Learn about 1042 Tax Withholding for Nonresident Alien Individuals
Learn how tax is withheld from wages, non-service scholarships, honoraria for nonresident alien individuals and foreign corporations.
Just as the University is required to do for all U.S. citizens and resident aliens, we are required to withhold taxes on the U.S. source income of a nonresident alien individual.
Tax treaties may reduce or eliminate tax withholding. See the income tax treaty section below to see if a foreign individual may qualify for this type of benefit. If the individual does not qualify, standard tax withholding is as follows:
Employment compensation is taxed at graduated rates. There are special
withholding rules for employees from Canada, Korea, Mexico, the North Marianna
Islands, American Samoa, and students from India.
Non-service scholarship, fellowship, or stipend payments are made to assist someone in pursuing a course of study or research. These payments made to foreign
visitors may include a combination of the following:
- Tuition, required fees, books, and course-related materials;
- Stipend for living expenses, including meals, lodging, travel, and other personal items;
- Medical insurance premiums paid to insurance companies; and
- Airfare purchases from airline companies or travel service providers.
Amounts paid to individuals as qualified scholarships or fellowships can only be excluded from taxable income if the following requirement is met:
- The non-service scholarship or fellowship is designated to pay for:
- tuition and fees required for enrollment or attendance at CU, or
- other required fees, books, supplies, and equipment needed by all students in a particular course of study.
All other scholarships, fellowships or stipends that do not meet the above criteria are taxable to the recipient. Post-doctoral fellowship awards are made to individuals to further their pursuit of a course of study or research beyond the doctoral level; therefore, the entire post-doctoral fellowship award must be included in taxable income.
Standard tax withholding rates for a non-service scholarship or fellowship are:
- F, J, M and Q immigration status – 14% tax rate; or
- Other non-immigrant statuses – 30% tax rate.
Payments for Services Delivered in the United States, Royalties, Awards, Prizes, and other payments
- 30% tax rate
The University is required to withhold tax on the U.S. Source income of a foreign entity. Income tax treaties may reduce or eliminate tax withholding. See the income tax treaty section to determine if a foreign entity may qualify for this type of exemption. If the entity does not qualify for a tax treaty exemption, tax must be withheld at a 30% rate.
Visit the Internal Revenue Service for more information (including 1042 forms) about withholding of tax on nonresident aliens and foreign entities.