Hiring Foreign Teachers or Staff? Here’s How to Handle U.S. Taxes Right
📅 January 21, 2025 – ⏱ 8 minute read
🎓 International talent, real compliance
U.S. campuses are buzzing with international students, scholars, researchers, and visiting professors. Many also work part-time for their schools — which means your payroll team needs to get nonresident withholding exactly right. As the withholding agent, it’s on you to determine residency, apply treaties, collect the right forms, and withhold the correct tax. This guide is your practical playbook. 🧭
📚 Table of Contents
1️⃣ Determine residency (the first and most important step)
2️⃣ Identify payment type & sourcing (ECI vs. FDAP)
3️⃣ Withholding rules (graduated vs. flat)
4️⃣ Income codes you’ll see on campus (18, 19, 20 & FDAP)
5️⃣ Tax treaties (who may qualify and how to claim)
6️⃣ Must-have onboarding forms (W-4, 8233, W-8BEN, etc.)
7️⃣ SSN/ITIN essentials (SS-5, W-7)
8️⃣ Common errors (and how to avoid them)
9️⃣ A smooth, compliant workflow for your payroll team
1) 🧮 Determine residency for tax purposes
Every onboarding starts here. Classify each new hire as U.S. citizen/resident alien, dual-status, or nonresident alien. The classification drives everything else.
U.S. citizens & resident aliens → taxed on worldwide income.
Nonresident aliens → taxed on U.S.-source income and certain foreign income effectively connected with a U.S. trade or business.
Dual-status → resident for part of the year, nonresident for the rest (each part taxed under its own rules).
Residency tests:
Citizenship test: U.S. citizens are residents for tax purposes.
Green Card test: If any time in the year the individual holds a Green Card (I-551), they’re a resident for that year.
Substantial Presence Test (SPT): Present ≥31 days in the current year and meet 183 weighted days over the current + 2 preceding years.
Exempt individual days don’t count (e.g., most F/J/M/Q students/teachers: generally 5 calendar years for F students; 2 for J/Q teachers/researchers), plus days in transit <24h, certain medical conditions, crew members of foreign vessels, and certain NATO visas.
👉 If the hire is not a citizen, doesn’t have a Green Card, and doesn’t pass SPT (after exclusions), they’re typically a nonresident alien.
2) 🧾 Identify payment type & sourcing
Classify the income and determine whether it’s Effectively Connected Income (ECI) or FDAP:
ECI (wages, teaching/research pay) → taxed at graduated rates after allowable deductions (like citizens/residents).
FDAP (Fixed, Determinable, Annual, or Periodical) → flat 30% withholding unless reduced by treaty. FDAP includes interest, royalties, certain commissions, and other U.S.-source passive items.
Correct sourcing matters for rate and form reporting.
3) 💸 Withholding at the right rate
ECI wages to nonresidents (properly documented) → graduated withholding per nonresident rules.
FDAP payments → 30% flat unless a treaty applies and is properly claimed.
4) 🏷️ Common campus income codes (Form 1042-S context)
You’ll often see these for university hires:
Code 18 – Dependent personal services: Employee services in the U.S. not as student/trainee/teacher/researcher.
Code 19 – Teaching/Research: Compensation to teachers, professors, researchers, scholars at U.S. institutions.
Code 20 – Studying and training: Wages to students/trainees/apprentices temporarily in the U.S. (super common for campus jobs).
FDAP category for non-wage U.S.-source passive items (e.g., interest, royalties).
5) 🌍 Tax treaties: reduce or eliminate withholding (when eligible)
The U.S. maintains bilateral income tax treaties with many countries. Outcomes vary by country, visa, income type, duration, and limits (e.g., dollar caps, time limits, ownership thresholds).
If a worker is a tax resident of a treaty country and meets the specific article conditions, you may reduce or eliminate withholding when they properly claim benefits.
Key steps to apply a treaty:
1️⃣ Verify country of tax residence (for treaty purposes).
2️⃣ Confirm the article that covers the income (e.g., students/trainees vs. teachers/professors).
3️⃣ Ensure limits (time/dollar/ownership) are met.
4️⃣ Collect the correct form (see below) to document the claim.
5️⃣ Track eligibility periods and renewals.
6) 🗂️ Must-have onboarding forms (collect early!)
Form W-4 (Nonresident Alien rules): Determines wage withholding. Nonresidents follow special W-4 instructions (e.g., no standard deduction in most cases; specific status/allowances rules). Incorrect W-4s lead to under-withholding and year-end liabilities.
Form 8233: For nonresident aliens to claim treaty exemption on personal services income (e.g., wage/teaching/student pay) and/or non-compensatory scholarships/fellowships from the same withholding agent.
Form W-8BEN (individuals): Certifies foreign status and is used to claim treaty benefits for non-wage (FDAP) items.
Form W-8BEN-E (entities): If dealing with foreign entities (less common for payroll, but relevant across campus payables).
Other important IDs & certifications:
Form SS-5: Apply for SSN (needed to report wages).
Form W-7: Apply for an ITIN if not eligible for SSN but a U.S. return is required.
Form W-9: Used for U.S. persons to certify TIN and backup withholding status (don’t use for nonresidents).
7) 🔢 SSN vs. ITIN: getting the right identifier
For employment wages, nonresidents generally need an SSN (Form SS-5 via SSA; bring immigration documents and, for students, employer/DSO letters as applicable).
If the worker cannot get an SSN but must file, they’ll need an ITIN (W-7) for the federal return and to correctly reconcile withholding and treaty claims.
8) ⚠️ Common errors (and how to avoid them)
❌ Misclassifying residency: Forgetting exempt individual rules under F/J/M/Q or counting excluded days.
❌ Wrong forms for the income type: Using W-9 for a nonresident individual, or W-8BEN instead of 8233 for services.
❌ Missing treaty documentation: Applying reduced rates without Form 8233 (services) or W-8BEN (FDAP).
❌ W-4 completed as if resident: Nonresidents have special W-4 instructions; follow IRS guidance for nonresident withholding.
❌ Not tracking treaty time/dollar limits: Many student/teacher articles expire or cap out — set reminders.
❌ FDAP vs. ECI confusion: Mis-categorizing payments causes the wrong rate and form reporting.
✅ Pro tip: Build a checklist by visa type (F-1 student worker, J-1 researcher, visiting professor) with the exact forms and renewal cadence your payroll needs.
9) 🧰 A smooth, compliant workflow (template)
Step 1 – Pre-hire intake
Collect immigration status (visa type), country of tax residence, expected start/end dates, payment types (wage vs. FDAP), and prior U.S. presence (for SPT).
Step 2 – Classify residency & income
Apply SPT and exemptions; determine ECI vs. FDAP; pick reporting codes.
Step 3 – Documents
W-4 (nonresident rules), 8233 if treaty for services, W-8BEN for FDAP treaty, SS-5 for SSN or W-7 for ITIN as needed.
Step 4 – Apply withholding
Graduated rates for ECI wages; 30% for FDAP unless treaty is properly claimed.
Step 5 – Track & renew
Monitor treaty limits (time/dollar) and update forms annually or upon status change.
Step 6 – Year-end reporting
Ensure correct forms (e.g., 1042-S for nonresident income subject to withholding; W-2 for wages with federal withholding under ECI rules as applicable), and reconcile any adjustments.
🧾 Quick reference: what to use when
Wages (student/teacher/researcher): W-4 + (if treaty) 8233 → graduated withholding or treaty-exempt.
Stipends/fellowships (non-compensatory): Often 8233 (if same agent and treaty applies) — otherwise FDAP rules.
Royalties/interest/other FDAP: W-8BEN to claim treaty reduction; otherwise 30%.
🎯 Bottom line
Getting nonresident payroll right isn’t about guesswork — it’s about repeatable steps, the right forms, and timely reviews. With a solid intake process and vigilant treaty tracking, your school can protect compliance, support international talent, and make life easier for everyone in payroll. 🌍✅