Recently, I’ve had a handful of clients send me e-mails that include this request from foreign businesses that they will be working with:
As we have previously informed you, you will be receiving? honorarium for your lectures. To pay you the full amount, we will be needing you? to give us certificates of residence the IRS will issue.? This document will be? necessary to avoid double taxation.? It may take more than a month to obtain? this document, so we would like you to make your application as soon as? possible.?
After doing some research, we? determined that the taxpayer is being asked to obtain a Form 6166, Certificate? of Residency, from the IRS.? In order to get the IRS to prepare a Form? 6166, you need to complete and submit a Form 8802.
Here is information provided by the? IRS about the Certificate of Residency:
Form 6166 – Certification of U.S. Tax Residency
Information on Completing the Form? 8802, Application for United States Residency Certification
Many U.S.? treaty partners require the IRS to certify that the person claiming treaty? benefits is a resident of the United States for federal tax purposes. The IRS? provides this residency certification on Form 6166, a letter of U.S. residency? certification.
The Internal? Revenue Service (IRS) procedure for requesting a certificate of residency (Form? 6166) from the Philadelphia Accounts Management Center is the submission ofForm 8802, Application for? United States Residency Certification (PDF). Use of the Form 8802 is? mandatory.
Form 6166 is a? letter printed on U.S. Department of Treasury stationery certifying that the? individuals or entities listed are residents of the United States for purposes? of the income tax laws of the United States. You may use this form to claim? income tax treaty benefits and certain other tax benefits in foreign countries.? Please refer to the instructions for Form 8802.
Some additional? information will also be required in order to obtain certification under the new? procedures. This information is generally set forth in the Instructions to Form 8802? (PDF). As the IRS gains experience with processing applications using Form 8802,? it may update the Form and Instructions accordingly.
A user fee will? be charged to process all Forms 8802 received with a postmark date on or after? November 1, 2006.
Since it appears that many foreign? business are now looking for you to provide them with a Form 6166, and it takes? at least a month to obtain this form, make sure to submit the Form 8802 with the? IRS as soon as you know that you’ll be heading abroad to earn some income.? If you need help? completing this form, please let us know.
As we announced in our April 2010 newsletter, the IRS has agreed to process FICA refund claims submitted by residency programs and individual medical trainees for wages paid through March 31, 2005. The catch is that only refund claims previously filed with the IRS will be processed, since the statute of limitations has expired for eligible individuals who have not yet submitted their pre-4/1/2005 FICA refund claims.
Why is the date of April 1, 2005 important? Early in 2005, the IRS issuedInternal Revenue Bulletin 2005-2, which outlined new regulations regarding which people employed by colleges and universities qualify as “student employees” exempt from FICA taxes. As part of this ruling, the IRS set an applicability date of April 1, 2005.
Remember, employees classified as “student employees” are exempt from paying Social Security and Medicare taxes on money earned while employed at the school. This rule was most likely put in place to help students better afford their tuition and living expenses while enrolled in either an undergraduate or graduate program. (Social security and Medicare taxes are currently withheld at a rate of 7.65% of your gross salary.)
So what action should you take in light of the post April 1, 2005 rules? For starters, please keep in mind the following:
- These new “student employer” regulations could very well be litigated down the road, and frankly, the IRS does not have such a good track record of winning similar cases in court.
- The statute of limitations to file the paperwork to receive a refund of FICA taxes paid during your years of training is capped at just three years from the year when the taxes are paid.
Based on these two factors, I suggest that it might make sense for you to continue to file your FICA refund claims for each year of your training that is still open. In our February 2001 newsletter, when we first wrote about this topic, we explained which tax forms you’ll need to complete and submit.
Even though the IRS feels this issue has been put to rest once and for all, there is a good chance that the FICA refund issue is not be a done deal. And on $50k of salary, you pay $3,825 of Social Security and Medicare taxes annually that might ultimately be refunded to you if the most recent regulations issued by the IRS end up being defeated in court, provided you file the required paperwork within the three year window.
As you learn about new developments, please remember to post whatever you hear or read about the FICA refund issue on ourMedical Resident FICA Forum.
Would you be interested in having the government fund 50% of your 2009 and 2010 research expenditures? As long as your business has less than 250 employees, you have until July 21st to submit your application to the IRS on Form 8942.
As part of the Patient Protection and Affordable Care Act signed into law on March 23, 2010, the federal government set aside $1 billion toward the Qualifying Therapeutic Discovery Project Program. According to the IRS in theirQ and A on the Tax Credit or Grant for Qualifying Therapeutic Discovery Projects:
The credit is a tax benefit targeted to therapeutic discovery projects that show a reasonable potential to:
- Result in new therapies to treat areas of unmet medical need or prevent, detect or treat chronic or acute diseases and conditions,
- Reduce the long-term growth of health care costs in the United States, or
- Significantly advance the goal of curing cancer within 30 years.
Allocation of the credit will also take into consideration which projects show the greatest potential to create and sustain high-quality, high-paying U.S. jobs and to advance U.S. competitiveness in life, biological and medical sciences.
What Expenses Qualify?
Per theinstructions to the Form 8942, up to $10 million in costs paid or incurred during 2009 and 2010 in connection with your approved project qualify. Eligible expenses include:
- Employee wages
- Supplies and lab costs
- Equipment purchases
- Payments to third-party contractors
- Other costs “necessary for and directly related to the conduct of the project”
Not all costs qualify, however. Make sure to exclude salaries paid to the CEO, interest expense, and facility costs including mortgage or rent payments, insurance, utilities, and maintenance costs. More information is available inIRS Notice 2010-45.
You’ll need to act quickly to apply for this grant. The deadline to submit the Form 8942 is July 21, 2010. With the application, you’ll also need to include aProject Information Memorandum.
While the IRS is collecting this information, the US Department of Health and Human Services will be the organization to determine whether your project meets the requirements for this program. The IRS will then dole out the $1 billion based on the total eligible costs of all the certified projects. While the maximum grant is 50% of each project’s cost, the percentage will drop across the board if total costs for all of the approved projects exceed $2 billion.
Assuming you get the paperwork submitted by the July 21st deadline, expect to hear from the IRS by the end of October whether your therapeutic discovery project has been accepted into this lucrative program.