Interns and Taxes
Rick Spradling
No Date
________________________________________________________________
Colleagues:
Here is my long-awaited
summary of the responses concerning taxation for
interns
(and other short-term employees):
--although it may have
been different in the past, it appears clear now
that the
IRS does not recognize that bona-fide residency can be
established
in less than one full tax (calendar) year. Physical
presence is
not the key. You can qualify for bona fide residency and
pro-rate a
partial tax year, but ONLY after you have had that residency
for a full
tax year (in other wods you must be a resident--not
necessarily
physically present for a certain number of days--in the
foreign
country from Jan-Dec before you can claim the pro-rated foreign
income
exclusion for part of the previous tax year). Of course, it is
quite
possible that an intern can claim pro-rated residence without
meeting
this test and, given the income level of an intern, not likely
be audited.
But I believe this is the legal answer to my question.
--one suggested way
around this, of course, would simply be to pay the
person
"under the table" or the intern could decide not to declare the
income, but
I would not necessarily endorse either approach (sort of
sounds like
Dick Nixon discussing the Watergate burglary, doesn't it?)
--a few of you suggested
that the better approach was to put as much as
possible of
the intern/teacher's compensation in the form of expenses
and not
salary, which it was felt might be less taxable (though I am not
really sure
this is true as the IRS treats non-salary compensation such
as housing
as taxable income)
--in such a case, the
payment to the intern should not come from payroll
but rather
from "consultants" or some such similar expense line in your
budget
--another suggestion was
to treat the intern's compensation as a
scholarship;
one school brings the intern into the country on a student
visa and
treats the compensation as a scholarship, thus shielding it
from taxes;
it might be necessary for the intern to actually take a
course in
country, perhaps in the host country language, to justify the
position
--another suggestion was
simply to "gross up" the intern's compensation
by the
assumed amount of the tax; given the normally low level of
stipend or
salary for an intern, the tax that would be paid at the
lowest tax
bracket (14%?) would not be significant and could be paid as
a
supplement to the intern or included in the compensation amount
--of course, in situations
where the intern was actually paying (or
having paid
for him or her) local income tax, the local taxes could be
taken as an
offset on the IRS form and quite likely negate any
owed.
I hope this is helpful
for those of you in similar situations.
Rick Spradling
--
Richard L. Spradling, Ph.D.
Salmannsdorfer Strasse
47
A-1190 Wien (
Tel: (43-1)
401320
Fax: (43-1)
401325
E-Mail: r.spradling@ais.at
Website: www.ais.at