How to Pay Individuals for Services
Answering the Who and Why
- Does the person have an existing relationship with UC, for example, as an employee and/or as a student?
- Is the person performing services for UC in exchange for the payment? In other words, are they required to work for us to get the money?
First, let’s consider the WHO. A payee usually falls within one of these categories:
An employee is a worker under UC’s control. Employees are recorded in the UCFlex HR system, which is also used to pay their wages and other employment-related payments. A secretary is a good example of an employee role, because UC would control much of how the secretary does his or her job, and UC also supplies all of the tools (desk, phone, computer, training, etc.) necessary to do that job.
- Independent Contractor
A contractor is a worker who is not under UC’s control. Contractors perform services for UC, and usually perform them for others, as well. Guest speakers are independent contractors. Payments for contractors typically come from our Accounts Payable office, after advance work approvals from Purchasing or the Treasurer’s Office.
- UC Student
Anyone enrolled in at least one course for academic credit is a UC student. This does not include Communiversity (non-credit) students. UC student enrollment and payments are a function of our UniverSIS system.
- Other Student / Learner
Students from local high schools and other colleges often come here in the summer to participate in numerous programs to enhance their learning and to encourage them to attend UC for their future studies. Similarly, local secondary teachers often assume the student/learner role when they participate in summer programs to build their teaching skills.
Now, the WHY, the reasons behind the payments:
- Earned compensation
These are payments that the person earns by working for UC. They perform services for us, and we pay them to compensate them for their efforts. Because the person is working for UC, UC is the primary beneficiary of their efforts.
Employees earn their compensation in the form of wages. The law requires UC to pay certain taxes (unemployment tax and a ½-share of Medicare, for example) out of its own pocket for each employee. It also requires UC to withhold various taxes from the employee’s wages, and remit them directly to IRS, the State of Ohio and other taxing authorities. Depending on their role, employees may also be able to participate in UC employee benefit programs. Wages are always paid through the UCFlex-HR system.
Independent contractors also earn their compensation by performing services for UC. However, because they are more independent of UC than are our employees, the law does not require us to pay or withhold any taxes for them. The contractor is responsible for paying their own taxes.
If the payment is being made in exchange for past, present or future services from the person, it is earned compensation.
- Scholarships and fellowships
These are payments made to UC students or other learners to promote their studies and scholarly endeavors. They are typically awarded based on the person’s academic merit and/or financial need. Scholarships and fellowships are never paid in exchange for services rendered.
We usually think of scholarships as amounts paid to UC students. Fellowships are broader, usually paid to a scholar to enable them to pursue their scholarly activities. Such scholars are sometimes from outside UC, as in the case of Margo Tytus Visiting Fellows. Fellowships are also paid to UC faculty members, as with our Summer Faculty Research Fellowships, to enable them to pursue their own scholarly activities. If the faculty member, and not UC, is the primary beneficiary of those activities, then fellowship treatment may be appropriate.
The scholarship/fellowship recipient may exert some effort, such as in doing laboratory research, in their academic endeavors, as long as those efforts are primarily for their benefit. If their research efforts result in a substantial work product or other benefit for UC, they may be deemed to be working for UC as an employee, and the payment may be deemed to be earned compensation.
- Reimbursements of business expenses
Employees can receive tax-free reimbursements from UC of certain business expenses, including travel expenses, they have paid on UC’s behalf. Such reimbursements are processed through receipts and other documentation being sent to our Accounts Payable office.
Independent contractors can also be reimbursed in this tax-free manner. A typical example is the airfare and lodging expenses often incurred by guest speakers.
Payments of travel expenses incurred by, or for the benefit of, students do not qualify for this tax-free treatment. Any such payments to students would be considered scholarships.
(NOTE: If your circumstances are not addressed here, please contact Barry Holland for guidance.)
Methods of Payment
|EMPLOYEE||CONTRACTOR||UC STUDENT||OTHER LEARNER|
|Wages, payable through UCFlex-HR system||Nonemployee compensation, payable through Purchase Order or Personal Service Contract process||n/a – A student earning wages must be hired as an employee.||n/a|
|n/a||n/a||Submit E160 through UniverSIS system||Submit A114 and “fellowship form” to Accounts Payable, through Director, Tax Compliance|
|REIMBURSEMENT OR PAYMENT OF TRAVEL OR OTHER TAX-QUALIFIED EXPENSES||A113 or A114 submitted through Accounts Payable||A113 or A114 submitted through Accounts Payable||Submit E160 through UniverSIS system||Submit A114 and “fellowship form” to Accounts Payable, through Director, Tax Compliance|
Tax Consequences of Payment
|SCHOLARSHIPS AND FELLOWSHIPS|
(in other words, the payee is responsible for reporting the payments on his or her tax returns)
|Yes||Yes||Yes, unless it pays for qualified tuition and related expenses|
|Subject to withholding||Yes||No||No|
|Tax reporting by UC||Form W-2 sent each January to all employees||Form 1099-MISC sent each January to all non-corporate contractors earning more than $600 from services||No income-reporting document is sent from UC. Any taxable portion is self-reportable by the student.
UC students will receive Form 1098-T, Tuition Statement, each January. Total scholarships posted to the student’s account during the calendar year will be included on that form.
|Special rules for nonresident aliens:|
|Taxability and tax treaties
|Some or all may be tax-exempt under a tax treaty between US and the payee’s home country.||Some or all may be tax-exempt under a tax treaty between US and the payee’s home country.||Some or all may be tax-exempt under a tax treaty between US and the payee’s home country.|
|Subject to withholding
|If no treaty applies, normal tax rates.||If no treaty applies, 30%.||If no treaty applies, 14%.|
|Tax reporting from UC||Form W-2 reporting taxable portion and taxes withheld.
Also, Form 1042-S reporting tax-exempt portion.
|Form 1042-S reporting all nonemployee compensation and taxes withheld.||Form 1042-S reporting all “nonqualified” scholarships and fellowships, and taxes withheld.|
UC departments should use the Foreign Visitor Supplement form to provide immigration-related information for payees who are neither US citizens nor Lawful Permanent Residents ("green card" holders). These payees may be subject to a set of federal tax laws with completely different rules for taxability, withholding and year-end reporting. The information you provide on the Foreign Visitor Supplement will help our office to determine the correct set of rules to apply to your payee.
The Foreign Visitor Supplement is intended to accompany a Personal Service Contract, a Non-UC-Student Scholarship / Fellowship form, or a Capital Gain Royalty Payment form (Intellectual Property Office only). It is a fillable form in PDF format. (You will need the free Adobe Reader.)
Departmental users may save this form to their computers, or may choose to access the form here as needed. Users are encouraged to submit the form electronically by clicking the "Submit by Email" button. This is a greener solution which will also expedite your submission. Read more about this electronic submission process.
We strongly recommend that you contact UC International Services if you have any questions about immigration processing or the legality of making a particular payment to a foreign visitor.