When payments or incentives are made to a non-resident alien, tax withholding rules apply. For payments and incentives values > $100, the human subject or the Department must pay the 30% Federal withholding tax at the time the money is disbursed.
Example 1 – If you want the human subject to absorb the tax payment:
If the payment is $100...
- disburse $70 to the non-resident alien,
- process the transaction for $100, and
- the Travel and Reimbursements Department will make a payment of $30 to the IRS.
Example 2 – If you want your Department to pay the tax:
If you want the human subject to receive a total of $100...
- disburse $100 to the non-resident alien,
- process the transaction at $142.90
- The additional $42.90 covers the required 30% tax payment (42.90 equals 30% of $142.90)
- The Travel and Reimbursements Department will make a payment of $42.90 to the IRS.
This is the "gross up" formula: desired payment amount + 42.9% of the desired payment amount.