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SOCIAL SECURITY TAX INFORMATION FOR FOREIGN SCHOLARS, 
WORKERS, AND EXCHANGE VISITORS

Foreign individuals employed by the University Corporation for Atmospheric Research (UCAR) generally will be subject to U.S. social security tax on their employment income. The U.S. social security tax, which is levied in addition to income tax, is imposed on both the employee and the employer under the Federal Insurance Contributions Act (FICA). Accordingly, the U.S. Social Security tax will be referred to hereinafter as the FICA tax." The following information provides a general summary of the FICA tax, the various relief provisions and the responsibilities of the employee and the employer in respect of the FICA tax.

GENERAL OVERVIEW OF THE FICA TAX

FICA taxes are generally imposed on employees and employers and are determined by the amount of "wages" paid in respect of "employment."

'Wages" for purposes of the FICA tax generally include all remuneration derived from employment, unless specifically excepted. Exceptions include certain moving expenses allowable as a deduction to the employee, certain qualified scholarship amounts, certain sick pay amounts, payments made under any employee benefit plan, as well as other specifically excepted items. In addition, certain travel and living expense reimbursements made to an employee in respect of expenses incurred in the employer's business generally should not be treated as 'wages' for FICA purposes.

Generally speaking, "employment" is defined for purposes of the FICA tax as services performed by an employee for an employer irrespective of the citizenship or residence of either the employee or the employer. There are various types of services excluded from the definition of employment, such as services performed by certain F or J visa holders as discussed below.

GENERAL RELIEF PROVISIONS FROM THE FICA TAX

There are certain provisions which will provide relief from the imposition of the FICA tax. In particular the U.S. Internal Revenue Code (the Code) and underlying regulations provide an exemption from the FICA tax for certain nonimmigrant visa categories. Certain income tax treaties that the U.S. has with other countries may also provide relief from the FICA tax. In addition, the U.S. has social security totalization agreements with a number of countries, under the terms of which relief from the FICA tax may be available. To the extent that FICA tax relief is not available under the Code, or under a tax treaty or totalization agreement with a particular country, the foreign tax credit mechanism may provide some relief from the FICA tax.

1. Relief Provisions Contained in the Code

As previously stated, the U.S. domestic tax law provides an exemption from the FICA tax to certain nonimmigrant visa holders. A broad FICA exemption is available to all F and J visa holders by virtue of the Code's definition of "employment." That is, the Code defines employment to exclude any service which is performed by a nonresident alien individual for the period he/she is temporarily present in the U.S. as a nonimmigrant under subparagraph (F) of (J) of Sl0l(a)(l5) of the Immigration and Nationality Act, and which is performed to carry out the purpose specified under the visa. If an individual qualifies for the Code FICA exemption, UCAR is not subject to the employer's share of the FICA tax with respect to the particular individual.

It is important to note that several requirements must be met to qualify for the Code FICA exemption. In particular, the individual must be a "nonresident alien" for the period he/she is temporarily in the U.S. Proposed regulations to the Code indicate that an F or J visa holder will not be classified as a nonresident alien for FICA purposes, if the individual is classified as a resident alien for income tax purposes. In addition to being a nonresident alien, the individual must be a "nonimmigrant" under the above noted provisions of the Immigration and Nationality Act (i.e., has not been admitted to the U.S. as a lawful permanent resident). Further, the individual must be performing services, to carry out the purpose specified under the applicable F or J visa, in respect of employment which is permitted by the immigration authorities. Note that even though an individual's remuneration is exempt from the FICA tax under the Code, such remuneration may still be subject to income tax.

Individuals performing services in the U.S. under the terms of visa categories other than F or J will be treated differently for purposes of the FICA tax. For example, there generally are no FICA exemptions in the Code permitted for II visa holders performing services in the U.S., except for certain agricultural workers, certain nurse trainees, or certain employees of a church or a qualified church-controlled organization. Likewise, no FICA exemptions are available to I visa holders performing services in the U.S., whether or not the individual is exempt from income tax (under provisions of the Code) on his/her remuneration for such services.

2. Relief Under Tax Treaty Provisions

There are few U.S. income tax treaties which explicitly provide for an exemption from the FICA tax in very limited circumstances. However, most of the income tax treaties that the U.S. has with other countries implicitly provide for an exemption from the FICA tax. Very generally, if a particular income tax treaty confers an exemption from income tax, an indirect FICA exemption arguably can be inferred. That is, the FICA tax is a tax on income and, accordingly, should be included in the income tax provisions covered by a particular treaty, unless specifically excepted.

Generally, since most foreign individuals holding F or J visas will be exempt from FICA by virtue of the Code, the treaty exemption should principally benefit H visa holders whose income qualifies for exemption from income tax under an income tax treaty. The relevant income tax treaty in question should be consulted in this regard. Please refer to Tax Information for Foreign Scholars, Workers, and Exchange Visitors in respect of treaty exemptions from income tax.

Even though the individual may claim exemption from the FICA tax under the provisions of an income tax treaty, UCAR will still be subject to the employer's share of the FICA tax. The FICA tax is considered to be an excise tax on the employer measured by the income of the employee.

3. Relief Under Totalization Agreements

If an individual is not entitled to an exemption from the FICA tax either under the Code or under an income tax treaty, relief from the FICA tax may be obtained under a social security totalization agreement between the U.S. and a specific country. Currently, the U.S. has social security totalization agreements with Belgium, Canada, France, Germany, Italy, Norway, Spain, Sweden, Switzerland, and the U.K. Social security totalization agreements with the Netherlands, Portugal, Australia, Austria, Brazil, Ireland, and Japan may be forthcoming in the near future.

Generally, the totalization agreements will provide relief from double social security tax in situations where a foreign individual is subject to the U.S. FICA tax as well as the social security tax in his/her home country. Most totalization agreements provide that, in order to be exempt from U.S. FICA tax, the foreign individual must be in the U.S. on a temporary basis performing services for his/her foreign employer. Please consult the relevant social security totalization agreement to determine whether an individual will be exempt from the FICA tax under the terms of the agreement.

4. Foreign Tax Credit

Finally, if an individual is not exempt from the FICA tax under the Code, under an income tax treaty, or under the terms of a social security totalization agreement, some relief from the FICA tax may be available under a foreign tax credit mechanism. That is, a foreign individual may be entitled to a foreign tax credit for the U.S. FICA tax under the income tax laws of his/her home country.

In order to qualify for a foreign tax credit, generally three conditions must be satisfied. First of all, the foreign individual must be subject to income tax in his/her home country. His/her home country would have to allow a foreign tax credit for the U.S. FICA tax in computing his/her home country tax liability. In addition, the foreign individual's home country income tax liability would have to be sufficient to absorb the U.S. FICA tax allowed as a credit. In order to determine whether the U.S. FICA tax qualifies as a creditable foreign tax, the foreign individual should consult the income tax laws of his/her home country as well as the provisions of the income tax treaty between his/her home country and the U.S.

EMPLOYEE'S RESPONSIBILITIES

The foreign individual must provide UCAR with his/her social security number. In addition, the foreign individual employed by UCAR must attach Form W-2 to his/her U.S. income tax return.

If the individual is exempt from the FICA tax under the Code, he/she should provide to UCAR a statement indicating that he/she meets all the specific requirements to qualify for the Code FICA exemption. Such a statement should include the individual's name, address, social security number, date, tax year for which the exemption applies and compensation to which it relates, type of visa and that the terms of the visa are being adhered to, foreign country of residence for income tax purposes and social security tax purposes, nonimmigrant status, citizenship, etc.

If the foreign individual is exempt from the FICA tax by virtue of an income tax treaty, he/she must provide UCAR with a statement, as discussed in Tax Information for Foreign Scholars, Workers, and Exchange Visitors, to claim exemption from U.S. income tax. The foreign individual must also provide information to UCAR concerning the treaty provision under which the FICA exemption is claimed.

With respect to an exemption from the FICA tax provided in a social security totalization agreement, the foreign individual must consult the particular agreement to determine the relevant procedural requirements. Generally, the foreign individual must provide to UCAR a certificate of coverage, indicating that he/she is subject to the social security tax in his/her home country, issued by his/her home country's social security agency. Other requirements may exist depending upon the particular totalization agreement.

EMPLOYER'S RESPONSIBILITIES

UCAR must withhold the requisite FICA taxes as prescribed by law from employee wages and remit the tax, together with the employer portion, to the IRS on a timely basis. In addition, Forms 941 and W-2 must be filed in the usual manner.

The employee must provide UCAR sufficient documentation to support an exemption claim, as previously discussed. UCAR must review such documentation for reasonableness. In the absence of sufficient documentation, UCAR must withhold the FICA tax at the statutory rates.

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