U.S. Citizens and Resident Aliens Employed Abroad – Employees
For personal services pay to qualify as wages, there must be an employer-employee relationship which is the will and control of an employer.
It does not matter:
- What the parties call the relationship,
- If the employee is called a partner, co-adventurer, agent, or independent contractor,
- How the pay is measured,
- How the individual is paid or what the payments are called,
- Whether the individual works full-time or part-time.
For further discussion of this issue refer to Independent Contractors vs. Employees.
An employee includes:
- Individual performing services within the legal relationship with an employer;
- Individual receives a supplemental unemployment benefits treated as wages.
- Superintendents, managers, and officer of a corporation.
NOT an employee includes:
- Director acting in this capacity,
- An officer who does not perform any services, nor receives any compensation not considered as an employee.
An employer includes
- Individuals and organizations in a trade or business,
- Organizations exempt from income tax,
- Governments of the United States, the states, Puerto Rico, and the District of Columbia, as well as their agencies, instrumentalities, and political subdivisions.
Two special definitions of employer that may have considerable application to nonresident aliens are:
- An employer includes any person paying wages for a nonresident alien individual, foreign partnership, or foreign corporation not engaged in trade or business in the United States (including Puerto Rico as if a part of the United States), and
- An employer includes any person who has control of the payment of wages for services that are performed for another person who does not have that control.
For example, if a trust pays wages, such as certain types of pensions, supplemental unemployment pay, or retired pay, and the person for whom the services were performed has no legal control over the payment of the wages, the trust is the employer.
If an employer-employee relationship exists, the employer ordinarily must withhold the income tax from wage payments by using the percentage method or wage-bracket tables as shown in Publication 15.
Pay That Is Not Wages
- Agricultural labor if the total cash wages paid to an individual worker during the year is less than $150 and the total paid to all workers during the year is less than $2,500. But even if the total amount paid to all workers is $2,500 or more, wages of less than $150 per year paid to a worker are not subject to income tax withholding if certain conditions are met. For these conditions, see Publication 51 (Circular A), Agricultural Employer's Tax Guide. For further discussion of withholding and reporting taxes on foreign agricultural workers in the United States refer to Foreign Agricultural Workers.
- Services of a household nature performed in or about the private home of an employer, or in or about the clubrooms or house of a local college club, fraternity, or sorority. A local college club, fraternity, or sorority does not include an alumni club or chapter and may not be operated primarily as a business enterprise. Examples of these services include those performed as a cook, janitor, housekeeper, governess, gardener, or houseparent. See Publication 926, Household Employer's Tax Guide.
- Certain services performed outside the course of the employer's trade or business for which cash payment is less than $50 for the calendar quarter.
- Services performed as an employee of a foreign government, without regard to citizenship, residence, or where services are performed. These include services performed by ambassadors, other diplomatic and consular officers and employees, and nondiplomatic representatives. They do not include services for a U.S. or Puerto Rican corporation owned by a foreign government.
- Services performed within or outside the United States by an employee or officer (regardless of citizenship or residence) of an international organization designated under the International Organizations Immunities Act.
- Services performed by a duly ordained, commissioned, or licensed minister of a church, but only if performed in the exercise of the ministry and not as an employee of the United States, a U.S. possession, or a foreign government, or any of their political subdivisions. These also include services performed by a member of a religious order in carrying out duties required by that order.
- Tips paid to an employee if they are paid in any medium other than cash or, if in cash, they amount to less than $20 in any calendar month in the course of employment
For further discussion about federal income tax withholding and reporting on payments made to employees of foreign governments and international organizations refer to Persons Employed by a Foreign Government or International Organization. For further discussion about Social Security and Medicare taxes on payments made to employees of foreign governments and international organizations refer to Persons Employed by a Foreign Government or International Organization - FICA.
Services Performed Outside The U.S.
Compensation paid to a nonresident alien for services performed outside the United States is not considered wages and is not subject to graduated withholding or 30% withholding.