Academic institutions have been paying honorarium payments to foreign guest speakers, including foreign heads of state and other foreign dignitaries, for decades. Because of their concern about unauthorized employment of aliens and the complex and time-consuming procedures required to obtain work-authorized status, institutions urged Congress to enact legislation legalizing the existing situation. Congress finally complied, enacting section 431 of the American Competitiveness and Workforce Improvement Act (ACWIA) of 1998. ACWIA amended section 212 of the Immigration and Naturalization Act (INA) by noting;
Section (p)(1) defines institutions and organizations as an institution of higher education or a related or affiliated nonprofit entity or a nonprofit research organization or a Government research organization.
On May 30, 2002, INS issued proposed regulations. Although regulations are not binding until they become final, the proposed regulations offer helpful definitions.
ACWIA covers aliens admitted on a temporary visit for business (B-1) or a temporary visit for pleasure (B-2). Also covered are aliens admitted under the visa waiver program (VWB and VWT respectively), aliens from Canada exempt from the visa requirements, and aliens whose activity venue is covered by a valid border-crossing card.
The American Heritage Dictionary defines an honorarium as “A payment given to a professional person for services for which fees are not legally or traditionally required.” The proposed regulations define an “honorarium” as a gratuitous payment of money or any other thing of value to a person for the person’s participation in a usual academic activity for which no fee is legally required. The immigration service's interpretation that an honorarium not be “legally required” is inconsistent with the current practice of agreement in advance on a speaker fee.
An honorarium may be of any dollar amount with no minimum or maximum dollar amount required. An honorarium is altogether different from a salary that an alien receives on a continuing basis. The proposed regulations describe honorarium recipients as neither an employee nor a contractor for services of the sponsoring institution. However, an honorarium recipient for tax purposes is generally considered an independent contractor. (Alien employees of the organization may also receive an honorarium payment.)
Usual Academic Activities
The regulations propose a broad definition of “usual academic activities” that includes lecturing, teaching and sharing knowledge, performances, master classes, readings, and meeting of boards or committees that benefit the institution. However, they place limitations on the commercial nature of events such as performances. Events must be open to students and/or the general public free of charge with no sale of general admission tickets for the activity to be a “usual academic activity.”
Limits on Frequency of Activities
During a 6-month period, an individual may accept an honorarium and reimbursement of associated expenses from no more than 5 organizations, and that the event may not last more than 9 days at any single institution (called the “9/5/6 Rule”). The alien may be at the institution longer than 9 days, however. The number-of-days limitation applies only to “the event.”
The proposed regulations define a “single institution” to include an institution that has more than one campus. However, an institution will only be treated as a single institution if the individual is paid with one honorarium payment for the same activity, such as the same lecture, that is repeated at multiple campuses. If the alien receives honoraria from multiple campuses for different activities, such as different lectures at each campus, each activity resulting in an honorarium payment must be charged against the overall 5 visits allowed during the 6-month period.
U.S. Tax Implications
Honorarium payments made to nonresident recipients are subject to 30 percent withholding unless a tax treaty exemption applies. Honorarium recipients wishing to claim a tax treaty exemption from the withholding tax must provide a completed and signed Form 8233 prior to payment. These payments must be reported on Form 1042-S (not Form 1099).
Paula Singer, Esq. CEO of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: firstname.lastname@example.org.
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