W-9 for winning a prize as a J-1 research scholar from Germany

germanInUS

New Member
Jurisdiction
Pennsylvania
Hi,

I have participated in a coding contest in the US and I have won a prize for reaching a very high score. The prize is more than 600$ and that is why I need to fill out a W-9 form in order to receive the money. The problem now is that I am not a US citizen and in the W-9 form I have to confirm that I am either a US citizen OR a resident alien. I might be a resident alien, but I am not sure. Here is my situation:

I am on a J-1 visa (research scholar) and it is my 3rd year in J-1 status. I have been in the US for more than 31 days this year, but I have not passed the 183 days test yet. However, I will pass it by the end of the year. So the question is if I am a resident alien now or not. Can I sign the form or not? What if I can't sign it, can I still get the prize, e.g. using a W8-BEN form?

EDIT: If that is relevant, I am German citizen.

Best
 
Hi,
I am on a J-1 visa (research scholar) and it is my 3rd year in J-1 status. I have been in the US for more than 31 days this year, but I have not passed the 183 days test yet. However, I will pass it by the end of the year. So the question is if I am a resident alien now or not.

It doesn't sound like you meet the substantial presence test to be considered a resident alien for tax purposes. You are clearly not a citizen or true resident alien (green card holder). So unless you meet the substantial presence test you won't be a resident alien for tax purposes and cannot certify that you are if that test is not met. See IRS publication 519 to determine if you meet the test. (And you might not want to be a resident alien as that subjects all your worldwide income to U.S. tax.) They likely give everyone the W-9 by default. If you don't meet the test, give them the W8-BEN instead. They'll have to withhold tax from the payment they give you, but you won't be disqualified from getting it unless citizenship or green card status was a requirement of the competition.
 
Thank you!

I currently do not meet the substantial presence test because I was in the US in 2018 and 2019 in J-1 status. These were my first two years in the US (Nov 18 - May 19 and Sep 19 - present). So I can not count the days from these two years (J-1 is exempt for the first two years), but I can count the days this year.

An important question is if I can only count the days that I have already been in the US before the current date (in this case Jan 1 - March 11) or all the days that I will be in the US? If I already know that I will be in the US for more than 183 days this year, am I a resident alien now (March 11) or am I a non-resident alien until I pass the 183th day and then become a resident alien? (retrospectively?) So will my resident alien status change during the year? If I can already consider myself a resident alien, I should be good to sign the W-9, right?

And you might not want to be a resident alien as that subjects all your worldwide income to U.S. tax.
I only have US income this year (at least so far), would being a resident alien have another downside?

They likely give everyone the W-9 by default. If you don't meet the test, give them the W8-BEN instead. They'll have to withhold tax from the payment they give you, but you won't be disqualified from getting it unless citizenship or green card status was a requirement of the competition.
Ok, assuming I use the W8-BEN now but then later during the year pass the 183 days and become a resident alien. Is that a problem?

Will I only have to pay taxes on the prize when I use the W8 or also when I use the W9? Will the tax rates be the same?

Sorry for all these questions, but I don't know the US tax system and it is very hard to understand all the rules and exceptions. I don't want to get into trouble for signing a wrong form.
 
Sorry for all these questions, but I don't know the US tax system and it is very hard to understand all the rules and exceptions. I don't want to get into trouble for signing a wrong form.


If you wish to avoid any legal entanglements or brouhahas, I suggest you make an appointment with a CPA and pay for real, substantial tax advice.

Acting on any advice, instruction, direction, or information received anonymously via the internet is a sure fired way to run afoul of the various US tax authorities, as well as any German tax authorities.
 
Thanks! I am already in the process of finding an affordable attorney. However, if people here could give me advice or point me in directions, that would be a good starting point for further research and a consultation by an attorney.

By the way, let's assume I use a wrong form, e.g. I use the W-9 but I am not a resident alien. What will the consequences be? Pay a fine? Pay all the prize money back? Get deported? Get banned from the US? Or will the error be detected before I even receive the prize and I have the chance to correct the mistake?
 
If I already know that I will be in the US for more than 183 days this year, am I a resident alien now (March 11) or am I a non-resident alien until I pass the 183th day and then become a resident alien? (retrospectively?)

The latter. You are not a resident alien for tax purposes until you satisfy the substantial presence test, which means you have to be physically present for the 183 days. Simply knowing that you will meet it later is not enough.

I only have US income this year (at least so far), would being a resident alien have another downside?

If all your income is U.S. source anyway then from a US tax perspective being a resident for tax purposes will likely benefit you. Whether it might cause you any trouble for German tax I don't know.


Ok, assuming I use the W8-BEN now but then later during the year pass the 183 days and become a resident alien. Is that a problem?

No. Any tax withheld is simply applied against the U.S. tax you owe either way.

Will I only have to pay taxes on the prize when I use the W8 or also when I use the W9? Will the tax rates be the same?

The rates are different, which is why it matters. Again, though, the tax withheld is simply a deposit against the tax you will owe when you file the income tax return. By that time it seems you'll meet the substantial presence test and will be taxed as a citizen would, which would likely mean less tax owed in the end.
 
Is it correct that US citizen or resident aliens don't pay taxes on awards (and get 100%) while others pay 30% tax?

For the nonresident alien most US sourced payments received that are not connected with a U.S. trade or business are taxed at a flat rate of 30% and the U.S. person paying the payment is supposed to withhold the 30% from the payment to ensure the nonresident alien pays the tax.

For those that are citizens and residents (including those treated as residents under the substantial presence test) they are taxed on their income at progressive rates depending on the total amount of the income they have during the year, which could be anywhere from 0% to 39.6%. Most payments received other than wage payments received do not require any withholding by the person making the payment, but there are some exceptions in which withholding is needed, and the rates vary depending the particular type of payment involved.

If you end up having the 30% withheld because you are not yet treated as a resident but you do qualify as a resident by the time you file the return then so long as the prize was awarded after the start of the period that qualifies you as a resident it will end up taxed like a resident would be taxed. That will likely mean the tax ends up being less than the 30% that was withheld, which then can cover tax on other income you had or would get refunded if the amount withheld is more than your total tax.
 
Thank you so much! With all the information from this forum, other online resources, official IRS information and information from my employer, I conclude:

- I am not a resident alien yet => I am not allowed to use the W-9 now
- I will probably become a resident alien
- I should use the W8-BEN instead of the W-9 and as soon as I become a resident alien, I should update the payer of the award with the W-9 form
- I will have to pay 30% taxes on the award when I use the W8-BEN but I will get a refund when I become a resident alien (unless I have to pay other taxes which are higher than the 30%).

If I understood everything, that should be correct. I will ask the contest organization if they accept a W8-BEN instead.

Thank you!
 
- I should use the W8-BEN instead of the W-9 and as soon as I become a resident alien, I should update the payer of the award with the W-9 form

No, don't update the payer with the W-9 later. It'll be totally pointless to do that and it's not required. The payer only needs a certification of your status prior to the payment being made. Once the payment is made the payer has nothing more to do with your tax situation other than issuing you a Form 1099 and that would occur regardless.

If I understood everything, that should be correct. I will ask the contest organization if they accept a W8-BEN instead.

They should, once they understand you are not a citizen or resident and they know what they have to do for withholding. This is not something that should prevent you from getting the award.
 
For some reason the contest people ignore all my mails and calls. Very weird... I hope it's just because of Corona and not because they don't want to struggle with the W8 form.
 
I have now received the full amount from the contest. They accepted the W8-BEN form. They did not withhold the 30%. Will I have to pay these 30% next year when I file my taxes?

What if I become a resident alien this year, will I not have to pay the 30%? But in that case I would have to pay taxes on income I make in other countries? That would be bad because I start a job in Europe in August.

Right now I have the choice if I want to become a resident alien or not by booking a early or late flight. If I am not wrong, this is the situation:

Resident alien:
- Do not have to pay the 30% taxes on the award
- Will have to pay taxes on my income outside of the US
- Will not receive my FICA taxes back

Non-resident alien:
- Will have to pay 30% taxes on the award
- Will receive my paid FICA taxes back
- Will not have to pay taxes on my income outside of the US

So in case the 30% of the award are lower than the FICA + taxes on income outside the US, it makes sense not to become a resident alien.

Is that correct?
 
I have now received the full amount from the contest. They accepted the W8-BEN form. They did not withhold the 30%. Will I have to pay these 30% next year when I file my taxes?

Then they evidently do not understand U.S. tax law as well as they should. They were obligated to withhold the 30%. Since they didn't, you will need to file a return and pay that tax on your 1040-NR.

What if I become a resident alien this year, will I not have to pay the 30%? But in that case I would have to pay taxes on income I make in other countries? That would be bad because I start a job in Europe in August.

If you elected to be treated as a resident alien for the whole year then your award would be taxed at whatever rate applies to your level of income, like any citizen or resident, and that's likely to be less than 30%. But you would then also be subject to tax on income you get anywhere in the world. So that European job would be taxable income in the U.S. On the other hand, you'd be able to claim a foreign tax credit for the foreign income tax you pay on that income. If the European income tax is equal to or greater than the tax the U.S. would impose on that income then the effect of the credit would be to eliminate your U.S. tax on that income.

I suggest you read IRS Publication 519, which covers U.S. taxation of nonresident aliens, and IRS Publication 54, which covers taxation of the foreign income of U.S. citizens and residents.
 
Then they evidently do not understand U.S. tax law as well as they should. They were obligated to withhold the 30%. Since they didn't, you will need to file a return and pay that tax on your 1040-NR.

I think I was the first one who tried to use a W-8 instead of a W-9, so they did not know. Does the IRS know about the award automatically or do they only know if I mention the award on my tax forms next year? What happens if I forget that and end up not paying the 30%?

If you elected to be treated as a resident alien for the whole year then your award would be taxed at whatever rate applies to your level of income, like any citizen or resident, and that's likely to be less than 30%.
Does that depend on the city or state I live in or do you mean the federal tax rate? According to 2019-2020 Federal Income Tax Brackets - SmartAsset that would be 12% (if I only count the income in the US and ignore the european. If I include the European income it would probably be 22% or 24%). The award was 5000 USD, so the tax on that would be either 600 USD (12%), 1100 USD (22%) or 1200 USD (24%) which is lower than 1500 USD (30%) that I have to pay as a non-resident. But on the other hand I would also loose about 1100 USD by paying FICA taxes.

In other words, in the best case (12% rate) I would save 1500 USD - 600 USD = 900 USD of the award taxes but loose 1100 USD FICA, so in total I would still have 200 USD less as a resident alien. In the 22% case I would save only 300 USD on the award, pay 1100 USD FICA and in total loose 800 USD.

Looks like being a resident alien would be more expensive to me in this case (ignoring the fact that I also have to pay income taxes on my European income)

On the other hand, you'd be able to claim a foreign tax credit for the foreign income tax you pay on that income. If the European income tax is equal to or greater than the tax the U.S. would impose on that income then the effect of the credit would be to eliminate your U.S. tax on that income.

Since the European income tax (20%) would be higher or only a little bit lower than the US income tax, I would not have to pay much taxes on the European income in the US.

However, if I am not getting it totally wrong, it still looks like being a resident alien would be more expensive to me.

And apparently there is an exception for the substantial presence test which allows me to exclude up to 60 days from counting: Relief for tax residency impacts of COVID-19 travel disruptions . That means I can safely pick a later flight and still be a non-resident. That's good news as my flight has been cancelled and flights are now very expensive unless I pick a flight after my 183th day in the US
 
I think I was the first one who tried to use a W-8 instead of a W-9, so they did not know. Does the IRS know about the award automatically or do they only know if I mention the award on my tax forms next year? What happens if I forget that and end up not paying the 30%?

They should give you a Form 1099 next January for the award. That's how the IRS will know you got it. If you don't report it on the return and don't pay the tax you will be subject to penalties and potentially additional withholding, too.

Does that depend on the city or state I live in or do you mean the federal tax rate?

I was referring to the federal tax rates. State taxes are different and vary by state.

According to 2019-2020 Federal Income Tax Brackets - SmartAsset that would be 12% (if I only count the income in the US and ignore the european. If I include the European income it would probably be 22% or 24%).

If you are a resident alien you must include your worldwide income on the return, not just the U.S. income.

But on the other hand I would also loose about 1100 USD by paying FICA taxes.

If this is truly a prize or award rather than payment for personal services provided then there would be no FICA taxes on the prize.

Since the European income tax (20%) would be higher or only a little bit lower than the US income tax, I would not have to pay much taxes on the European income in the US.

If you are a resident alien then you get to take the foreign tax credit on your U.S. return for the EU income taxes you pay your income. If the EU rate of tax is about the same as the U.S. rate of tax then you are correct that you'd pay very little in U.S. tax on the income that is subject to EU taxes. In that case, and assuming it is a prize or award and not compensation for personal services, from a U.S. standpoint you'd come out ahead filing as a resident alien rather than a nonresident alien.
 
If this is truly a prize or award rather than payment for personal services provided then there would be no FICA taxes on the prize.

Sorry, I wrote that not clearly. When writing about the FICA taxes I meant the OASDI and Medicare payments that my US employer withheld from my salary due to the possibility that I become a resident alien. If I am a non-resident alien in 2020 they refund me the withheld FICA taxes (maybe that is because the German - American tax treaty? I don't know exactly)

There were no FICA taxes on the prize.
 
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