Any employer who hires aliens (non-U.S. citizens or residents) to perform services within the United States must follow these general procedures with respect to the reporting and withholding of federal income taxes:
- Identify all aliens (non-U.S. Citizens) on the company's payroll.
- Divide the aliens into two groups: "Resident Aliens" and "Nonresident Aliens" as defined by Internal Revenue Code section 7701(b), which defines residency status for aliens. Refer to Determining Alien Status for more information on the residency status of aliens.
- For income tax withholding purposes, treat resident aliens the same as U.S. Citizens.
- For income tax withholding purposes, treat nonresident aliens according to the following special withholding rules that apply to nonresident aliens, as described in Chapter 9 of Publication 15 (Circular E) and Publication 515, Withholding Taxes on Nonresident Aliens.
- A nonresident alien should follow the special instructions in Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, to complete Form W-4.
- A nonresident alien cannot write "exempt" on line 7 of Form W-4, Employee's Withholding Allowance Certificate.
- A nonresident alien may claim only "single" filing status on line 3 of Form W-4, even if he is married.
- With certain exceptions, a nonresident alien cannot claim more than one personal exemption on Form W-4. For an explanation of the exceptions, refer to the "Exemptions" section on Figuring Your Tax. .
- Nonresident alien employees are required to fill out Form W-4 in the special way described at "Withholding Exemptions - Personal Exemptions - Form W-4".
- Some nonresident aliens are eligible for exemptions from federal income tax withholding on wages because of tax treaties. To claim the exemption they must file Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the employer.
- Nonresident aliens who fail to file, or file an invalid Form W-4, as required by IRS regulations shall have federal income taxes withheld at the rates pertaining to single status, zero exemptions.
- Employers must report wages exempt under a tax treaty paid to a nonresident alien on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Any additional wages paid to a nonresident alien over and above the exempt amount are reported on Form W-2 in the normal manner. Even in situations in which all of a nonresident alien's wages are exempt from federal income tax under an income tax treaty, and in which all his federal wages would be reported on Form 1042-S, the filing of a Form W-2 for such alien is usually also required in order to report state and local wage amounts and state and local income taxes withheld on such alien's wages.
- Some income tax treaties allow alien students and scholars who have become resident aliens of the United States to exempt part or all of their U.S. source wages from U.S. taxation. Treaty-exempt wages paid to a resident alien in these situations should be reported on Form W-2, and not on Form 1042-S. In these situations, block 2 (Federal Income Tax Withheld) of Form W-2 may show zero or a reduced amount of federal income tax withheld because of the tax treaty exemption. Refer to Publication 519, U.S. Tax Guide for Aliens, for instructions on how a resident alien claiming a tax treaty benefit should file his/her U.S. federal individual income tax return.
Exceptions to Mandatory Withholding of Federal Income Tax on Nonresident Aliens:
- Wages or Nonemployee Compensation are exempt from withholding of federal income tax if all 3 of the following conditions are met (per IRC 861(a)(3) and 864(b)(1)):
- The nonresident alien performing services is present in the U.S. for a total not exceeding 90 days in a taxable year;
- The compensation for such services does not exceed $3,000; and
- The nonresident alien performs the services as an employee of, or under contract with, a nonresident alien individual, a foreign corporation, or a foreign partnership not engaged in a trade or business in the U.S. or the foreign office of a U.S. citizen or resident alien individual, a U.S. corporation, or a U.S. partnership (including from within a U.S. possession).
- Wages or Nonemployee Compensation are exempt from withholding of federal income tax if both the following 2 conditions are met (per IRC 872(b)(3)):
- The nonresident alien is present in the U.S. in F, J, M, or Q nonimmigrant status; and
- The compensation for services is paid by a nonresident alien individual, a foreign corporation, or a foreign partnership or the foreign office of a U.S. citizen or resident alien individual, a U.S. corporation, or a U.S. partnership (including from within a U.S. possession).
- Aliens Employed in the U.S. – Social Security Taxes
- Aliens Employed in the U.S. – FUTA
- Federal Income Tax Withholding
- Persons Employed by a Foreign Employer
- Persons Employed in a U.S. Possession / Territory – FICA
- Social Security Tax / Medicare Tax and Self-Employment
- Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
- IRC 861(a)(3) and IRC 864(b)(1)
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.