- Harvard is required to indicate the “location of activity”, particularly when paying income to foreign individuals and foreign entities, to comply with IRS tax withholding and reporting regulations. A clear indication of the location of the activity (such as the country) is necessary on all supporting documentation for the payment to be correctly classified for tax purposes. This applies to both service and non-service income.
- Generally, the location of the activity would be where a service is being performed, property is being rented, or the location where fellowship income is expected to be utilized in support of one’s scholarship or research.
- Royalties, copyrights, and patents, such as those paid for the use of intellectual properties (i.e., industrial properties and software licenses), are generally considered U.S.-sourced when utilized by Harvard due to our U.S. location. This income could be taxable up to 30% if a tax exemption or tax reduction claim has not been previously facilitated before the payment was issued.
- In general, payments for tangible goods or products for international purchases are not subject to U.S. reporting or tax withholding. Indicate where the tangible items are to be used or shipped to for the location of the activity.
- If the source of income cannot be determined at the time of payment because the location of the activity is not clearly indicated, the payment must be treated as U.S. sourced under IRS Regulations. Incorrect or missing information may also result in payment delays or incorrect tax withholding.
- Here is additional information from the IRS website regarding sourcing: IRS- Nonresident Aliens and Source-of-income
Please review additional information and scenarios commonly seen at Harvard https://nratax.oc.finance.harvard.edu/usor-foreign-source-income.