Issues Caused by Non-Compliance of Tax Reporting for International Employees

If the employee is paid as a resident of the U.S. rather than as a Non-Resident Alien, the following issues can occur:

Wages are captured by the payroll system and reported on a W-2 Form rather than on Form 1042.
Federal and/or state taxes may be withheld in error.
FICA (OASDI and Medicare) taxes may be withheld in error.

To correct this problem within the same calendar year, the following must occur:

The International Tax Office must determine the correct tax status and request a change.
HR Processing must make the necessary data changes.
Any checks paid as a US resident must be reversed in the payroll system.
Pay adjustments will need to be done to correct the wages and tax status as a non-resident.
Taxes will need to be refunded to the individual.

To correct this problem in a different calendar year, the following must occur:

The International Tax Office must determine the correct tax status and request a change.
HR Processing must make the necessary data changes.
Any checks paid as a US resident must be reversed in the payroll system.
Pay adjustments will need to be done to correct the wages and tax status as a non-resident.
Taxes will need to be refunded to the individual.
A W-2c must be calculated and issued for all prior years where wages and taxes were incorrect.
A 1042c will need to be calculated and issued to add these wages.
The 941 quarterly tax return must be amended to reflect the reduction in wages for each quarter impacted.
The W-2 transmittal must be amended to reflect the change in wages and taxes for that year.
The 1042 transmittal must be amended to reflect the change in wages for that year.

Impact to the Employee

Employee paycheck is incorrect.
Employee incorrectly pays taxes.
Employee will have to wait for a refund of the taxes.
Employee will receive the wrong tax document.
Employee would have to wait to file his or her tax return because a correcting W-2 and 1042 would need to be issued.

Impact to Vanderbilt University

The IRS could impose penalties and interest on late tax filings to the employee's department.
Potential problems for Vanderbilt with the IRS and Social Security Administration
Lack of confidence by the employee in Vanderbilt.
Vanderbilt matches all FICA contributions, and would match these in error, therefore costing the institution money.

Vanderbilt University is committed to principles of equal opportunity and affirmative action.

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Last Updated: October 19, 2009