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• Open Comment Period: August 17 - September 8, 2017

  Aug 17, 2017 8:30 am by OBFS Policy Administrator
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  Section 8 - Payments to Human Subjects

  Section 18.10 - Human Subject Payments and IRS Reporting Requirements

  Welcome!

  The University of Illinois System, Office of Business and Financial Services is reopening comments on proposed policy and procedural changes for processing payments to human subjects, in Section 8 and Section 18.10.

  In addition to new updates in the proposed policy, the following question and answer document has been added to explain when tax identification information needs to be collected.

  Payments to Human Subjects Frequently Asked Questions (FAQ)

  Changes to the policy include:

  • Allows a Custodian to have one program advance for each approved IRB Protocol.
  • Does not require closure of a program advance at fiscal or calendar year end.
  • Increases threshold for collection of tax identification numbers for human subject payments from $100 to $200 per calendar year.
  • Defines what is considered a reconciliation event (replenishment, verification of non-use of funds, partial closure, or closure of the advance).
  • Requires that a reconciliation event occur every 90 days (OBFS recommends monthly reconciliation).
  • Limits the time an advance can be open to 180 days.
  • Incorporates and updates the language currently in Section 18.10 to address IRS tax reporting requirements for payments to non-resident aliens.
  • Establishes an “if known” standard to requesting tax identification information for non-resident aliens.
  • Clarifies advance closing requirements and IRS requirements related to tax reporting for advances not closed in a timely manner.
  • Adds a definitions section.
  • Adds a human subject payment workflow diagram to aid in determining payment mechanism.

   

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  Payments to Human Subjects

  Policy Statement

  The University of Illinois System often conducts research projects that involve the use of human subjects. When human subjects are offered financial incentives to participate in research, they are paid in the form of cash/cash equivalents to participate.  All human subject payments must be made in compliance with an approved IRB Protocol.

  Human subject payments may be paid in the form of cash, cash equivalent (such as gift cards/certificates/electronic-codes), or check depending on the circumstances of the study and the dollar amounts involved.  In the event that a good or service is provided in exchange for or as a requirement to participate in a research study, the taxability of the good or service will depend on IRS tax reporting requirements. 

  Personal funds cannot be used for payments to human subjects. Risks of allowing the use of personal funds include non-compliance with tax reporting rules, and payments before official approval of Institutional Review Board (IRB) protocols.

  All human subject payments must be processed using account code 141200 unless the payment is to a nonresident alien.  Human subject payments to a nonresident aliens (as defined in Section 18.2 – Foreign Nationals) must be processed using account code 215985.

  The Internal Revenue Service (IRS) requires tax reporting for human subject payments.

  Applicability of Policy

  This policy is applicable when providing payments to human subjects for participation in research, regardless of the funding source.

  Reason for Policy

  Federal tax and immigration laws require compliance with the rules and regulations pertaining to processing compensation for participants in human subject studies.  Failure to comply with these procedures may result in a violation of Federal Law.

  18.10 Human Subject Payments and IRS Reporting Requirements

  Note: This policy is intended for the purpose of informing employees and other University of Illinois System-related individuals about relevant tax issues. This policy does not constitute legal or tax advice. Individuals should consult with their attorneys or tax professionals for advice on personal issues.

  Human Subject Payments to U.S. Citizens, Resident Aliens, and Permanent Residents

  The IRS requires reporting on human subjects payments when they exceed certain amounts. The University of Illinois System is required to request the human subject's Taxpayer Identification Number (TIN), in order to fulfill its tax reporting responsibilities with the IRS if payments total $600 or greater during a calendar year. The University of Illinois System reports these payments to the IRS on a 1099-MISC, Miscellaneous Income form.  The Principal Investigator must provide University Payables (UPAY) with the TIN for individuals identified in this policy for tax reporting purposes.  The Principal Investigator and UPAY must keep the TINs collected as confidential.

  When a human subject is paid a single payment which is greater than $200 or at the time cumulative payments for a calendar year exceed $200, it is the University of Illinois System’s policy to obtain tax identification information from the human subject.  This is required because a human subject may participate in several studies and receive payments with a cumulative value equal to or greater than $600, which would require reporting of these payments on IRS Form 1099-MISC.  To obtain tax identification information from a human subject, the human subject should be presented with both an IRS form W-9 and W-8BEN.  It is the human subject’s responsibility to determine which form applies based on their tax reporting status.  The University cannot provide tax advice to human subjects.

  Human Subject Payments to Nonresident Aliens

  Researchers are not required to inquire about an individual’s tax reporting status to participate as a human subject; however, if it is known that an individual is a nonresident alien or the University has reason to know that an individual is a nonresident alien, payments must be processed in accordance with this Section.

  Payments to human subjects that are known to be nonresident aliens, or payments to human subjects the University has a reason to know the individual is a nonresident alien, must meet IRS tax reporting requirements.  The confidential nature of a study does not exempt the University of Illinois System from the IRS tax reporting requirements identified in this Section.  A nonresident alien is an individual who is not a U.S. citizen or a resident alien. A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.

  All payments to human subjects who are nonresident aliens, regardless of the amount, are required to be reported to the IRS on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.  The University of Illinois System is required to report these payments when it is known or the University has reason to know that a human subject is a nonresident alien pursuant to 26 U.S.C. § 1441.

  It is known or the University would have reason to know that a human subject is a nonresident alien through one or more of the following four manners:

  1. The IRB protocol’s Inclusion Criteria requires that human subjects be nonresident aliens;
  2. The human subject self-identifies as a nonresident alien;
  3. The research being conducted provides information which identifies the human subject as a nonresident alien; or,
  4. The University of Illinois System has other information available to know or have reason to know that the human subject is a nonresident alien.

  Prior to making a payment to a human subject who is known or who the University has reason to know to be a nonresident alien, the University of Illinois System must request a completed IRS Form W-8BEN.  IRS Form W-8BEN includes the human subject’s full/legal name, tax identification number, and address.

  The Federal rate of 30% and State rate of 4.95% will be withheld for all payments to nonresident aliens unless a U.S. Tax Treaty applies.

  If an individual’s payment is subject to a U.S. Tax Treaty, the payment may be exempt from or have a reduced withholding.  Nonresident aliens may request an exemption to this withholding based on a tax treaty.  The following must be submitted to University Payroll and Benefits (UPB) prior to a payment being made:

  • Foreign National Tax Information form
  • IRS Form 8233
  • IRS W-8BEN
  • An affidavit stating their country of residence immediately prior to them entering into the United States

  UPB will review this information and make a determination whether or not a U.S. Tax Treaty applies and adjust the withholding accordingly.

  UPB is responsible for maintaining the information required to prepare IRS Form 1042-S for tax purposes.  Due to the IRS tax withholding requirements identified in this section, payments to nonresident aliens must be made via check through UPB.  Payments cannot be made with cash or cash equivalents (gift cards, certificates, codes, etc.).  The information captured on Form 1042-S, is singularly provided for each individual payment to the IRS, as required by law.

  UPB may be contacted with questions at:

  Chicago (312) 996-7200
  Springfield (217) 206-7211
  Urbana-Champaign (217) 265-6363

  See Section 18.2, Nonresident Aliens, and the Foreign National website, for additional information.

  Forms Used in this Section
  Foreign National Tax Information form
  IRS Form 8233
  IRS W-8BEN

  Human Subject Payments to Employees

  Payments made to human subjects who are also employees are treated the same as payments for human subjects which are not employees unless an employer/employee relationship exists within the study or participants are limited to employees only. In such rare cases, payments are reported on Form W-2, Wage and Tax Statement and subject to income tax and Medicare withholdings. For additional information regarding independent contractors versus employees, see Section 17.2, Classification of Independent Contractors Versus Employees.  For payments to employees who are nonresident aliens, see above.  When making a human subject payment to an employee that requires tax reporting, a University Identification Number (UIN) is an allowable replacement to a social security number, or individual’s tax identification number.  Payment requests must be made through and approved in PARIS.  Indicate the reason as “additional Time Worked/Pay”; enter Earn Code “HSE”; and add a comment identifying the amount to be paid and “Human Subject Payment”.

  Payments to Human Subjects Without Tax Reporting Information

  If a human subject is requested to provide information for tax reporting purposes and he/she refuses to or is unable to, payments to the human subject will be subject to the IRS Presumption Rules.  Specifically, all payments to the individual will be subject to the IRS backup withholding of 28% unless the human subject is known to be a nonresident alien or the University has reason to know the individual is a nonresident alien.  If the human subject is known or presumed to be a nonresident alien, then the payment will be reported on IRS Form 1042-S and subject to the Federal rate of 30% and State rate of 4.95% will be withheld as explained in the Human Subject Payments to Nonresident Aliens section.

  Human Subject Payments in the Form of a Good or Service

  If a good or service which is purchased by the University of Illinois System is required for participation in a research study, the fair market value (at the time the good or service is provided to the human subject) may be reportable for tax purposes if the good or service is unrestricted for use by the human subject outside of the research study.  The fair market value of a good (at the time it is provided to the human subject) is also taxable if the ownership of the good will remain with the human subject at the end of the study.

  If the good or service is provided in exchange for the human subject’s participation in a study, the fair market value of the good or service is subject to reporting for tax purposes.

  When goods or services provided to a human subject have a fair market value exceeding $200 in a calendar year, the fair market value of the good or service at the time it is provided to the human subject must be reported following the requirements in:
  Section 8: Payments and Reimbursements – Tax Implications for Payments

  Collection of Tax Identification Numbers from Human Subjects

  When collection of tax identification information is required under this policy, it must be kept confidential. Confidential tax identification information includes, but is not limited to the following:

  • Social Security Number (SSN)
  • Individual Taxpayer Identification Number (ITIN)
  • IRS Form 8233
  • IRS W-8BEN

  This information must be collected in compliance with Section 19, Business Systems Access and Security: Social Security Numbers.

  Human Subject Payments Procedures

  Open a Program Advance to Pay Human Subjects in Cash or Gift Cards
  Replenish a Program Advance to Pay Human Subjects
  Partial Close of a Program Advance to Pay Human Subjects
  Close a Program Advance to Pay Human Subjects
  Request Checks Made Payable to Human Subjects

  Additional Resources

  Urbana-Champaign: Office for the Protection of Research Subjects
  Chicago: Office of the Vice Chancellor for Research
  Springfield: Grants, Contracts and Research Administration
  Payments to Human Subjects Flowchart
  Definitions

   

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  Open a Program Advance to Pay Human Subjects in Cash or Cash Equivalents
  

  Policy Statement

  Cash or all forms of gift cards used to pay human subjects must be obtained or purchased using a program advance issued in the name of the Principal Investigator or designee responsible for the program. This individual is the Custodian of the advance.  All employee groups are eligible to be custodians except undergraduate students, unpaid graduate students, hourly graduate students, extra help, and academic hourly.  In the event the Custodian is a non-resident alien, there may be additional tax reporting requirements if the program advance is not reconciled or closed in a timely manner.

  A single cash or gift card payment to a human subject in research studies may not exceed $200.

  A program advance custodian may have only one outstanding program advance per Institutional Review Board protocol. No single program advance can exceed $10,000. No program advance may remain open for longer than 18 months. A program advance request must include the proposed start and end date of the study.

  The Custodian is personally responsible for safeguarding program advances and cannot allow the funds to be improperly used.  If the program advance custodian failed to safeguard the advance or allowed it to be improperly used, the custodian must repay the money. If the loss was beyond the custodian's control, it may be repaid from the unit's budget or other available operating funds.  In the event an advance is stolen, contact your campus police or local law enforcement immediately.

  A program advance can only be used to provide cash payments or purchase cash equivalents (such as gift cards/certificates/electronic-codes) which will be provided to human subjects in exchange for their participation in an IRB approved research study.  A program advance cannot be used to purchase goods or services to support a research study.  Purchases of goods or services to support a research study (including the purchase of a good or service provided to human subjects in exchange for their participation in a study or required for their participation in a study) must be made under an allowable purchase method defined in the OBFS Policy and Procedure Manual – Section 7

  Procedure

  To open a program advance to pay human subjects in cash or gift cards:

  1. Plan ahead. Processing a request can take 48 to 72 hours. Estimate how much you will need for the first 60 days of the study. If additional funds are needed after that, consult Replenish a Program Advance to Pay Human Subjects.
  2. Log in to TEM (Travel and Expense Management System). In the Create New area, select the Expense Report icon. If you need help identifying the icon, consult the job aid for System Navigation.
  3. In the Document Header screen, begin your Report Title with “ADV” so University Payables (UPAY) can expedite processing. Select “Advances” from the drop-down list in the Purpose field. Advances normally issue via ACH (direct deposit) to the custodian’s bank account.
     
     If due to a specific business need the advance should be issued via check, select which University Student Financial Services and Cashier Operations (USFSCO) office you want to pick up the check from the drop-down list in the Special Handling field of the Document Header screen.  The specific business need must be documented in the expense report notes. If specific denominations are needed, please specify that in the expense report notes as well.  Please note: Payments issued via check may require an additional 3 business days to process.
  4. Enter the expense report number (for example, ER00001234) in the Vendor Invoice #/Ref# field.
  5. Proceed through the screens. For step-by-step instructions, consult the job aid Open and Close a Program Advance.
  6. UPAY processes the payment request.

  If payment is made via check, USFSCO prints a check payable to the custodian and contacts the custodian when the check is ready. To pick up the check, go in person to USFSCO Cashier Operations and present your University i-card. They will then cash the check so you can pay the human subjects or purchase gift cards.

   

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  Reconciliation of a Program Advance

  Policy Statement

  A reconciliation of a program advance tracks the disbursements of funds for accountability and tax reporting purposes.  A reconciliation occurs when a program advance is either:

  • Replenished;
  • Verification of Non-Use of Funds;
  • Partially Closed; or,
  • Closed

  A program advance must be reconciled at least every 90 days from the advance start-date or last reconciliation date to meet fiscal and calendar year tax reporting requirements; however, OBFS recommends monthly reconciliation.

  When a program advance is not closed within 90 days of the closing of the study or within 90 days of the advance end-date (whichever is sooner), the unreconciled portion of the advance may be reported as taxable income to the custodian in accordance with IRS regulations and may also be deducted from the employee’s wages or subject to collection.

  A program advance that is not in compliance may be suspended and cannot be replenished.  Failure to close or reconcile a program advance, as required above, may result in an employee not being allowed future advances.

  Procedure

  Program advances are not required to be closed and then reopened to meet fiscal and calendar year reporting requirements unless a study exceeds 18 months. Custodians should always attempt to reconcile as promptly as possible, observing the minimum reconciliation standards described above.

   

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  Replenish a Program Advance to Pay Human Subjects

  Policy Statement

  Before you begin the procedure, it is the Custodian’s and Business Manager’s responsibility to become familiar with additional policies related to this topic.

  Procedure

  To replenish a human subjects advance:

  1. Gather receipts or other documentation for the money already given to human subjects.
  2. Log in to TEM. In the Create New area, select the Expense Report icon. Consult the job aid System Navigation if you need help identifying the icon.
  3. In the Document Header screen, begin your Report Title with "ADVR" so University Payables (UPAY) can expedite processing. Select "Employee Misc. Expense Reimbursement" from the drop-down list in the Purpose field.

  If due to a specific business need the advance should be issued via check, select which University Student Financial Services and Cashier Operations (USFSCO) office you want to pick up the check from the drop-down list in the Special Handling field of the Document Header screen.  The specific business need must be documented in the expense report notes. If specific denominations are needed, please specify that in the expense report notes as well.  Please note: Payments issued via check may require an additional 3 business days to process.

  4. Proceed through the screens. For step-by-step instructions, including how to indicate direct deposit or cash, consult the job aid Replenish a Program Advance.
  5. UPAY reviews the request and processes for payment.

   

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  Close a Program Advance to Pay Human Subjects

  Policy Statement

  Before you begin the procedure, it is the Custodian’s and Business Manager’s responsibility to become familiar with additional policies related to this topic.

  Procedure

  To close a human subjects advance:

  If there is CASH OR CHECKS to be returned

  1. Complete a Travel or Program Advance Closure form
  2. Return the cash or check to the University Student Financial Services and Cashiers Office (USFSCO) with the completed Travel or Program Advance Closure form. Keep the deposit receipt to submit in TEM (Travel and Expense Management System).
     
     Do not send cash or checks directly to University Payables (UPAY).
  3. Log in to TEM. In the Create New area, select the Expense Report icon. Consult the job aid for System Navigation if you need help identifying the icon.
  4. Proceed through the screens. For step-by-step instructions, including how to submit documentation that details how the cash was spent, consult “To Clear the Advance” in the job aid Open and Close a Program Advance.
  5. UPAY reviews the expense report to ensure the funds were spent in accordance with policy.

  If there is NO CASH to be returned

  Follow steps 3 and 4 above.

  Forms Used in this Section

  Travel or Program Advance Closure

   

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  Partial Close of a Program Advance to Pay Human Subjects

  Policy Statement

  Before you begin the procedure, it is the Custodian’s and Business Manager’s responsibility to become familiar with additional policies related to this topic.

  Procedure

  To partial close a human subject advance:

  1. Log in to TEM. In the Create New area, select the Expense Report icon. Consult the job aid for System Navigation if you need help identifying the icon.
  2. Proceed through the screens. For step-by-step instructions, including how to submit documentation that details how the cash was spent, consult “To Clear the Advance” in the job aid Open and Close a Program Advance.
  3. UPAY reviews the expense report to ensure the funds were spent in accordance with policy.

   

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  Request Checks Made Payable to Human Subjects

  Policy Statement

  Payments to human subjects must be issued in the form of a check when:

  • A single payment to a human subject is $200 or more
    OR
  • Payments must be mailed

  Procedure

  This procedure requires a separate Travel Expense Management System (TEM) Expense Report for each human subject.

  To request checks made payable to human subjects:

  1. Confirm the recipient is a U.S. citizen, permanent resident, or resident alien. If they are not, consult Award, Prize, and Human Subject Payments.
  2. Determine whether the recipient has a Banner vendor number. For step-by-step instructions, consult the Banner Vendor ID and Address Query job aid.
     
     If the recipient does not have a Banner vendor number and the cumulative amount to be paid to them for the study for the calendar year is $200 or more, setup the recipient as a vendor as outlined in Set Up a New Vendor ID in Banner, and proceed to Step #3.

  If the recipient has a Banner vendor number, proceed to Step #3.

  3. Log in to TEM (Travel and Expense Management System). In the Create New area, select the Expense Report icon. Consult the job aid for System Navigation if you need help identifying the icon.

  Create a separate Expense Report for each human subject.

  4. In the Document Header screen, if the recipient will receive:

  • Less than $200 in the calendar year, select “Temp Vendor Payment” from the drop-down list in the Purpose field.
  • $200 or more in the calendar year, select “Misc. Payment-Vendors, Non-Employees, and Students” from the drop-down list in the Purpose field.

  5. Proceed through the screens. Select “141200-human subjects” from the drop-down list in the Expense Type field. Consult the Miscellaneous or One-Time Vendor Payments job aid for step-by-step instructions. Note, payments to non-resident aliens must be requested through University Payroll and Benefits.
  6. After review and approval by UPAY, the check is processed and mailed to the recipient.

   

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  Definitions

  Cash Equivalents:  Cash equivalents include gift cards, gift codes and certificates (e-codes), checks, or other mechanism that has a cash value.

  Close a Program Advance:  A reconciliation event where the Custodian accounts for funds used when all funds have been used or returned to USFSCO; the funds do not need to be replenished and the program has ended.

  Custodian of a Program Advance (Custodian):   A Principal Investigator or designee responsible for the program.  All employee groups are eligible to be custodians except undergraduate students, unpaid graduate students, hourly graduate students, extra help, and academic hourly.

  Expense Report (ER): An expense report submitted in the University of Illinois System’s Travel and Expense Management system.

  Human Subject:  A living individual about whom an investigator obtains data through intervention or interaction with the individual, or, about whom an investigator obtains individually identifiable, confidential information.

  IRB:  Institutional Review Board

  IRS:  U.S. Internal Revenue Service

  ITIN:  Individual’s Taxpayer Identification Number

  Nonresident Alien: A nonresident alien is an individual who is not a U.S. citizen or a resident alien (see Resident Alien definition below). A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.  See IRS Publication 515 and Section 18.2 – Taxes » Foreign Nationals for additional information.

  Partial Close of a Program Advance:  A reconciliation event where the Custodian accounts for funds used when all funds have not been used; the funds do not need to be replenished and the program is still active.

  Presumption Rules:  IRS rules used when the University of Illinois System cannot reliably associate a payment with valid documentation for tax reporting and withholding purposes.  See IRS Publication 515 and Section 18.2 – Taxes » Foreign Nationals for additional information.

  Resident Alien:  A resident alien has a permanent residency card, or meets the substantial presence test.  See IRS Publication 519 and Section 18.2 – Taxes » Foreign Nationals for additional information

  Reconciliation:  A reconciliation of a program advance tracks the disbursements of funds for accountability and tax reporting purposes.  A reconciliation occurs when a program advance is either (i) replenished; (ii) verified that no funds have been used; (iii) partially closed; or, (iv) closed.

  Replenishment of a Program Advance:  A reconciliation event where the Custodian accounts for funds used, and requests funds for additional payments under the same program while the program is still active.

  SSN:  Social Security Number

  Travel and Expense Management (TEM): Travel and Expense Management system used for requesting and reconciling program advances.

  UPAY: University Payables

  UPB:  University Payroll & Benefits

  USFSCO: University Student Financial Services and Cashiering Operations

  Verification of Non-Use of Funds:  A reconciliation event where the Custodian verifies that funds have not been used, the funds do not need to be replenished and the program is still active.

   

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  Payments to Human Subject Workflow

  

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  You may also download a PDF version of the Payments to Human Subjects Workflow.

   

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  Additional Resources

  • Payments to Human Subjects Workflow
  • Payments to Human Subjects Frequently Asked Questions (FAQ)

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