Research Corporation of the University of Hawaiʻi

Tax Treatment of Compensation (Services, Rents, and Royalties) Decision Tree
This decision tree provides a summary of the tax reporting and withholding requirements for compensation paid for services, rents, and royalties. RCUH Policy 2.007 Tax Treatment of Compensation (Services, Rents, and Royalties), provides more detailed guidance and, therefore, must be read in conjunction with this decision tree. All payments made to UH students and post-doctoral fellows are required to be processed through UH.
If you are not compensating an individual or entity for services rendered, rents, or royalties, refer to Policy 2.005 Identifying the Type of Expenditure for Purposes of Determining Tax Treatment, for additional guidance.
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Is the payment for compensation related to one of the following? 1. Fees for services provided:
a. Payments to consultants/professionals/other independent contractors. No b. Honorarium payments.
2. Rents:
a. Real property and equipment rentals. b. Database rentals.
3. Royalties (to the owner of intangible property):
a. Paid to vendors for the right to use, publish, or otherwise distribute their works. b. Software program royalties.
Yes
Is the recipient a:
1. U.S. citizen, permanent resident alien (PRA),
resident alien (RA), or U.S. entity; or
2. Nonresident alien (NRA) individual or foreign
entity?
U.S. citizen; PRA; RA; U.S. entity
Use a purchase order (PO). The PO should be in the name of the individual or entity who is the beneficial owner of the income (responsible for the taxation of any income).
ServicesandRents:
o All payments must be reported on an IRS Form 1099-Misc if the annual cumulative payment is $600 or greater.
Royalties:
o All payments must be reported on an IRS Form 1099-Misc if the
annual cumulative payment is $10 or greater. ReportingisNotRequiredfor:
o Payments to corporations unless it’s for attorneys’ fees or medical/healthcare.
o Payments to real estate agents. RequiredDocumentation:
o Individuals:
 IRS Form W-9 for U.S. citizens or PRAs (if paid only for
services, rents, or royalties, and no expenses).  UH Form WH-1 :
• U.S.citizensorPRAs(ifalsopaidforexpenses).
• RAs. o Entities:
 IRS Form W-9.
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AllpaymentsmustbesubmittedmanuallytoRCUHDisbursingtoensurethepropertaxreportingandtaxwithholding. PaymentsmustbereportedonanIRSForm1042-S. Paymentsmaybesubjecttotaxwithholdingatthestatutoryrateof30%;thismaybereducedoreliminatedifoneofthefollowingtax exemptions/exclusions apply:
o Tax treaty (individuals use IRS Form 8233, and entities use IRS Form W-8BEN-E; either a U.S. taxpayer identification number (TIN) or foreign taxpayer identification number is required).
o Foreign source income.
o Effectively Connected Income (conducting a trade/business within the U.S.) (an IRS Form W-8ECI is required, along with a
U.S. TIN).
o Foreign governments/organizations (an IRS Form W-8EXP is required, along with a U.S. TIN).
ImmigrationRequirements–RefertoPolicy2.012RequirementsWhenPayingForeignPersons,forguidanceregardingimmigration requirements, such as the proper visa.
RequiredDocumentation:
o Individuals – IRS Form W-8BEN (UH Form WH-1 is also acceptable).
o Foreign Entities – Applicable IRS Form W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY, or the RCUH Form 60, if applicable. U.S.TIN:
o Certain vendors must have a U.S. TIN for reporting purposes.
o If a vendor who is required to have a U.S. TIN does not have one, RCUH Disbursing informs the vendor to apply for a U.S. TIN.
NRA; Foreign entity
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Asummaryreportoftherecipients’namesandamountspaid, along with the recipients’ IRS Form W-8BEN or UH Form WH-1, must be submitted to RCUH Accounting for IRS Form 1042-S reporting. IfavendorwhoisrequiredtohaveaU.S.TINdoesnothave one, the program must inform the recipient to apply for a U.S. TIN.
Programsmustdeterminethewithholding(ifany)onthe payment, and initiate payment to the IRS. Forcashadvances,programscanwithholdpriortothe disbursement.
Yes
Is the payment made through a third-party arrangement, such as a cash advance, rather than directly to the individual recipient?
No
No changes.
• U.S.CitizensandPRAs:
o If a recipient receives a $600 or greater payment (or
cumulative payments of $600 or greater for a calendar year), provide RCUH Accounting with the recipient’s IRS Form W-9 and the amount paid at the time the recipient receives his/her payment(s).
• RAs:
o If the recipient is an RA by the substantial presence
test, the same procedure as above is followed.
Yes Is the payment made through a third-party arrangement, such as a cash advance, rather than directly to the individual recipient?
No
No changes.