In order to comply with Federal (Internal Revenue Service and Treasury Department) and State (Franchise Tax Board) rules and regulations, each SFSU department must comply with these procedures when disbursing scholarships to recipients who are considered nonresident aliens for tax purposes. The Chancellor’s Office requires CSU campuses to comply with the Internal Revenue Code, California Revenue and Taxation Code, and California State University polices and procedures regarding NRA taxation issues. Internal Audit and the Office of Student Financial Aid developed campus procedures to comply with when disbursing scholarships and fellowships to recipients who are considered nonresident aliens for tax purposes. This procedure outlines the responsibilities of each campus department.
Procedures and Responsibilities
Office of Student Financial Aid
The Office of Student Financial Aid (OSFA) developed an automated process (program) called “CITZ – Noncitizen program” that identifies potential NRA students who are to receive a financial aid award (scholarships, fellowships, and other grants) disbursement. The automated program extracts information from the Financial Aid Computing System (FACS) and Student Information Management System (SIMS). The CITZ program:
- Compiles a list of NRA students who have at least $1 in financial aid award (scholarships, fellowships, and/or other grants) and whose citizenship status in SIMS does not equal Y, I, R:
- U.S. Citizen, or Permanent Resident Alien (green card holder) If the student citizenship status equals Y-U.S. citizen, or I - Non-U.S. citizen, Immigrant (applied for and received Form I-151 Green Card), or R–Refugee, the CITZ program will not place a financial aid hold on the records of these students; OSFA will disburse these financial aid awards as part of their normal process.
- NRA: If the student citizenship status does not equal Y or I or R, a list of NRA students is compiled. The list is composed of students with a SIMS citizenship status of F - Non-U.S. citizen (visa student); J - Non-U.S. citizen (exchange visitor); N - Non-U.S. citizen (undetermined status); O - Non-U.S. citizen other visa; and X - Citizenship undetermined. Place a Financial Aid Hold (hold) on each student's financial aid record. The hold prevents any funds from being disbursed to the student. The hold message displays MUST SEE AUDITOR which means that the NRA student must see the Tax Specialist in Internal Audit for the hold to be removed. Internal Audit is the only department that can request to remove the hold. Note: There will be occasions when Internal Audit will request OSFA (Scholarship office) to provide a copy of the award letter or check from the grantor/funding agency. Further “edits” the list by EXCLUDING NRA students who are only receiving loans (e.g. Perkins (PERK), Parent Loans (PLUS), Outside Loans (OULO), Federal Loan or Grant Program (STUN, GSLP, PELL), College Work Study program (CWS), and anything that is in “estimate” status. Loans are not considered taxable income and the CWS can only be given to U.S. citizens, green card holders, and other eligible non-U.S. citizens. The result of step 1 – A, B, and C is a list of NRA students who are scheduled to receive a scholarship, fellowship and/or other award disbursements. The CITZ program is scheduled to generate and to run a list twice a week.
The Tax Specialist will:
Perform a File Transfer Protocol to retrieve the data listing of NRA students from FACS.
- Review the list (and/or award letter, if applicable).
- Contact the student (by email or letter) to:
- Schedule an appointment to review his/her NRA tax status to remove and lift the hold;
- Inform him/her that additional information is needed and forms must be completed prior to the disbursement of the award(s). Each NRA student is required to complete an SFS University Foreign National Information Collection form (FNI). The data collected is entered into the NRA tax software.
Request the student to complete all required forms (including an FNI form) and determine whether some or all of the award(s) is exempt from federal and state taxes. A student may be exempt from Federal tax withholding under one of the following three conditions:
- If the award goes to pay for school tuition and fees (Internal Revenue Code, section 117);
- If the award is considered foreign source;
- If the award is exempt under a federal income tax treaty. If a federal tax treaty exemption is available, and the student decides to take advantage of a tax treaty, a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) is required prior to taking advantage of the tax treaty (an IRS regulation). In addition, some federal forms will need the approval of the Internal Revenue Service before SFSU can grant a federal tax treaty exemption. If the student does not have a Social Security Number or an Individual Taxpayer Identification Number, Internal Audit will provide the student:
- Form SS-5 - Application for a Social Security Card; used to obtain a social security number from the Social Security Administration Office; or
- Form W-7 - Application for IRS Individual Taxpayer Identification Number; a form for the NRA to obtain an Individual Taxpayer Identification Number from the Internal Revenue Service.
- The student must complete and submit the form to either the Social Security Administration or Internal Revenue Service. A Federal tax treaty exemption cannot be granted if the individual does not have a valid SSN or ITIN.
- Based on the information provided and gathered, Internal Audit (IA) will prepare all the required SFSU, federal, and state forms and require the student’s signature.
EXCEPTIONS: 1. If the award payment is exempt from federal taxes: The Tax Specialist will inform OSFA to release the financial aid hold status from FACS (using the ENTR screen) to disburse the award(s). 2. If the award payment is not exempt form federal taxes: The Tax Specialist will enter the appropriate tax-withholding amount (e.g. 14 %) into the Accounts Receivable Module (ARM), then inform OSFA to release the financial aid hold status from FACS (using the ENTR screen) to disburse the award(s). 3. If the award payment is exempt from tax withholding by residency status, the Tax Specialist will enter permanent release status in the ENTR screen -- releasing the awardee from this process. 4. For those students who have been granted by the Admissions office California Residency for tuition purposes, the Tax Specialist will enter permanent release status in the ENTR screen -- releasing the awardee from this process.
Office of Student Financial Aid
OSFA is responsible for ensuring that the “CITZ” program automatically releases the financial aid hold status (based on the information received from Internal Audit – via the “ENTR” screen in FACS. The award(s) will be disbursed through and automated by the financial aid disbursement program called ARM 55. OSFA will send the award to the Bursar's Office. [Note: Upon releasing the financial aid hold, it may take approximately one week before the award(s) is disbursed.]
The Bursar's Office will check the Student Account amount due; and apply the Financial Aid toward the student account. If there is any outstanding balance in the account before the disbursement is made through Accounts Payable.
Accounts Payable will print and mail checks accordingly, based on the ARM 55 output. If tax withholding is applicable, the Tax Specialist will work with AP to ensure that all applicable tax-withholding amounts are forwarded to the IRS and FTB. Note: In the event that a manual check is needed due to unforeseen circumstances or problems, IA will work with the OSFA, Bursar’s Office, and Accounts Payable to ensure the scholarship award is properly disbursed, proper withholding is applied (if applicable), and any additional administrative task is completed.
The procedures above are the required steps that must be adhered to prior to disbursing financial aid award(s) to NRA students. The above procedures do not fully describe the entire process but does outline the necessary steps campus departments need to follow. Should a campus department need further clarification on the above procedures or need additional information regarding disbursing award(s) to NRA students, they should contact Internal Audit and speak to Young Kim, Tax Specialist at (415) 338-2325.