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IRS Accountable Plan Rules

The accountable plan rules apply to nonresident aliens as well as to U.S. citizens and resident aliens. This means that payments made to, or on behalf of, nonresident alien individuals for the purpose of defraying or reimbursing the deductible travel and lodging expenses of such nonresident alien individuals are excludible from the gross income of such nonresident alien individuals and are not reportable to the Internal Revenue Service by the payers of such payments, on the condition that the requirements of the accountable plan rules are met.

The requirements of the accountable plan rules are found in Treasury Regulation 1.62-2; and they require that the payee (1) establish the business purpose and connection of the expenses; (2) substantiate the expenses claimed to the payer within a reasonable period of time; and (3) return any amounts to the payer which are over and above the substantiated business expenses within a reasonable period of time. Amounts that are over and above the substantiated business expenses, or not accounted for within a reasonable period of time, are reportable to the IRS on Form W-2 and subject to withholding of employment taxes (or are reportable on Form 1042-S and subject to section 1441 withholding, as applicable).

Nonresident aliens are taxed at the rate of 30% on certain types of U.S. source gross income that are not effectively connected with the conduct of a U.S. trade or business under section 871(a)(1)(A) of the Code. These laws are applicable to nonresident alien visiting lecturers (considered independent contractors of the universities or colleges for employment tax purposes) unless an exemption is provided by another section of the Code or a tax treaty

Under section 1441(a) of the Code, the tax is required to be collected by the person making the payment to a nonresident alien at the time the payment is made. The reimbursements for travel and living expenses (treated as remunerations or emoluments) of visiting lecturers are included within the types of gross income subject to the tax and withholding pursuant to section 1441(b) of the Code.

- excerpted from the IRS website on NRAs & the Accountable Plan Rules

Accountable plan rules only apply when there is a business purpose for the travel.  If the travel reimbursement relates to services, it can be excluded to the extent that it is paid under an accountable plan.

The accountable plan requirements are:

  • a business purpose has been proven (i.e. a flier announcing NRA's visit)  & 
  • the payee submits a T&E within a reasonable time period  &
  • any amount advanced to the payee is returned to the University with the T&E

Travel reimbursement for independent contractors allows for the M&I per diem but not the full per diem that includes lodging. For housing to come up under the accountable plan for independent contractors it must be paid directly or reimbursed based on receipts.

If the accountable plan requirements are not followed, the payee will be taxed the full amount of the travel expenses. This will be processed on either a W-2 or 1042-S, as the situation dictates. NRA's are taxed at 30%. This amount will be withheld at the time of reimbursement.

NRA's may be offered a treaty that will exempt them from taxation of travel expenses. The Office of International Taxation will determine if a tax treaty may be offered.

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