Taxation Process for Expert Witness Income at U.N.C.H.E.A.L.T.H.C.A.R.E.S.Y.S.T.E.M
Expert witness income at U.N.C.H.E.A.L.T.H.C.A.R.E.S.Y.S.T.E.M is subject to unrelated business income tax (UBIT) if the income is related to a provider testifying as an expert. The process involves calculating taxable income, determining tax rates, and reporting to the University's finance department for tax assessment. Tax-exempt monies are excluded from the tax calculation.
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U N C H E A L T H C A R E S Y S T E M U N C H E A L T H C A R E S Y S T E M Expert Witness Tax November 14, 2018
Expert Witness Tax Overview U N C H E A L T H C A R E S Y S T E M Fact or Expert? Expert: Generally, a patient that our physician did not treat. A physician qualified by reason of his/her skill, knowledge, education, experience, or training to testify on a particular medical area. The physician will offer an opinion about the medical issue related to the case. Testimony is optional. TAXABLE Fact: Our provider is generally the treating physician. The physician has personal knowledge of the events pertaining to the case and can testify as to the things they have personally observed or witnessed. This testimony may be mandatory. NON TAXABLE Was the expert witness used for educational purposes (did residents or students assist in preparation)? NON TAXABLE If the client is a federal, state, or local government agency, UNC-CH can treat the income as NON TAXABLE. For example, UNC-CH can take the position that income for expert witness testimony provided to the North Carolina State Attorney General, or the U.S. Department of Justice, is not taxable to UNC-CH. 2
Expert Witness Income U N C H E A L T H C A R E S Y S T E M Expert Witness income is considered unrelated business income tax (UBIT) to the IRS if the income is in relation to a provider testifying as an expert. Unrelated business income is assessed on the Net Income Physician Expense (Physician total compensation for the fiscal year + benefits * number of hours, travel related expenses, and overhead rate of 52%) UBIT Taxable Income (Net Expert Witness Income) 24% = = Gross Income Taxes paid for UBIT (21% Federal + 3% State) Expert Witness is considered other contract income, therefore, it will be taxed at the new 5.5% tax rate. = Gross Income 5.5% FP Tax Amount 3
Example U N C H E A L T H C A R E S Y S T E M FY 19 (Example) Gross Expert Witness Subtract Expenses (salary, travel, etc.) UBIT Taxable Income 691,670 (445,195) 246,475 FY 19 Tax Rate Taxes Paid for UBIT * 24% 59,154 Gross Expert Witness FP Contract Tax FP Tax 691,670 5.50% 38,042 Contract Income Net Tax to Department (Gross Income - UBIT FP Tax) 594,474 * Taxes paid to the University, who will in turn pay the IRS. 4
Process for Taxing Expert Witness U N C H E A L T H C A R E S Y S T E M UNCFP Finance will send all departments a report detailing all Expert Witness billings for the fiscal year ended We will ask departments to verify the data and provide any missing information Departments can verify if the Expert Witness qualifies for tax exempt status Based on the information above, UNCFP will calculate the amount of unrelated business income tax owed to the University (IRS) Note: All tax exempt monies will be excluded from the calculation 5
