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As a global institution, our university regularly engages with individuals from around the world, whether as employees, students, researchers, lecturers, or vendors. With that global reach comes the responsibility to comply with U.S. tax laws that apply specifically to nonresident aliens (NRAs).

This article provides a foundational overview of NRA taxation and introduces a series of upcoming resources that will explore specific scenarios relevant to our campus community.

What Is a Nonresident Alien?

For U.S. tax purposes, a nonresident alien (NRA), is an individual who is not a U.S. citizen and does not meet the criteria to be treated as a resident for tax purposes.

Residency for tax purposes is determined primarily by two tests:

• Green Card Test: Individuals who have been granted lawful permanent resident status (a 鈥済reen card鈥�) are generally considered U.S. residents for tax purposes. 
• Substantial Presence Test: Individuals who are physically present in the U.S. for a certain number of days over a three-year period may also be considered residents for tax purposes. 

If neither test is met, the individual is typically classified as a nonresident alien for tax purposes.

Why NRA Taxation Matters

Nonresident aliens are subject to different tax rules than U.S. citizens and residents. These differences affect:

• How income is taxed 
• What forms must be completed 
• Whether tax withholding applies 
• Eligibility for tax treaty benefits 

Failure to properly classify and tax payments to NRAs can create compliance risks for both the individual and the university.

Types of Payments That May Involve NRAs

At our university, NRA tax considerations commonly arise in connection with:

• Faculty and staff hires, including international scholars and researchers 
• Students, including scholarships, fellowships, and student employment 
• Accounts payable vendors, such as guest speakers, performers, and consultants 
• Visiting professors, researchers, or clinicians or short-term academic contributors  

Each of these categories may be subject to different tax treatment and reporting requirements.

Key Concepts in NRA Taxation

To understand NRA taxation, it鈥檚 helpful to be familiar with a few core concepts as we begin:

• U.S.-source vs. foreign-source income: Generally, NRAs are taxed only on income that is sourced within the United States (physically earned in the U.S.). 
• Effectively Connected Income (ECI): Income connected to a U.S. trade or business (such as wages) is typically taxed at graduated rates (a tax structure where the tax rate (percentage) increases as the taxable amount, such as income, increases). 
• Fixed, Determinable, Annual, or Periodical (FDAP) income: Certain types of passive income (such as  royalties) may be taxed at a flat rate, often 30%, unless reduced by a tax treaty. 
• Tax treaties: The U.S. has agreements with many countries that may reduce or eliminate certain taxes for eligible individuals. 

University Responsibilities

As a public institution, the university has specific obligations when making payments to NRAs:

• Determine tax residency status before issuing payments 
• Apply appropriate tax withholding based on the type of income 
• Collect required documentation (such as tax forms and immigration information) 
• Report payments to federal agencies, including issuing forms such as Form 1042-S 

These responsibilities require coordination across departments, including HR, payroll, accounts payable, and departments.

What鈥檚 Coming Next in This Series

This article is the first in a series designed to help our campus better understand and manage NRA tax issues. Upcoming topics will include:

• NRA Taxation for Faculty and Staff
  (Hiring, payroll taxation, and treaty benefits) 
• NRA Payments Through Accounts Payable
  (Honoraria, guest speakers, and independent contractors) 
• NRA Tax Considerations for Students
  (Scholarships, fellowships, and student employment) 
• Tax Treaties and Documentation Requirements
  (How to determine eligibility and apply benefits) 
• Common Compliance Pitfalls and Best Practices 

Final Thoughts

NRA taxation can be complex, but understanding the basics is an important first step in ensuring compliance and supporting our international community. By building awareness across campus, we can help ensure that payments are processed correctly, individuals are taxed appropriately, and the university meets its regulatory obligations.

Questions

For questions about NRA taxation, contact financecustomercare@ohio.edu for guidance, withholding, forms, or compliance related matters.