- Introduction and Contact Information
- Employment Taxation
- Unrelated Business Income Tax (UBIT)
- Nonresident Aliens (NRA)
- Payments to Foreign Organizations (IRS regulation 1442)
- Sales and Use Tax
- Moving Expenses
- Independent Contractors
- Gifts and Fundraising
- Social Security and Medicare Taxes (FICA)
- Foreign Entertainers
- Taxation of Achievement Awards and Gifts
- Tax Exempt Bonds
- University Payroll and Tax Services is a unit of the University Controller’s Office and is responsible for assisting and managing compliance with various Federal and State tax laws, rules, and regulations. As a large complex and dynamic institution, the University of Florida must monitor compliance with a number of tax laws from employment tax issues, unrelated business income taxes, tax exempt bond compliance, sales tax, non-resident alien tax issues, and more. The Federal Internal Revenue Service and State Department of Revenue routinely make audits of universities. Failure to comply with the various tax regulations that effect universities are not only costly, but can be harmful to the image and prestige of the university.
- University Payroll and Tax Services is located in Room 33, Tigert Hall. Please call (352) 392-1231 if you need assistance.
- Advertising– Is any message containing qualitative or comparative language, price information, or other indications of savings or value. Advertising also includes endorsements and inducements to purchase, sell, or use of the products or services. Advertising is subject to Unrelated Business Income Tax.
- Alumni– Anyone who has graduated from the University of Florida. Sales to alumni are often a source of revenue for universities and in certain circumstances may have Unrelated Business Income Tax (UBIT) implications.
- De Minimis– Employer provided products or services that have a minimal value and are not subject to taxation.
- Employee– A person who performs services for the University in return for compensation. The University controls the details of when and how the work is done. Employees are paid through myUFL HRMS.
- Federal Withholding Tax– Federal income tax withheld by the withholding agent (i.e. employer) based on the employee’s IRS Form W-4, Employee’s Withholding Allowance Certificate.
- Independent Contractor– a person that is not an employee of the University and receives non-employee compensation. An independent contractor usually performs his/her services to other organizations and has an independent office. Also, the University does not control when and how the work is to be performed. Independent contractors are paid through Accounts Payable.
- FICA– The Federal Insurance Contributions Act. This includes both social security and Medicare taxes levied on individuals.
- Individual Taxpayer Identification Number (ITIN)– Is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX. IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). ITINs cannot be used for employment purposes. ITINs are issued regardless of immigration status because both resident and nonresident aliens may have U.S. tax return and payment responsibilities under the Internal Revenue Code. Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.
- Internal Revenue Code– Federal tax law begins with the Internal Revenue Code (IRC), enacted by Congress in Title 26 of the United States Code (26 U.S.C.).
- Internal Revenue Service (IRS)– Is a bureau of the U.S. Department of the Treasury and one of the world’s most efficient tax administrators. In 2007, the IRS collected more than $2 trillion in revenue and processed more than 173 million tax returns.
- Joint Venture– An association of two or more persons with intent to carry out a single business venture for joint profit, for which purpose they combine their efforts, property, money, skill, and knowledge, but they do so without creating a formal partnership, trust, or corporation. Joint ventures may be subject to Unrelated Business Income Tax.
- Medicare Tax– Social security coverage provides retirement benefits and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. The University of Florida deducts these taxes from each wage payment. The University is required to deduct these taxes even if the employee does not expect to qualify for social security or Medicare benefits.
- Nonresident Alien– Is an individual who is not a U.S. citizen or a resident alien. A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.
- Resident Alien– Is an individual that is not a U.S. citizen or national of the United States and who meets either the green card test or the IRS substantial presence test for the calendar year.
- Social Security Administration– The Federal government agency that administers social security.
- Social Security Number– An individual’s taxpayer identification number consisting of nine digits (xxx-xx-xxxx).
- Social Security Tax– The Old Age, Survivors, and Disability Insurance (OASDI) component of FICA.
- Taxable Wage Base– The amount of an employee’s compensation subject to social security and Medicare taxes.
- Unrelated Business Income Tax– As defined in Internal Revenue Code section 512(a) includes the gross income from any unrelated trade or business, less deductions for expenses and depreciation “directly connected” with the conduct of a trade or business.
- U.S. Income Tax Treaties – The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.
- The Internal Revenue Service (IRS) requires employers like the University of Florida to withhold Federal income tax, social security taxes, and Medicare taxes from employees’ salaries and wages. The University is also responsible for reporting salary and wage information to the Florida Department of Revenue for Federal Unemployment Taxes. University Payroll and Tax Services is responsible for reporting both taxable and nontaxable compensation to the Internal Revenue Service and depositing Federal taxes with the IRS. IRS Forms 941, 941C, W-2, and W-2C, and 1042-S are prepared and filed by University Payroll and Tax Services. Federal withholding tax and social security and Medicare tax adjustments, as well as tax collections, are administered by University Payroll and Tax Services.
- The following IRS Publications provide more information concerning employment taxes:
IRS Publication 15 (Circular E), Employer’s Tax Guide IRS Publication 15-A, Employer’s Supplemental Tax Guide
- The University of Florida is exempt from income tax pursuant to Section 115 of the Internal Revenue Code. However, the University is required to pay Federal income tax on net income from activities deemed unrelated to the exempt mission of the University.
- It is very important that colleges and departments report unrelated business activities to University Payroll and Tax Services so that they may be reported to the IRS on the University’s Form 990-T. University Payroll and Tax Services conducts a review of the college and departmental activities on a yearly basis. The Internal Revenue Service can and will assess costly penalties and interest charges for underpayment of taxes.
- Three factors must be considered to determine if an activity is subject to unrelated business income tax. The activity must:
- Be conducted as a trade or business: Includes any activity carried on for the production of income from selling goods or performing services.
- Be regularly carried on: Be regularly carried on: UBIT applies only to a business activity that is regularly carried on, as opposed to transactions that are sporadic or infrequent. An activity is considered regularly carried on if it is conducted with a frequency and manner comparable to the conduct of a similar activity by a taxed business.
- Not be substantially related to the tax exempt mission of the University: To be taxable the activity must not be substantially related to the exempt mission of the University. Such tax laws and interpretations are complex and it is therefore best to discuss any revenue generating contract or activity with University Payroll and Tax Services before executing the agreement or activity. Often times, the way an agreement is structured can make the difference between the income being taxable or exempt from taxation. As an example, all advertising revenues are taxable, but sponsorships are exempt. Improperly referring to sponsorship revenue as advertising could result in the sponsorship revenue becoming taxable. In addition, a contract with a for profit entity or a “joint venture” may also be subject to UBIT.
- To learn more about Unrelated Business Income Taxes, please review IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations.
- Payments made to Foreign Nationals or Nonresident Aliens (NRA) are subject to withholding tax requirements on their U.S. source income. Therefore, all payments made to Foreign Nationals or NRAs must be approved by University Payroll and Tax Services by completing the UF – Foreign National Tax Information Form found on the University Payroll and Tax Services website.
- IRS regulations 1441, 1442, and 1443 require federal NRA withholding taxes made to foreign persons. Generally, the NRA withholding requirement is 30 percent unless the Internal Revenue Code stipulates a reduced rate or exemption based on U.S. tax treaty benefits. In addition, these regulations provide for a 14 percent Federal withholding tax on the portion of scholarships paid for living expenses, 30 percent Federal withholding tax on honoraria payments made to foreign visitors and scholars, and 30 percent Federal withholding taxes paid to NRA independent contractors.
- Nonresident aliens must also follow special instructions for IRS Form W-4 which is discussed in IRS publication 515, page 25, (i.e., single, one allowance, and write “NRA” above dotted line on line 6). Nonresident aliens may not claim “exempt” for the withholding status on IRS Form W-4.
- There are also U.S. income tax treaties with certain countries that either exempt or reduce the Federal withholding taxes on payments made to NRAs. IRS forms 8233 or W-8 BEN, depending on the classification of the payment, must be approved by University Payroll and Tax Services. Many of these tax treaties have dollar amount limitations. The following is a list of IRS publications which detail these regulations: IRS Publication 901, U.S. Tax Treaties
IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
IRS Publication 519, U.S. Tax Guide for Aliens
- All payments made to foreign organizations must be approved by University Payroll and Tax Services before the vendor is established in the myUFL Accounts Payable module. Foreign vendors will be asked to provide the University a properly secured IRS Form W-8BEN. Any foreign organization that is performing services in the U.S. will also be asked for a U.S. Tax Identification Number.
- University Payroll and Tax Services is responsible for remitting the University’s sales and use taxes on or before the 20th of every month on Form DR-15, the Sales and Use Tax Return. Rule 12A-15.002 of the Florida Administrative Code authorizes counties to levy a discretionary sales surtax on most transactions in the county that are subject to sales and use tax. Each year University Payroll and Tax Services conducts a review of the colleges and departments based on the Department of Revenue Guidelines for Colleges and Universities and identifies and remits any required sales taxes to the Florida Department of Revenue.
- The University of Florida is a qualifying governmental body exempt from paying Florida sales tax on purchases for its own use. The Consumer’s Certificate of Exemption (Form DR-14) may be obtained from University Payroll and Tax Services or from Purchasing.
- Chapter 212 of the Florida Statutes define sales taxes as applying “…to the sale, rental, lease, or license to use goods, certain services, and commercial property in Florida, unless the transaction is specifically exempt.” University Payroll and Taxes Services and Purchasing possess copies of the Annual Resale Certificate (Form DR-13).
- Examples of transactions subject to Florida sales tax:
- A Performing Arts Center rents its facilities to performing artists. The rental fee for its facilities is subject to Florida sales tax.
- A department sells merchandise such as t-shirts, books, CDs, and coffee mugs. The merchandise sales are subject to Florida sales tax.
- A department sells subscriptions to a professional journal. The subscriptions are subject to Florida sales tax.
- A college holds an auction to sell artwork. The sales revenue from the auction is subject to Florida sales tax.
- A college sells research animals to other organizations. These sales are subject to Florida sales tax.
- The university sells dinners, lunches, or breakfasts for fundraising. These sales are subject to Florida sales tax.
- All moving expenses reimbursable to employees must be approved by University Payroll and Tax Services. A Request for Approval to Pay Moving Expense Form with original receipts must be submitted to University Payroll and Taxes Services for review and approval. University Payroll and Tax Services will determine which expenses are taxable or nontaxable and properly code the reimbursement in myUFL HRMS module for W-2 reporting.
- See the Request for Approval to Pay Moving Expenses Form and the Moving Expenses section of the Payroll and Tax Services website.
- Independent Contractor classifications are handled by both Accounts Payable and University Payroll and Tax Services. The University’s Professional and Consulting Services Worksheet must be completed by the colleges and/or departments in order for payments to be made through Accounts Payable for independent personal services. Any individual that was paid through the Payroll will not be allowed to be paid as an independent contractor. All questions concerning these issues should be directed to University Payroll and Tax Services.
- Please see the IRS website for Independent Contractors and Exempt Organizations.
- The University of Florida is an instrumentality of the State of Florida and is exempt from Federal income taxes under Internal Revenue Code (IRC) Section 115, except as noted above. The University of Florida Foundation, Inc. is an IRC section 501(c)(3) organization and is the fundraising arm of the University. It is organized for the purposes of fundraising and accepting gifts on behalf of the University. Donors are requested to direct potential gifts to the University Foundation as the official fundraising arm of the University. There are a number of unique tax issues related to IRC section 501(c) (3) organizations and charitable giving that the Foundation would be better able to assist departments with.
- Helpful links: IRS Publication 1771 for Charitable Contributions, Substantiation and Disclosure Requirements
University of Florida Foundation website
- Both graduate and undergraduate students are exempt from FICA taxes if they are enrolled in courses at least half-time and not working more than 32 hours per week. Students that work more than 32 hours per week will be considered career employees for the student FICA exemption and will be subject to FICA taxes. IRS Revenue Procedure 2005-11 defines the requirements for the student FICA exemption.
- Nonresident Aliens that are currently on F-1 and J-1 visas are exempt from FICA taxes under IRC section 3121(b) (19). NRA students that fall out of status on their visas will be assessed FICA taxes retroactive to the beginning of the year.
- J-2 and F-2 visa holders are subject to FICA taxes.
- H1B1 visa holders are subject to FICA taxes.
- Medical residents are also subject to FICA taxes.
- Payments made to foreign entertainers or their agents are subject to federal withholding taxes of 30 percent and must be reported to the IRS on Form 1042-S. U.S. agents of foreign entertainers may enter into Central Withholding Agreements with the IRS to reduce their withholding tax liability. Information concerning the withholding taxes and requesting a Central Withholding Agreement with the IRS may be found on their website.
- To properly report the income, the Professional Entertainer or Athlete Payment Form must be completed and submitted to University Payroll and Tax Services.
Achievement Awards– Achievement Awards includes the value of any tangible personal property the University gives to an employee as an award for either length of service or safety achievements. Achievement Awards may be excluded from employees’ income when they are within the University and IRS guidelines. Gifts of cash, cash equivalents, gift certificates, meals, lodging, tickets, and vacation packages do not qualify to be excluded from the employee’s income. Achievement awards cannot discriminate in favor of highly compensated employees. Achievement awards must meet the following IRS criteria:
- Be given for length of service or safety achievement.
- Be tangible personal property, other than cash, gift certificates or equivalent items.
- Be given under conditions and circumstances that do not create a significant likelihood of the payment being disguised compensation.
- Be given as part of a meaningful presentation.
- Be no more than the specified dollar limits.
The facts and circumstances for any achievement awards exceeding $100 must be directed, in writing, to University Payroll and Tax Services for evaluation. The IRS website has more information concerning Employee Achievement Awards.
Gifts– De minimis gifts to employees are only permitted from Foundation and Academic Enrichment Funds within their prescribed policies. Gifts that are de minimis (of low value) are excluded from employees’ wages. IRS Publication 15-B states that “A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impractical. Cash, no matter how little, is never excludable as a de minimis fringe benefit. Gift certificates also do not qualify as a de minimis fringe benefit.The following are examples of de minimis fringe benefits excluded from employees’ wages:
- Holiday gifts, other than cash, with a low fair market value.
- Employer provided meals if: they are furnished on the University’s property, are furnished for the University’s convenience, and the employee accepts it as a condition of employment.
- Occasional tickets for entertainment or sporting events.
- Flower arrangements for funerals.
- Additional information concerning Employee Achievement Awards and De Minimis Fringe Benefits may be found on the IRS website.
Tax Exempt Bonds
- Tax-exempt bonds used to finance buildings and other capital improvements can produce a myriad of tax considerations. Generally, the interest paid to the bondholders is tax-exempt under Internal Revenue Code (IRC) section 103(a). However, the interest paid on “private activity” bonds is taxable. Private activity bonds are defined in IRC 141 as bonds in which 10 percent or more of the bond proceeds are used in a trade or business conducted by a nongovernmental organization. Deans, Directors, and Department Heads should be aware that these rules are very complex and should seek the advice of the Office of the General Counsel or University Payroll and Tax Services. If these arrangements are not carefully reviewed by legal counsel, the results could be very costly and harmful to the University.
- University Payroll and Tax Services must also be notified of any tax-exempt bond arrangements and any changes in use of property or sales of property acquired with bond proceeds. The leasing or rental of facility space to third parties financed by tax-exempt bonds must also be disclosed. Areas that may have tax-exempt bond considerations include the following:
- Research contracts
- Management and Service Contracts
- Governmental and private business use at the same time
- Unrelated and Non-exempt Use
- Arbitrage as defined in IRC 148
- Arbitrage is the profit that results from investing the proceeds of tax-exempt bonds in higher yielding taxable securities. Tax law generally requires a rebate of arbitrage profits to the U.S. Treasury.
- Additional information concerning tax-exempt bonds may be found on the IRS website.