Preliminary Approvals - Tax
- Foreign Vendor - Service Payments
- Foreign Vendor - Software/Internet Access Payments
- Independent Contractor Questionnaire
Foreign Vendor - Service Payments
- Goods purchased from a foreign vendor are not to be considered taxable or reportable. If appropriate, please include in the PO description the statement “this is a good”.
- For all service payments to foreign vendors, please provide the location of where the service is/was performed. This statement should be noted in the description on the PO.
- If the work was performed inside the US, the payment is classified as US source income. Thus, it is subject to a 30% tax withholding, unless a tax treaty applies. Note: there is not a de minimis dollar amount for IRS Code Section 1441 (which imposes the withholding tax).
- Tax treaty benefits can only be offered to vendors that have a US tax ID and a properly completed Form W8BEN (this usually includes completion of Question # 10)
- If tax treaty benefits cannot be offered to the foreign vendor, the department may wish to cover the withheld tax. If the department is willing to pay the taxes that must be withheld, the department should indicate in the PO description that a “gross-up” is approved. Note: the vendor should receive a refund of the withheld tax when they file their US tax return.
- All payments to foreign independent contractors are reviewed by Tax:
- Payments for work performed outside the US should have an international agreement and completes the Form W8BEN.
- Payments for work performed inside the US will need to provide all the documents requested on the University Tax Services’: Quick Guide - Payments to International Visitors
Foreign Vendor - Software/Internet Access Payments
- Goods purchased from a foreign vendor are not to be considered taxable or reportable. If appropriate, please include in the PO description the statement “this is a good”.
- For all service payments to foreign vendors, please provide the location of where the service is/was performed. This statement should be noted in the description on the PO.
- The PO description field should state whether IU will own or only use the item or access.
- If the vendor has a US tax ID and properly completes the Form W8BEN (this usually includes completion of Question # 10), then tax treaty benefits can be offered if available
- If the department is willing to pay for the necessary taxes that must be withheld, the department should indicate that a “gross-up” is approved on the PO description. Note: the vendor should receive a refund of the withheld when their tax return is filed.
Tax Determination
Payments for software/internet access require special review. The following definitions should assist with determining if IU is paying for a good or right to use.
Right to Own
Ownership is a purchase where rights and responsibility are transferred to the payer indefinitely; no withholding required.
- Tax Determination: Not Taxed, Non-Reportable.
Right to Use
The right to use means the vendor retains the ownership. IU is making a payment only for the right to use intellectual property; for tax purposes considered a royalty.
- IU cannot access the program or data indefinitely.
- Tax Determination: Royalty Income, taxable, and reportable.
- IU can access the program or data indefinitely.
- Tax Determination: Not taxes, Nonreportable
Independent Contractor Questionnaire
An individual is deemed to be an employee of Indiana University unless the individual meets all the independent contractor criteria established within policy FIN-ACC-630.
As an aid in helping departments understand this policy, University Tax Services has developed an Independent Contractor Questionnaire. Please review the questions below to determine whether, or not, you need to fill out the form.
An Independent Contractor Questionnaire will need to be completed either by the individual or the department if an answer of “Yes” is provided to any of the following questions:
- Has the individual been employed by IU during the twelve month period prior to the date these services are to begin?
- Will the individual be teaching, lecturing, or instructing more than two sessions of a class at IU?
- Will the individual primarily be performing research services for IU?
- Is IU the sole or majority business client for this individual?
If the answer provided is “No” to all the above questions, pay as an independent contractor
