E-7-1 Payments for Services Subject to Tax Withholding and Reporting to IRS

I. Purpose

To ensure compliance with Internal Revenue Service (IRS) regulations and procedures for tax withholding and reporting for payments made to medical service providers, attorneys, sole proprietors, partnerships, and individuals. 
 

II. Definitions 

• Award: A gift or prize given to an individual as a result of them entering a contest, being selected by a random drawing or being selected from a pool of potential recipients that meet established eligibility criteria.   
• Service: An act or task completed by an individual on behalf of or for the benefit of the University.
• Examples of Payments Subject to Tax Reporting include but are not limited to
  • Payments to attorneys 
    • Legal services 
    • Legal consultation 
  • Payments for consulting services
  • Payments to entertainers
  • Payments for medical services including:
    • Physicians
    • Physician services groups
    • Dentists
    • Technicians
    • Ambulatory services
    • Medical technician services
    • Nursing services 
    • Patient care 
    • Therapy (all types)
  • Payments to sporting event officials and referees
  • Payments to research participants/subjects
  • Payments for prizes and awards
  • Payments for professional services (e.g., interpreters and accountants)
  • Payments for reimbursements to nonresident aliens for guest expenditures
  • Payments for rent/leases of real property
  • Payments for royalties to authors and inventors
  • Payments to visiting speakers including honorariums
  • Payments of any type made to an individual for personal services
  • Payments of cash tips totaling $2,000 or more per calendar year to a single individual (examples include payments to tour guides or bus drivers)

III. Responsibilities 

1. Employing officials/departments must be familiar with IRS regulations and publications for worker classification and tax reporting. See IRS Publication 963.   
2. University departments must comply with IRS regulations for classifying workers as employees or independent contractors. See BPM E-7-3 Worker Classification: Employee or Independent Contractor. 
3. When paying foreign nationals, University departments should refer to BPM E-7-7 Payments to Foreign Nationals.  

IV. Policy

This policy establishes the requirements for University departments when issuing payments subject to tax withholding and/or reporting to the IRS. All such payments must be properly authorized, documented and processed in accordance with University, State, and IRS regulations.  
 

V. Procedures

1. Employing officials/departments are responsible for ensuring that all forms relevant to the type of payment being made are fully and accurately completed by the taxpayer and/or the department. The name on all forms should be consistent with the name on the vendor’s Taxpayer Identification Number (Social Security Number, Individual Taxpayer Identification Number, or Employer Identification Number) documentation.  
   1. The department will send the vendor an invitation for PaymentWorks. The vendor will complete the registration in PaymentWorks and submit it to UK to be established as a vendor. For payments to research subjects, see BPM E-9-1 Compensation to Research Subjects or Survey Participants.  
   2. Each vendor must complete the appropriate IRS forms (e.g., a W-9 for a resident individual or a resident entity  or W-8BEN for a nonresident individual, or a W-8BEN-E for a nonresident entity) based on their taxpayer classification and attach the forms to the PaymentWorks registration.  
   3. The department should reference BPM E-7-7 Payments to Foreign Nationals for payments to foreign nationals.
   4. The department should access the Purchasing/AP Quick Reference Guide and select the appropriate payment method. 
      1. The department should complete the appropriate payment transaction document, attach the supporting forms as well as documentation required for the payment transaction and submit the document for approval/processing. 
   5. An employee/department that  pays an individual a cash tip  of $250 or more( e.g., payments to tour guides or bus drivers) is responsible for collecting the appropriate tax forms (e.g., a W-9 for a resident individual or W-8BEN for a nonresident individual)  and a signed receipt from the recipient. These forms must be included with the payment document.