Payment Procedures for Personal Services/Independent Contractors
Review the information below to determine the correct tax status and payment method for your vendor. Use the Independent Contractor Or Employee? Form. Attach electronically to your requisition. The form can either be preapproved by the University Tax Accountant, or you can ad hoc the requisition to Joey Saxon (rjs0001) for approval. For an individual with a tax status that is not a U.S. citizen, complete and attach the Foreign National Information Form.
Questions concerning these procedures should be directed to the University Tax Accountant in the Payroll Office (ext. 5500).
Any individual or company receiving payment for goods or services is required to provide a valid Social Security Number (SSN), an Individual Taxpayer Identification Number (ITIN), or a Federal Employer's Identification Number (FEIN) in the case of a corporation or partnership. The IRS Form W-9 is not required unless the University is notified by the IRS that the number given is incorrect or that the payee is subject to backup withholding. If the payee is a foreign company or a foreign individual (non-resident for U.S. tax purposes), contact the University Tax Accountant in the Payroll Office to determine the appropriate IRS Form to be completed.
The department should determine the independent contractor’s residency status for U.S. tax purposes before services are rendered. If the individual is a foreign national (either a resident alien green card holder or non-resident alien), the Foreign National Information Form must be completed and sent to Payroll prior to processing the purchase order or one must be on file in Payroll from a previous payment. If the foreign national's U.S. tax status changes from the date the original Foreign National Information Form was submitted, a new form must be completed, signed and forwarded to Payroll.
Employee/Employer Relationship - Common Law Rule (IRC Regulation 31.3401)
A worker is an employee under common law rules if the person for whom the work is performed has the right to direct and control the worker, both as to the final results and as to the details of when, where and how the work is to be done. Where the employer does not possess that right, the individual involved is an independent contractor, not an employee.
Key Factors Indicating Independent Contractor Status
- The University does not possess the right to instruct the person about how the work is to be performed versus an employee who must comply with instructions about when, where and how the work is to be performed.
- Independent contractors ordinarily use their own methods and receive no training from University personnel.
- An independent contractor may hire, supervise, and pay other workers under a contract.
- Independent contractors generally set their own work schedules and are responsible only for the end results.
- Independent contractors are normally paid by the job in a lump sum or on a commission basis. Payment by the hour, week, or month at frequent intervals or on a continuing basis is a strong indication that the worker is an employee and not an independent contractor.
- The independent contractor is free to work when and for whom he/she chooses marketing their services to the general public.
- Independent contractors normally furnish their own tools and materials.
- An independent contractor is generally in a position to realize a profit or suffer a loss as a result of the services performed. Opportunity for profit or loss may be established factors, among the most important of which are the following:
- continuing recurring liabilities or obligations, with success or failure depending on the relationship of receipts to expenditures;
- the individual’s services establish or affect his/her business reputation and not the reputation of those who purchase the services;
- the individual has his/her own office, equipment, materials, or other work facilities.
- An independent contractor cannot be fired so long as the results meet the conditions of the contract.
- An independent contractor usually agrees to complete a specific project and is responsible to do so satisfactorily or is legally obligated to make good on the failure to do so. An employee can quit a job without incurring liability.
Independent Contractor Or Employee? Form Exceptions
The University has identified the following professional services performed by non-employees as definitive independent contractor payments that do not require completion of the Independent Contractor Or Employee? Form. NOTE: This form is not applicable to payments for workshop participant fees paid or research participant fees paid from contract or grant funds. These types of fees are not independent contractor services according to IRS rulings; however, all amounts paid to an individual should be included on the individual’s personal income tax return. Amounts paid to an individual by UNT totaling $600 or more during a calendar year will be reported to the IRS as other income on a 1099-MISC form.
- Guest speakers
- Guest classroom lecturers (5 days or less)
- Guest artists and performers
- Financial and legal services Athletic game officials
- Rental services – facilities, equipment & tapes
- Medical services
- Interscholastic League judges and assistants
- Accreditation evaluation services
Contractors providing any types of professional services not specifically mentioned above will be required to complete the Independent Contractor Or Employee? Form and to attach it to the purchase order. Services requiring the submission of the Independent Contractor Or Employee? Form must first be approved by the University Tax Accountant, located in BSC Payroll, before the Purchase Order is submitted to the Business Service Center or Grant Accounting (in the case of a sponsored contract or grant account) for payment. After a review of the individual’s responses to the questions on this form, it may be necessary to classify the payment as an employee relationship. In this case, the payment would have to be submitted on a HRM form and processed through the Payroll Office with applicable taxes withheld. This requirement is established in accordance with IRS Revenue Ruling 87-41.
Any person who is a current employee or who has been an employee of the University during the past twelve months cannot be paid as an independent contractor on a purchase order. Payment must be made through Payroll and appropriate taxes will be withheld. Reimbursement for any goods associated with the service for which the employee is being paid can be made, with appropriate documentation, using the check request process. NOTE: This paragraph refers to goods and services only. Royalties and other payments for intellectual property are covered in another policy.
Currently payments representing only reimbursements of documented travel expenses (receipts required) are not subject to IRS 1099 or 1042-S information reporting requirements. If the payment, however, includes both a reimbursement of travel expenses and a professional fee or honorarium, only the fee portion is subject to IRS 1099 or 1042-S reporting. Travel expenses that are not substantiated with receipts will be treated as compensation and reported to the IRS as income. Unsubstantiated travel for foreign nationals will be taxed at a 30% withholding rate as required by the IRS.
Payments to Foreign Nationals (Non U.S. Citizens)
In order to make a payment to a permanent resident alien (green card holder), a resident alien for tax purposes, or a nonresident alien for tax purposes, the IRS requires that the individual must have either a social security number or an individual taxpayer identification number (ITIN). Please refer to the University’s FOREIGN NATIONAL PAYMENT PROCEDURES. This document can be obtained by contacting the University Tax Accountant, located in BSC Payroll. Please review the GENERAL INFORMATION section and the discussion on Independent Services (Outside Contractors) in those procedures.
Nonresident aliens performing independent contractor services for the University should be advised to obtain a social security number or Individual Taxpayer’s Identification Number (ITIN) immediately upon entering the U.S. if they do not already have one. The UNIVERSITY cannot pay any individual unless we have a number or proof (receipt from the issuing agency) that application for a number has been made.
Departments are advised to check the individual’s visa status PRIOR to negotiating for any services and/or payment terms. Some visa types are very restrictive in the type of payment and/or by whom it can be made (visa type information is available in the FOREIGN NATIONAL PAYMENT PROCEDURES document --ATTACHMENT I of that document). Questions should be directed to the University Tax Accountant in the Payroll Office.
In an effort to obtain certain documentation required by the IRS for payments to non-U.S. citizens, all foreign national independent contractors providing services to the University must complete AND sign the Foreign National Information Form and submit this form with the required copies of immigration documents to the Payroll office IN ADVANCE of processing the purchase order. An incomplete form or a form submitted without the proper attachments will delay payment to the independent contractor. A new form must be completed and immigration documents must be submitted each time services are provided. Please note on the purchase order that a Foreign National Information Form has been submitted to Payroll.
All payments for independent contract services will require certain forms as attachments to the purchase order, depending on the type of services provided and the U.S. tax status of the contractor. See the table below.
Departments should have all the required forms available for the provider of services to complete and sign while they are still on campus or well in advance of the payment process, particularly if they are foreign nationals. DEPARTMENTAL FACULTY OR STAFF ARE NOT PERMITTED TO COMPLETE AND SIGN THESE FORMS.
PAYMENTS FOR PERSONAL SERVICES REQUIRED FORMS & ROUTING INSTRUCTIONS BASED ON U.S. TAX STATUS
|US Tax Status||UNT Purchase Order Submit to PPS||Foreign National Information Submit to Payroll||Independent Contractor or Employee Submit to Payroll|
|US Citizen||yes||no||see # 2 below|
|Permanent resident alien (green card holder)||yes||yes, see #1 below||see # 2 below|
|Resident alien for tax purposes||yes||yes, see #1 below||see # 2 below|
|Nonresident alien for tax purposes||yes||yes, see #1 below||see # 2 below|
- A Foreign National Information Form must be completed and submitted with immigration documents to the Payroll Office each time services are provided to the University. Indicate on the face of the purchase order that this form has been submitted to Payroll. Contact the University Tax Accountant in the Payroll Office to determine the appropriate IRS Form (W-8 or 8233) the payee should complete. The form must be submitted whether payment is made directly to the individual or to another party on their behalf.
- Any payments for personal services that are NOT one of the previously mentioned independent contractor exception categories will require that the service provider complete and sign the Independent Contractor Or Employee? Form each time a new service is provided. If it is a contract involving multiple payments, this form will be required only for the initial payment for each new contract. This form and all the other required forms, including the purchase order, should be sent directly to the University Tax Accountant in BSC Payroll.