California State
University, Sacramento
Tax Compliance
Nonresident Alien Taxation
California State University Sacramento is committed to ensuring compliance
with applicable laws governing employment and payments to individuals who
are nonresident aliens. Departments making payments to nonresident aliens
must comply with established University procedures. Click on any of the
following payment types for a link to University forms and procedures.
Identifying Nonresident Aliens
Under U.S. tax law, all non-U.S. citizens are considered to be either “resident aliens” or “nonresident aliens.” A nonresident alien is temporarily present in the U.S. through the issuance of a visa. The IRS and the Treasury Department govern rules related to tax residency status. Nonresident aliens are required to pay federal taxes on their income from U.S. sources.
Federal and state laws require the University to withhold and report income tax from payments made to or on behalf of nonresident aliens (NRA). The Chancellor’s Office requires CSU campuses to comply with Internal Revenue Code, California Revenue and Taxation Code, and CSU policies and procedures regarding nonresident alien taxation issues. Failure by the University to withhold and report as required can lead to fines and penalties for the University.
Background
The Director of Exempt Organizations Division of the Internal Revenue Service (IRS) announced that the IRS was gearing up for a series of new audits in January of 2003. These audits were to focus on compliance with tax withholding and reporting obligations with respect to payments made to nonresident alien students, employees, and independent contractors.
This new audit focus is the result of what the IRS viewed as a very poor response to its voluntary compliance program (VCAP), which was operational from early 2001 to early 2002; only ten institutions participated in the program. The IRS had invited colleges and universities to disclose voluntarily any nonresident alien tax withholding or reporting deficiencies. In return, participating institutions would receive abatement of penalties and leniency in calculating taxes due.
With the poor VCAP participation, IRS took the position that either most institutions are in compliance with nonresident alien tax withholding and reporting obligations, or – as the IRS believes is more likely the case – numerous institutions that are not in compliance simply chose not to participate in the VCAP. As a result of this increased scrutiny, the IRS identified the CSU for inclusion in their compliance activities.
California State University Sacramento and nine other CSU campuses were notified by the IRS through written letter of inquiry in December of 2003. Four additional CSU campuses were notified by the IRS as being under audit.
California State University, Sacramento
Administration & Business Affairs
6000 J Street, Sacramento Hall 272
Sacramento, CA 95819-6038
(916) 278-6312
Updated June 2004