Tax Resources: Individual Payments
- Independent Contractor Payments
- Moving Expenses
- Temporary Living Expenses
- Payments to Nonresident Aliens
Independent Contractor Payments
Accounts Payable (AP), in accordance with Internal Revenue Service (IRS) regulations, must report to the IRS and be able to produce 1099 tax forms for non employees receiving payments or in-kind payments that in aggregate exceed $600. All individuals and organizations classified as independent contractors and requesting payment from UNF must complete IRS Form W-9 in Purchasing. UNF must determine if an individual providing services is an independent contractor (payment should be made via Purchasing and reported on Form 1099) or an employee (payment should be made via the Payroll Department and reported on Form W-2). Payments made to non-resident aliens are subject to special tax provisions and withholding under the Internal Revenue Code, thus, payments to nonresident aliens must be processed by the Payroll Department. Departments should carefully consider answers provided to questions on the form as any taxes, interest or penalties assessed by the IRS due to misclassification of an individual as an independent contractor, will be paid by the UNF Department authorizing the payment.
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UNF Departments may approve payment of moving expenses for new employees. Payments meeting the Internal Revenue Service (IRS) definition of a "qualified moving expense" will not result in taxable income to the employee. Payments of "non-qualified moving expenses" will result in additional taxable income to employees subject to federal income tax withholding and employment taxes (FICA & FATA). The following is a recap of the IRS definitions of qualified and non-qualified moving expenses and it is recommended that Departments refer to the procedures listed on the Purchasing and Accounts web pages for more complete details with regard to what may be allowable or not allowable.
Qualified Moving Expenses - IRS Definition
Qualified moving expenses will not be reported as wages if the expenses meet the following conditions are documented in the payment file:
- That the employee's new principal place of work is at least 50 miles farther from his former residence than was his former place of work, or if the taxpayer had no former principal place of work, is at least 50 miles from his former residence; and
- That the hiring department reasonably believes, at the time of payment or reimbursement of moving expenses, that during the 12-month period immediately following the employee's arrival in the general location of his new principal place of work, the individual will be a full-time employee, in such general location, during at least 39 weeks.
- Costs of moving must be reasonable (and not lavish or extravagant) and can include:
- Transportation and travel expenses representing the shortest and most direct route available from the former residence to the new residence. This must be done using a conventional means of transportation, in the shortest period of time that is commonly required to travel the distance.
- Cost of moving household goods and personal effects from the former residence to the new residence, and/or
- Cost of moving the entire family, including transportation and lodging from the former residence to the new residence. The employee and family may only make one trip from the old residence to the new residence, however they need not make the trip together or at the same time.
- The expenses must not include any meals.
- If the move represents commencement of work by the taxpayer at a new principal place of work located outside the United States and its possessions, reasonable expenses may also include those costs for moving household goods and personal effects to and from storage, and of storing such goods and effects for part or all of the period during which the new place of work continues to be the taxpayer's principal place of work.
- Employee must provide UNF with a receipt for all expenses.
Non-Qualified Moving Expenses - IRS Definition
Expenses other than qualified employer-provided moving expenses are taxable fringe benefits subject to FICA, FUTA, and federal income taxes.
Examples of non-qualified moving expenses include:
- Temporary living expenses incurred in the general area of the new workplace while waiting to occupy the new residence or waiting for household furnishings to arrive;
- House-hunting and apartment-hunting trips;
- Expenses of trips to the locale from which the taxpayer moved that are made to sell property;
- Costs incurred to visit family at the former residence before the family's move;
- Meals during travel; and
- Mileage in excess of IRS limitations - (NOTE: current IRS rate is $0.14/mile (see IRS Rev. Proc. 2003-76) for moving expenses paid or incurred on or after January 1, 2004. NOTE: Allowable state mileage reimbursement rate may be lower than the IRS allowed rate.
IRS Form W-2 Reporting Requirements for Moving Expenses
- Qualified moving expenses made directly to a third party (i.e., authorized moving van company) are excluded from an employee's taxable income and are not reported on Form W-2.
- Qualified moving expenses made directly to an employee are excluded from taxable income but must be reported in Box 12 of Form W-2 indicated with code 'P'.
- Non-qualified moving expenses are considered taxable income and must be reported in Box 1 of Form W-2, subject to FICA, FUTA, and federal tax withholding requirements.
- Payments made to non-resident aliens must be reported on IRS Form 1042-S. All moving expense payments made on behalf of a nonresident alien must be reported to the UNF Payroll Department.
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Temporary Living Expenses
UNF is required to follow IRS rules to determine if payment or reimbursement of living expenses to employees must be included in taxable wages. Payment or reimbursement of living expenses to an employee on a temporary work assignment is excluded from taxable income while payment to an employee on an indefinite work assignment must be included in taxable wages. IRS rules define a temporary assignment as one that is initially expected to last (and does in fact last) one year or less. An indefinite work assignment is one that is realistically expected to last more than one year. Please contact the Payroll Office for further guidance regarding the taxation of fringe benefits.
As explained in IRS Publication 463, UNF must determine whether an employee's assignment is temporary or indefinite as of the date work begins.
- An assignment or job expected to last for one year or less, is temporary unless there are facts and circumstances that indicate otherwise.
- Employment expected to last more than one year will be treated as indefinite, regardless of whether the employment exceeds one year.
- An assignment or job that is initially temporary may become indefinite due to changed circumstances.
- A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.
The following examples illustrate whether an assignment or job is temporary or indefinite:
You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Because of a shortage of work, you took a job on a construction project in Fresno. Your job was scheduled to end in 8 months. The job actually lasted 10 months.
You realistically expected the job in Fresno to last 8 months. The job actually did last less than 1 year. The job is temporary and your tax home is still in Los Angeles. This example qualifies as a temporary assignment, and temporary living expenses paid by employer may be excluded from employee's taxable income.
The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. The job actually was completed in 10 months.
Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. This example does not qualify as a temporary assignment, thus living expenses paid by employer must be included in employee's taxable income.
The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months).
Initially, you realistically expected the job in Fresno to last for only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for one year or less. Living expenses paid by employer for the first 8 months of the job are considered temporary and may be excluded from the employee's taxable income (as employment is not expected to last more than one year). However, living expenses paid by the employer after expectations changed (it was realistic to expect employment would last for more than one year) are considered indefinite and must be included in the employee's taxable income.
What travel expenses may be reimbursed by the employer as a temporary living expense?
Temporary living expenses include ordinary and necessary expenses incurred when traveling away from home on business. These must be evaluated closely depending on the particular facts and circumstances.
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Payments to Nonresident Aliens
The University of North Florida is required to withhold U.S. income tax at the time a payment is made to a nonresident alien or to a third party on his or her behalf. If the taxes are not properly withheld from Nonresident Aliens payments, the University can be held liable for the tax that is not withheld and any penalties that may be imposed by the IRS. The following list is the types of payments to Nonresident Aliens that need to be analyzed to determine if taxes are to be withheld or not withheld:
- Wages, salary or compensation
- Independent Contractor Payments
- Book allowances
- Living expenses
- Honoraria for Guest speaker fees
- Travel Reimbursement