during the year.
Substantial Presence Test
Must be physically present in the US at least:
 31 days during the current calendar year
 183 days during the current year and the 2 preceding
years counting
 all the days of physical presence in the current year
 1/3 the number of days of presence in the first
preceding year
 1/6 the number of days in the second preceding year
TAX RESIDENCY
 BO-3420 Form - Foreign Status for Federal Tax Withholding
 Obtained from the Business Office website
 Must be completed and submitted to the Business Office to
determine tax residency.
 Completed by foreign individuals only.
 Completed prior to STC payment, preferably during time of
hiring/contract agreement with STC.
 Visa and immigration documentation must be provided.
TYPES OF PAYMENTS AND TAX
AND REPORTING REQUIREMENTS
 Goods/Products – Not subject to U.S. tax reporting or withholding.
 Personal Services (i.e. independent personal services,
honoraria)
 Services provided in the U.S. - subject to U.S. tax reporting and
withholding when applicable.
 Services provided outside the U.S. - considered foreign source
and not subject to U.S. tax reporting or withholding.
Note: Honoraria payments require eligibility. BO-9300 Honoraria
Eligibility Certification Form must be completed.
 Royalties (i.e. software)
 Software or information downloaded onto a U.S. server – U.S.
source income subject to U.S. tax reporting and withholding
when applicable.
 Software or information downloaded in a foreign country server foreign source income and not subject to U.S. tax reporting or
withholding.
TAX TREATIES
 The withholding tax rate may be eliminated or
reduced if the foreign vendor employee is a
resident in a country that has a tax treaty with the
U.S.
 Foreign vendor must provide Form W-8BEN to
claim an exemption or a reduced rate of
withholding.
FOREIGN VENDOR PROCEDURES
1. Prior to agreement/vendor payment – the department engaging
the foreign vendor reviews and makes copies of documentation to
verify that the vendor’s status allows for payment to be received.
2. Department notifies foreign vendor of tax withholding and
reporting implications.
3. Department contacts Purchasing and BO Tax departments
regarding these payments.
4. Proper forms (i.e. Form W-8BEN) and other documentation is
submitted to Purchasing department.
5. Purchasing will review documentation for completion and approval
for purchase. Copies of documentation must be provided to BO
Tax and Accounts Payable.
 FOREIGN INDIVIDUALS PAID THROUGH A/P PROCEDURE Purchasing and BO will review documentation for completion
and approval for entering into an agreement. Copies of
documentation must be provided to BO Accounts Payable.
6. BO Tax will confirm tax withholding and/or reporting and provide it
to BO Accounts Payable. If further information is needed the BO
will inform Purchasing or the Department for appropriate
information to obtain from vendor.
7. The BO Accounts Payable will withhold taxes according to tax
residency status.
FOREIGN EMPLOYEES
 Foreign employees must fill out BO-3420 if they indicate
on their I-9 that they are “other aliens authorized to work
until mm/dd/yyyy”.
 HR will contact the BO tax department regarding foreign
employees.
 Form BO-3420 along with supporting documentation must
be submitted to the BO for tax determination. If further
information is needed the BO will inform HR for
appropriate information to obtain from employee.
 The BO Tax services will contact HR on employee status.
 HR will tax employee according to tax residency status.
 The BO Tax services provides HR and Payroll with
supporting NRA status.
FURTHER GUIDANCE
Further guidance may be obtained in the
Business Office website under Business
Office Procedures:
“Foreign Vendors or Foreign Individuals Paid
Through Accounts Payable Guidelines”
THANK YOU
Delia Orellana
Accounting Group Supervisor
dorellan@southtexascollege.edu
872-4622