A vendor name or organization is required to have a tax ID assigned by the Internal Revenue Service (IRS). Accurately matching a vendor name or organization to its assigned IRS tax ID is critical as data transmitted to the IRS must be accurately matched to avoid penalties.
Request for Taxpayer Identification Number and Certification- Proof a vendor provided information about their tax status. If the information provided by a vendor is incorrect, RFCUNY may withhold taxes and avoid penalties with the IRS.
All new vendors, including independent contractors must have a W-9 or substitute W-9 on file with RFCUNY before payment is released. An exception can be made when a business pays an independent contractor less than $600 over the course of a tax year (businesses are only required to report payments of $600 and greater to the IRS on a 1099-MISC Form).
IRS Form W-7
Application for IRS Individual Taxpayer Identification Number- Used to apply for IRS individual tax payer identification number (ITIN). An ITIN is a nine-digit number issued by the IRS to individuals who are required (for U.S. tax purposes) to have a U.S. taxpayer identification number, but who do not have and are not eligible to receive a social security number.
If a vendor is unable to complete a W-9 due to lack of a social security number or tax ID, the individual may apply for ITIN/social security number. Additional information is available on the IRS website.
IRS Form W-8BEN
Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)- Provided to the withholding agent or payer if the person is a nonresident alien (NRA) who is the beneficial owner of an amount subject to withholding. A single owner of a disregarded entity is considered the beneficial owner of income received by the disregarded entity. Use the W8-BEN:
IRS Form W-8ECI
Certificate of Foreign Person’s Claim that Income is Effectively Connected with the Conduct of a Trade or Business in the United States- Certifies that a foreign individual’s income is linked to work performed in the U.S. If the organization's income is unrelated business income under Section 512 of the IRS Code (and, therefore, not tax exempt) such income may be exempt from withholding of the income. The income needs to be provided by a U.S. company to claim that unrelated business taxable income is exempt from withholding. If the income is recognized as taxable in the U.S., estimated tax payments must be made to the IRS based on the net income.
IRS Form W-8BEN-E
Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)- Used by beneficiary owners (businesses only) that claim to be tax residents outside of the U.S. Generally, a 30% U.S. withholding tax applies to payments of U.S. sourced income made to foreign persons. If the foreign person qualifies for benefits under an income tax treaty with the U.S., the withholding tax rate may be reduced. To qualify for benefits under an income tax treaty, a foreign person must satisfy the limitation on benefits (LOB) article of the treaty. LOB provisions are aimed at eliminating treaty shopping.
If a foreign entity qualifies for a reduced rate of U.S. withholding tax provided by a treaty, it must generally provide Form W-8BEN-E to the U.S. company making the payment. On Form W-8BEN-E, the foreign entity certifies under penalty of perjury that it qualifies for benefits under the relevant income tax treaty. Form W-8BEN-E is not filed with the IRS. Instead, the U.S. company making the payment retains Form W-8BEN-E to substantiate the reduced rate of withholding in the event of an audit.
IRS Form 8233
Exception Form Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual- Used to claim tax treaty withholding exemption for non-compensatory scholarship or fellowship income only if an individual is also claiming a tax treaty withholding exemption for compensation for personal services (including compensatory scholarship or fellowship income) received from the same withholding agent (RFCUNY).
B Visa Certification
RFCUNY B-1/B-2 Visa Holder Certification- Used to determine whether the foreign individual is a visitor.
Foreign Source Income Certificate
RFCUNY Foreign Source Income Certificate- Used to determine if services were performed outside the U.S. and if so, to ensure the services are not taxable to the foreign vendor.
Form 702 - Determination of Alien Tax Status
Used to determine the tax withholding rate of a Nonresident Alien.
Form 701 - Data Collection Form Scholarship/Fellowship
Used to determine if payment to a student abides by the IRS tax code as a scholarship, fellowship, or other grant that is tax free.
An informational report issued by the company making payment (RFCUNY) for each person to whom RFCUNY has paid during the year:
Additionally, Form 1099-MISC is used for each person from whom RFCUNY has withheld any federal income tax for under the backup withholding rules regardless of the amount of payment. The form is mailed to vendors at the end of January.
An informational report of tax withheld issued by the company making payment (RFCUNY) to a foreign student who has received scholarships that exceed their tuition and mandatory fees. The form is mailed to students in mid-March.
For tax purposes, it is important to properly classify a paid worker as an independent contractor. The accurate classification of a worker is required to avoid reclassification by the IRS as an RFCUNY employee. If a worker paid as an independent contractor is reclassified by the IRS as an RFCUNY employee, RFCUNY is liable for the amount of the federal income taxes it failed to withhold, in addition to the employer's and worker’s share of FICA taxes associated with that worker's compensation.
CUNY schools are responsible for conducting an initial assessment of the employment status of a hired vendor/individual. If an employer/employee relationship is found to exist between the worker and the college, the worker must be considered an employee, and payments for services are handled through the payroll system with applicable taxes withheld. If an individual is an independent contractor, payments for services will require the completion of necessary tax forms and contractor agreements.
If a payee is classified as a Nonresident Alien, it is necessary to determine whether the payment received is taxable. Payments to a Nonresident Alien require RFCUNY to withhold taxes and pay the taxes as scheduled by the IRS.
To properly classify a Nonresident Alien, a 1042-S form must be sent to an individual to report the amount that is subject to income tax withholding. Proper classification is also important for the purposes of including any income received in a 1099-MISC form (a year-end informational form for tax reporting purposes sent to payees receiving a wide range of payments including non-compensation payments for services). RFCUNY is liable for any tax and penalties as a result of non-compliance to tax laws.