Reimburse an Independent Contractor

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An independent contractor is a person who is contracted to perform services without having the status of an employee.

Classifying an Independent Contractor

It is illegal to knowingly classify an employee as an independent contractor in order to avoid Affirmative Action recruitment efforts, and/or to avoid payments such as employment taxes and fringe benefits. The IRS imposes fines and penalties for misclassification of service.

A previous determination received from the IRS places specific classes of individuals in two different categories — independent contractor or employee. This list is not meant to be all inclusive, but highlights some of the major classes of individuals.

Independent Contractors Employees

Includes the following:

  • Research study volunteers and professional workers
  • Referees
  • Umpires
  • Sports camp counselors
  • Dental hygienists
  • Broadcasters
  • Coaches
  • Interpreters
  • Fellowships
  • Consultants
  • Theater set or costume designers
  • Composers
  • Construction personnel
  • Professionals engaged in employment outside the University (e.g., physicians, attorneys, engineers, architects)
  • Lecturers and instructors from outside of Buffalo
  • Persons providing professional services (e.g., persons who devise scientific testing procedures)

Includes the following:

  • Computer or keypunch operators working on research studies
  • Clerical workers
  • Graduate student employees and teaching assistants
  • Theater actors
  • Professionals not engaged in employment outside the University
  • Persons performing clerical and computer programming services

Reimbursing an Independent Contractor

Complete and submit:

  • A Disbursement Request form
  • A W-9 (Request for Taxpayer Identification Number)
  • The Independent Contractor Questionnaire form

for payment to someone who is an Independent Contractor (and is not an employee of UB, the Research Foundation or UBF).

This process is necessary in order to establish the relationship with the individual as being independent of an employer-employee type which would subject the payment to payroll taxes. An employee is defined as an individual who performs services for which the employer controls the method of what will be done, how it will be done, and the result of the services. Generally, people in business for themselves are not employees.

International Individuals Performing Services as Independent Contractor

Process

There are varying requirements to provide payments or reimbursements to people who are in the U.S. under a visa, depending (in part) on the person’s exact status, and whether or not there is a tax treaty between the U.S. and that person’s home country.

Procedure

Various requests are submitted to provide payments for service or expense reimbursements to guest lecturers and other visitors/students who are in the U.S. under a visa.

The Internal Revenue Service continues to impose more restrictive regulations relative to payments to non-citizen independent contractors. The following information is required in order to process a payment to a foreign individual.

Instructions for Reimbursing an International Independent Contractor

A Disbursement Request Form and Independent Contractor Questionnaire Form must also be completed and submitted for international independent contractors.

Step 1.

Every individual will have either a visa or I-94 Form. These forms determine if the independent contractor is entitled to reimbursement for services and/or expenses. In order to be reimbursed the individual should have the following:

  • B-1 or Combined B-1/B-2 Visa — This is a visitor for business visa and allows a payment which takes the form of a subsistence allowance for performance of temporary services, reimbursement of travel expenses, meals and accommodations or a payment for services that does not exceed travel and living costs.
  • WB Visa Class noted on Form I-94 — The U.S. government has implemented a Visa Waiver Program with various foreign countries. Under this program, an alien individual normally classified as a B-1 or B-2 visitor is admitted without a visa provided that criteria outlined under the visa waiver program are met. The immigration office will stamp the I-94 form using one of two codes. A WB, or waiver for business code allows the same reimbursement as a B-1 visa noted above.
  • TN Visa Class noted on Form I-94 — Under the North American Free Trade Agreement (NAFTA), nonresident aliens from Canada or Mexico can claim NAFTA status. Certain Canadian or Mexican business professionals are allowed temporary entry into the U.S. to participate in activities that require the individual have a baccalaureate degree or other appropriate credentials which indicate professional activities. These activities must be a prearranged activity for a U.S. business. It does not allow the individual to establish a business practice in the U.S. The individual will present this information to the immigration officer at the time of entry and the I-94 will be stamped with a TN. A TN status allows an individual to be paid as an Independent Contractor but not an Honoraria payment.
  • Mexican Border Crossing Card (Form I-186 or I-586) which allows the same reimbursements as a B-1 visa holder.

This information should be documented by completing the Determination of Residence Status for Federal Tax Withholding form and when the payment represents an Honoraria, the Request For Alien Information and Certification of Eligibility for Payment of Honoraria form (these forms should be completed by the individual to be paid) and should be submitted with a copy of the appropriate visa or I-94 page attached.

Step 2.

After identifying that the visa status will allow for payment to be made, the following forms are needed:

a. If there is a TAX TREATY between the U.S. and the individual's country:

  • Form W-8 BEN and the Determination of Residence Status for Federal Tax Withholding form which identifies the individual as a nonresident alien who is not subject to certain U.S. information return reporting or backup withholding.
  • Form 8233 (instructions) which determines the income tax status of the individual. This form is to be completed by the individual. It gives them the opportunity to avoid or minimize withholding under the provisions of the applicable tax treaty. The form should then be signed by an authorized account signatory in the spot provided for Withholding Agent Certification. Once complete, the form should be submitted to the UBF offices where it will be filed with the IRS. Once submitted to the IRS, UBF must wait a minimum of TEN BUSINESS DAYS before payment can be made. All questions must be completed, so N/A or a similar response should be entered if the question does not apply. Any applicable taxes will be withheld at the rate specified by the treaty.

NOTE: Information on the Tax Treaties can be obtained from IRS Publication 901, U.S. Tax Treaties.

b. If there is NO TAX TREATY between the U.S. and the individual's country, Form W-8 and the Determination of Residence Status for Federal Tax Withholding form which identifies the individual as a nonresident alien who is not subject to certain U.S. information return reporting or backup withholding. When there is no tax treaty in place, UBF must withhold 30% of the payment and remit it to the IRS. This withholding applies to both payment for services as well as travel related expenses. The individual may be able to receive a refund of this amount from the government at the end of the year.

Step 3.

In 1996, the IRS issued final regulations which required that resident and nonresident alien individuals obtain an individual taxpayer identification number (ITIN). IRS Form W-7 is available to apply for this number. This number will also be required on Form 8233 when it is submitted to the IRS. Hence, this ITIN number must be obtained before the Form 8233 can even be submitted to the IRS and the delay in payment once the Form 8233 has been submitted remains in effect as described in Section 2a above.

Reimbursing Travel Expenses

Following the IRS accountable plan guidelines, travel expenses can be reimbursed to a foreign individual upon receipt of the following information:

  • A copy of the individual’s I-94 or visa form which indicates the visa status (B-1, B-2, W-B, WT, TN, JI).
  • Original receipts for expenses for which reimbursement is requested. If original receipts are not submitted, the reimbursement is treated as payment for Independent Personal Services and the procedures detailed in the section above must be followed.

Making a Wire Transfer

In some instances payment for goods or services can be facilitated via wire transfer.

The Wire Transfer form has been provided by the bank in order to insure that wire transfer requests can be completed in an accurate and timely manner. It must be filled out completely (especially Bank Wire Number) and submitted in order to complete a wire transfer. Please note that this form must be typed.

The bank charge of $10.00 for this wire transfer service will be charged to the same account.

Contact an Expert

Rose Dommer

Accounts Payable Manager

UB Foundation

Phone: 716-645-8749

Email: rdommer@buffalo.edu

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