A royalty is a payment for the right to use a copyright on a book, periodical, articles, etc. The royalty can also be for the use of patents, trademarks, formulas and goodwill.
Sourcing Income
Sourcing a payment is essential to the tax withholding obligations of a nonresident alien. A royalty payment is sourced by its type:
- Industrial Royalty - for use of natural resource it is where the property is located.
- Copyright Royalty/Motion Picture and Television Royalty - for use of copyright, etc. it is where the property is used.
Tax Reporting and Withholding
- U.S. sourced Royalty payments to nonresidents are subject to 30% Federal Tax withholding, unless exempted, or reduced under a Tax Treaty.
- U.S. sourced Royalty payments are reported at year end on Form 1042-S. Form 1042-S is issued by Payroll Services through the GLACIER on line tax reporting system.
- A foreign sourced royalty payment is not subject to withholding or reporting.
Tax Treaty Exclusion
- Industrial royalties (Income Code 10)
- Motion Picture and Television Royalties (Income Code 11)
- Copyright Royalties (Income Code 12)
Under certain tax treaties, different rates may apply to royalties for information concerning industrial, commercial and scientific expertise.
Steps to Process a Royalty Payment to a Foreign Individual
- Step 1: Determine Correct Classification of Royalty
This is important to note for any tax treaty consideration.- Industrial Royalty Payment: Payment for the right to use items such as patents, trademarks, formulas or goodwill.
- Copyright Royalty Payment: Payment for the right to use copyrighted materials, such as books, periodicals, articles and plays.
- Step 2: Determine if a GLACIER record is required
- If foreign individual is a United States Permanent Resident, Refugee or has Asylee status: Individual must complete IRS Form W-9. Submit to Accounts Payable with any other documents required by BruinBuy. No GLACIER record is required.
- All other foreign individuals must complete a GLACIER Record.
- Step 3: Determine if individual has a U.S. Tax ID Number
If individual does not have a SSN or ITIN, and is present at UCLA: After GLACIER is created and the individual has accessed their record, contact UCLA Tax Services to set up an ITIN appointment during the time that the visitor is at UCLA. Please refer to ITIN Guidelines in related information for more detail. - Step 4: Complete the Initial GLACIER© Online Entry Form
- A GLACIER record can be requested, no more than 30 days in advance.
- Initial GLACIER© Online Entry Form will begin the GLACIER process by instructing for Payroll Services to set up a GLACIER record for the individual.
- Step 5: Provide the following information to the foreign individual
- An email from support@online-tax.net with GLACIER logon information will be sent to them. This email is not spam or phish so that they should not ignore it or delete it.
- They must complete their GLACIER Tax Record in a timely manner in order to receive payment. Enter the Relationship Type and Income Type as follows:
- Relationship Type: Royalty Recipient.
- Income type based upon the type of Royalty being paid.
- Industrial Royalties or
- Copyright royalties
- Once completed: print, sign, date and submit the required tax forms and supporting information indicated on their GLACIER Tax Summary Report to Payroll Services.
- Step 6: Process a BruinBuy Order
Be sure to:- Note in BruinBuy comments that “The Initial GLACIER Information Form was submitted to Payroll Services on [Insert Date]”
- Add the Nonresident Team in Payroll Services as a reviewer on the BruinBuy order
- Enter “I” in the DOC TO AP field on your BruinBuy order
Additional Recommendations
- Appointments can be scheduled with Payroll Services to assist foreign individuals with any GLACIER issues and/or to review GLACIER forms and documentation.
- Contact Payroll Services Nonresident Tax Compliance Administrator for more information.
