Purchasing/Spending Process: Taxation Issues
Tax Reporting. All payments disbursed to vendors for independent services and other types of reportable income are subject to IRS reporting rules. By January 31 of each year, a 1099 MISC shall be issued by the University to any vendor for payments that meet the criteria for tax reporting defined by the IRS for the previous calendar year. Questions regarding Forms 1099 MISC received from the University should be directed to the Accounts Payable office, 308-865-8419.
Employee vs Independent Contractor? Prior to engaging an individual to provide goods and/or services for the University, a determination should be made whether that individual will be paid as an employee or as an independent contractor. A careful review at this stage will prevent any difficulties with the Internal Revenue Service and/or the Social Security Administration later with regard to reporting and withholding. The amount of control the University has over an individual is one of the primary factors in determining the nature of an individual’s working relationship to the University. Departments should contact either the Accounts Payable office or Payroll Office for assistance in making an "employee vs. independent contractor" determination.
Expense Reimbursements, Taxability.
Accountable Plan: An expense reimbursement or allowance arrangement must meet the following criteria to exempt the payment to the recipient from income tax reporting:
The recipient must have paid or incurred allowable business expenses while performing services in a working relationship with the University.
The recipient must provide a detailed accounting of the expenses to the University at the time the expense or allowance claim is made.
Any excess reimbursement or allowance must be returned to the University within a reasonable period of time.
Non-Accountable Plan: An expense reimbursement or allowance arrangement not meeting the criteria for an Accountable Plan is considered to be paid under a Non-accountable Plan and any payment to the recipient is income tax reportable.
Required Vendor Information.
Personal Service Payments, Out of State Service Providers. (See Withholding on Non-resident Alien Personal Services below.)
Sales Tax Exemption-Nebraska.
Scope. The University of Nebraska is sales tax exempt in the State of Nebraska. Any unit of the University that reports its financial transactions in the University's official financial statements may purchase goods and services under the blanket of the University's sales tax exemption.
Vendor Notification. Prior to contracting for the purchase of goods and/or services, a University purchaser should notify the vendor of the University's sales tax exempt status. For a first-time purchase from any vendor, the purchaser of the goods and/or services should forward a request, including business name, address and telephone and fax numbers, to Business Services to complete and forward a Form 13Nebraska Resale or Exempt Certificate to the vendor.
Use by Satellite Organizations. Student organizations or other University-related entities may not purchase goods or services using the University's sales tax exemption unless they fall within the scope defined above.
Sales Tax, Out of State. The University of Nebraska has been granted some out-of-state sales tax exemptions. Please contact the Accounts Payable Office to inquire whether sales tax charged on out-of-state invoices should be paid.
Tax Identification Numbers. For tax reporting purposes, the University requires that its vendors (including individuals) paid through Accounts Payable provide a current federal tax identification number (FTIN). There are three types of FTIN's acceptable for tax reporting:
Federal Employer Identification Number (FEIN) - Any business that operates and remits payroll payments to employees must have a Federal Employer Identification Number. The number format for the nine-digit FEIN is XX-XXXXXXX.
Social Security Number (SSN) - If a payment is to be issued to an individual, or an individual doing business as a sole proprietor who has not applied for and received a FEIN, the vendor setup must include that individual's Social Security Number (SSN). The number format for the nine-digit SSN is XXX-XX-XXXX. The first digit of the number can be 0-8.
Individual Taxpayer Identification Number (ITIN) - This number is assigned to an individual who is not eligible for Social Security benefits, but requires a number for income tax reporting or other identification purposes. The number format for the nine-digit ITIN is 9XX-XX-XXXX.
Request for Vendor's FTIN. If a vendor setup cannot be found in the SAP system during parked invoice processing, and the vendor's FTIN is unknown, please contact the vendor and request that a Form W-9 Request for Taxpayer Identification Number and Certification be faxed to the Accounts Payable office (308-865-8668) to provide the information necessary for establishing the vendor in the SAP system.
Tax Identification Numbers, Application for. Student- or other satellite organizations related to the University but not under University control will need their own federal tax identification number prior to opening bank accounts and/or conducting financial transactions. A federal tax identification number (FTIN) may be obtained from the IRS by submitting a completed Form SS-4 Application for Employer Identification Number. Caution: Organizations should exhaust all efforts to determine that they have not already been issued a FTIN by the IRS before applying for a new FTIN.
Vendor Business Type. For tax reporting purposes, a vendor must be identified by type (i.e. sole proprietor, corporation, partnership, governmental agency, tax exempt non-profit organization, non-resident alien individual, etc.) in the SAP Accounts Payable system.
If a vendor setup cannot be found in the SAP system during parked invoice processing, and the vendor's business type is unknown, please contact the vendor and request that a Form W-9 Request for Taxpayer Identification Number and Certification be faxed to the Accounts Payable office (308-865-8668) to provide the information necessary for establishing the vendor in the SAP system.
Withholding on Non-Resident Alien Personal Services.
State law. State law requires that payments to non-resident (out-of-state) individuals rendering personal services in the State of Nebraska be subject to Nebraska income tax withholding even though the individuals are not University employees.
Personal Services, Scope. Personal services include, but are not limited to, payments made to nonresident consultants, public speakers, entertainers, individual athletes, jockeys, performers, etc.
Ownership/Control. Payments for personal services made to a partnership or corporation which is controlled by an individual or individuals performing the service will also require withholding, since the payment is deemed to be made directly to the individual(s) involved. Control is defined as having greater than 80% ownership of the partnership or corporation by the individuals performing the service within the State.
Nebraska Income Tax Withholding. Withholding is required whenever a payment or payments to the same individual, partnership or corporation is in excess of $600. If total payments are less than $28,000, withholding is 4.00% of the payment. If total payments are $28,000 or more, withholding is 6.00% of the payment.
Form W-4NA. A Nebraska Withholding Certificate for Non-Resident Individuals (Form W-4NA) will need to be completed by the payee if:
A portion of the fee is for expenses directly attributable to the service being performed in Nebraska, or
The payment is to a non-resident partnership or corporation that is controlled by the person(s) performing the service in the State.
The original Form W-4NA will be placed on file with the original payment documentation in the Accounts Payable office.