U.S. Citizens and Resident Aliens Employed Abroad – Employees
For personal services pay to qualify as wages, there must be an employer-employee relationship..
Under the common law rules, every individual who performs services subject to the will and control of an employer, both as to what shall be done and how it shall be done, is an employee. It does not matter that the employer allows the employee considerable discretion and freedom of action, as long as the employer has the legal right to control both the method and the result of the services.
If an employer-employee relationship exists, it does not matter what the parties call the relationship. It does not matter if the employee is called a partner, coadventurer, agent, or independent contractor. It does not matter how the pay is measured, how the individual is paid, or what the payments are called. Nor does it matter whether the individual works full-time or part-time.
The existence of the employer-employee relationship under the usual common law rules will be determined, in doubtful cases, by an examination of the facts of each case. For further discussion of this issue refer to Independent Contractors vs. Employees.
An employee generally includes any individual who performs services if the relationship between the individual and the person for whom the services are performed is the legal relationship of employer and employee. This includes an individual who receives a supplemental unemployment pay benefit that is treated as wages.
No distinction is made between classes of employees. Superintendents, managers, and other supervisory personnel are employees. Generally, an officer of a corporation is an employee, but a director acting in this capacity is not. An officer who does not perform any services, or only minor services, and neither receives nor is entitled to receive any pay is not considered an employee.
An employer is any person or organization for whom an individual performs or has performed any service, of whatever nature, as an employee. The term employer includes not only individuals and organizations in a trade or business, but also organizations exempt from income tax, such as religious and charitable organizations, educational institutions, clubs, social organizations, and societies. In addition, it includes the 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.
These special definitions have no effect upon the relationship between an alien employee and the actual employer when determining whether the pay received is considered to be wages.
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
Employment for which the pay is not considered wages (for graduated income tax withholding) includes, but is not limited to, the following items:
- 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.