FIN 425–04: Nonresident Independent Contractors and Other Foreign Entities - Purpose and IRS/USCIS Payment Withholding Requirements - Effective 7/3/1995 Revised 11/1/2025

Sep 19, 2026

FIN 425–04 establishes policy for paying independent contractors and other foreign entities, including services, rentals, royalties, and copyright fees. It explains how IRS regulations require withholding on payments to nonresident individuals and foreign business entities when treaty exemptions do not apply. The manual details eligibility conditions for treaty relief, the submission of specific IRS forms (8233, W-8BEN-E, W-8ECI, W-8EXP, W-8IMY), reporting obligations via Form 1042-S, and USCIS visa-type requirements for payment eligibility.

LanguageEnglish

CategoryLetters

FormatPDF

Pages3

Reading Time1 min

AccessFree to download

Purpose

Applicability

Background

IRS requirements

Tax treaty eligibility and withholding

Reporting and forms

Policy

Supplier registration and W-8 requirements

Withholding when exemptions are not met

IRS Tax Forms

Form 8233

Form W-8BEN-E

Form W-8ECI

Form W-8EXP

Financial Services Manual (FIN) FIN 425–04: Nonresident Independent Contractors and Other Foreign Entities Effective: 7/3/1995 Revised: 11/1/2025 Purpose To describe the policy for independent contractor payments made to nonresident individuals or foreign business entities Sources Internal Revenue Service University policy Applicability All payments for services, rentals, royalty, and copyright fees made to foreign individuals and foreign business entities Background Internal Revenue Service The Internal Revenue Service (IRS) requires that all independent contractor payments made to nonresident individuals or foreign business entities be made in accordance with IRS regulations. These regulations require that, when services are provided inside the U.S., taxes be withheld from payments made to nonresidents (NRAs) or foreign business entities unless the income is exempt under a provision of a tax treaty between the foreign contractor's country and the U.S. Foreign individuals must be eligible to claim a tax treaty exemption by having a social security number (SSN) or individual taxpayer identification number (ITIN) and must have submitted for certification a completed IRS Form 8233. Foreign business entities must have a tax identification number and must have submitted for certification a completed IRS Form W-8ECI, W-8BEN-E, W-8EXP, or W-8IMY. Unless the payments made to the NRA are exempt due to tax treaty, are effectively connected with the conduct of a trade or business in the U.S. (payments to foreign business entities only), or are made to a foreign entity with [U.S. tax](U.S. tax)exempt status, and the appropriate IRS forms have been filed, all payments made to the NRA or foreign business entity will be subject to U.S. federal income tax withholding of up to 30 percent. Tax regulations also require that taxable payments made to NRAs or foreign business entities be reported annually on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. A copy of the form is sent to the foreign recipient by January 31 following the year of payment. The IRS requires that Form 1042-S be filed with the IRS by March 15 following the calendar year in which payments were made. U.S. Citizenship and Immigration Services (USCIS) The U.S. Citizenship and Immigration Services (USCIS) requires that individual NRAs be admitted to the U.S. under authorized visa types to be eligible to receive payments. See FIN 425–02,“Immigration Status—Eligibility to Receive Payment,” for a complete discussion. Policy All foreign individuals and foreign business entities receiving independent contractor payments (i.e., performing services in the capacity of an independent contractor including guest lecturers and consultants) or payments for rentals, royalties, or copyrights are required to complete an IRS Form W-8, which is submitted via Supplier Registration. All W-8 forms and their instructions are available on the IRS Web site at [http://www.irs.gov](http://www.irs.gov). If the U.S. does not have a tax treaty with the foreign supplier’s country of residence that exempts independent contractor, rent, royalty, or copyright payments from U.S. federal income tax withholding, or if a valid Form 8233 or W-8 form has not been correctly completed before payment is processed, up to 30 percent of the total payment will be withheld by ASU and remitted to the IRS. A list of existing tax treaties between the U.S. and other countries can be found in IRS Publication 901, U.S. Tax Treaties, available online at [http://www.irs.gov/pub/irs-pdf/p901.pdf](http://www.irs.gov/pub/irs-pdf/p901.pdf). To be valid for tax treaty exemption, payments made to an individual using either Form W-8BEN or Form 8233 require a U.S taxpayer identification number. Payments made to a foreign entity using Form W-8 require either a foreign or a U.S. taxpayer identification number to be provided. IRS Tax Forms Form 8233 is used by individual n

FAQs

What payments does FIN 425–04 cover for foreign individuals and foreign business entities?

It covers payments for services, rentals, royalty, and copyright fees made to foreign individuals and foreign business entities, including independent contractor compensation.

When can payments to nonresident individuals or foreign entities be exempt from U.S. federal income tax withholding?

Exemptions may apply when a valid tax treaty exemption covers the payment, when income is effectively connected with a U.S. trade or business (for foreign business entities), or when the recipient has a U.S. tax-exempt status and required forms are properly filed.

Which IRS forms are required to claim exemption or document foreign status?

Individuals may use Form 8233 and/or Form W-8BEN (with required identification numbers). Foreign business entities use applicable W-8 forms such as W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY, submitted via Supplier Registration.

Sep 19, 2026

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