Non-Resident Alien Tax (1042-S) Process in SAP Payroll

Non-Resident Alien Process Overview

SAP provides for the capturing, processing, and tracking of all data mandated by the Internal Revenue Service (IRS) and United States Citizen and Immigration Services (USCIS) for fully compliant payroll processing of non-resident employees.  SAP infotypes will store relevant data, calculate pay period earnings, calculate tax amounts, calculate and monitor tax treaties, monitor and calculate according to effective and expiration dates, and maintain amounts for 1042S and W-2 reporting.

The SAP infotypes that store and maintain relevant date for processing non-resident alien payroll processing are:

  • Residence Status Infotype      0094
  • Visa Status Infotype 0048
  • Tax Treaty Infotype 0556

Non-resident aliens may be exempt from all or some taxes (FICA, Medicare, Federal, or State) depending on their position, Visa type, original arrival date, country of origin, and reason for visit.  The United States has entered into tax treaties with some countries which make the wages they receive from Michigan State University tax exempt.

During the hiring process, the employee’s residence status will be entered.  Payroll will run a query to identify any employee with a non-resident alien status.  Payroll will contact the employee, ask them to bring their documents to Payroll, then fill out all relevant paperwork for the non-resident alien.  Once the tax exempt paperwork is completed, Payroll will input the information on the correct infotypes.

After the information is entered, a payroll simulation will be performed to verify that the taxation will occur correctly.  During payroll processing, the payroll schema will make taxation decisions based on the information stored on Infotypes 0094, 0048, and 0556.  The NRCT table will be updated with treaty exempt earning, applicable tax year, and other related Non-Resident Alien information.

Tax treaty participants must renew the tax treaty each year.  Before the end of the calendar year, Payroll will inform them that they must come to Payroll to sign a new tax treaty.

Ongoing maintenance of non-resident alien status will be monitored in SAP using the following SAP ad hoc queries:

  • New hire employees with      NRA status
  • VISA expiration date
  • Tax Treaty expiration date
  • NRA marital status and      exemptions

SAP produces 1042S forms for non-resident aliens.   Some University also utilize Windstar Software to determine the eligibility of non-resident aliens to participate in tax exemption and to produce the 1042S.  A flat file will feed to Windstar from SAP with income totals.  A non-resident alien may receive a 1042S with information from one or more areas included.