This section explains the rules for withholding tax from pay for personal services. You generally must withhold tax at the 30 percent rate on compensation you pay to a nonresident alien individual for labor or personal services performed in the United States, unless that pay is specifically exempted from NRA withholding or subject to graduated withholding, Wage Withholding under Internal Revenue Code Section 3402. This rule applies regardless of your place of residence, the place where the contract for service was made, or the place of payment. Illegal Aliens (Undocumented Aliens) Foreign workers who are illegal aliens (undocumented aliens) are subject to U.S. taxes in spite of their illegal status. U.S. employers or payers who hire illegal aliens (undocumented aliens) may be subject to various fines, penalties, and sanctions imposed by the U.S. Department of Homeland Security. If such employers or payers choose to hire illegal aliens (undocumented aliens), the payments made to those aliens are subject to the same tax withholding and reporting obligations that apply to other classes of aliens. Illegal aliens (undocumented aliens) who are nonresident aliens and who receive income from performing independent personal services are subject to 30 percent withholding unless exempt under some provision of law or a tax treaty. Illegal aliens (undocumented aliens) who are resident aliens and who receive income from performing dependent personal services are subject to the same reporting and withholding obligations which apply to U.S. citizens who receive the same kind of income. Pay for Personal Services Performed By an Individual Items of Importance Withholding Certificates and Exemptions for Personal Services and Students Withholding Exemption on Effectively Connected Income Central Withholding Agreements Final Payment Exemption Source of Income - Personal Service Income Foreign Source Income -Form 1042-S Reporting Not Required Notice 2001-4 - Foreign Source Income, for Services Performed Outside the United States Is Paid By a U.S. Payor U.S. Agent of Foreign Person Trust Fund Recovery Penalty Non Employee Compensation Independent personal services (a term commonly used in tax treaties) are personal services performed by an independent nonresident alien contractor as contrasted with those performed by an employee. This category of pay includes payments for professional services, such as fees of an attorney, physician, or accountant made directly to the person performing the services. It also includes honoraria paid by colleges and universities to visiting teachers, lecturers, and researchers. In addition, it includes payments made to athletes and entertainers. Central Withholding Agreements Final Payment Exemption Nonresident Aliens and the Accountable Plan Rules Wages Paid to Employees - Graduated Withholding Salaries, wages, or any other pay for personal services (referred to collectively as wages) paid to nonresident alien employees are subject to graduated withholding. Refer to Federal Income Tax Withholding. Any wages paid to a nonresident alien individual for personal services performed as an employee for an employer are generally exempt from the 30 percent withholding if the wages are subject to graduated withholding. Also exempt from the 30 percent withholding is pay for personal services performed as an employee for an employer if it is specifically exempted from wages by a provision of the Internal Revenue Code. As a general rule, pay received for personal services performed within the United States is considered to be income effectively connected with a U.S. trade or business. References/Related Topics Nonresident Aliens - Source of Income Withholding on Specific Income 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.