The following discussion generally applies only to nonresident aliens. Tax is withheld from resident aliens in the same manner as U.S. citizens.
Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U.S. citizens. Therefore, your compensation, unless it is specifically excluded from the term "wages" by law, or is exempt from tax by treaty, is subject to graduated withholding. taxmap/pubs/p519-039.htm#en_us_publink1000222640
If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction).
Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction.
- Enter your social security number (SSN) on line 2. Do not enter an individual taxpayer identification number (ITIN).
- Check only "Single" marital status on line 3 (regardless of your actual marital status).
- Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U.S. national.
- Write "Nonresident Alien" or "NRA" on the dotted line on line 6. You can request additional withholding on line 6 at your option.
- Do not claim "Exempt" withholding status on line 7.
A U.S. national is an individual who, although not a U.S. citizen, owes his or her allegiance to the United States. U.S. nationals include American Samoans, and Northern Mariana Islanders who chose to become U.S. nationals instead of U.S. citizens. taxmap/pubs/p519-039.htm#en_us_publink1000222642
If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2010 and cannot be claimed as a dependent on another U.S. taxpayer's 2010 return. You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on "F-2," "J-2," or "M-2" visas if they meet the same rules that apply to U.S. citizens. taxmap/pubs/p519-039.htm#en_us_publink1000222643
If you work as a household employee, your employer does not have to withhold income tax. However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. The agreement goes into effect when your employer accepts the agreement by beginning the withholding. You or your employer may end the agreement by letting the other know in writing. taxmap/pubs/p519-039.htm#en_us_publink1000222644
Wages that are exempt from U.S. income tax under an income tax treaty are generally exempt from withholding. For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits
Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U.S. Virgin Islands may be exempt from withholding. The following paragraphs explain these exemptions.taxmap/pubs/p519-039.htm#en_us_publink1000222645
Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. These persons either:
- Perform duties in transportation service between the United States and Canada or Mexico, or
- Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico.
This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad.
To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident:
- Is not a U.S. citizen or resident,
- Is a resident of Canada or Mexico, whichever applies, and
- Expects to perform duties previously described during the tax year in question.
The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. taxmap/pubs/p519-039.htm#en_us_publink1000222647
If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico.taxmap/pubs/p519-039.htm#en_us_publink1000222648
Nonresident aliens who are bona fide residents of the U.S Virgin Islands are not subject to withholding of U.S. tax on income earned while temporarily employed in the United States. This is because those persons pay their income tax to the U.S. Virgin Islands. To avoid having tax withheld on income earned in the United States, bona fide residents of the U.S. Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U.S. Virgin Islands and expect to pay tax on all income to the U.S. Virgin Islands. taxmap/pubs/p519-039.htm#en_us_publink1000222649
If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. taxmap/pubs/p519-039.htm#en_us_publink1000222650
Tips you receive during the year for services performed in the United States are subject to U.S. income tax. Include them in taxable income. In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding.taxmap/pubs/p519-039.htm#en_us_publink1000222651
If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. You must agree to timely file an income tax return for the current tax year. taxmap/pubs/p519-039.htm#en_us_publink1000222652
If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability.
File Form 13930 and the required attachments with the IRS to request a central withholding agreement. Either you or your authorized representative can file the form. It should be sent to the IRS at least 45 days before the agreement is to take effect. Exceptions will be considered on a case by case basis.taxmap/pubs/p519-039.htm#en_us_publink1000222653
Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate.
- A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury.
- A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury.
- A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year.
- The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year.
- The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods.
- Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty.
- A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted.
If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate.
The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. taxmap/pubs/p519-039.htm#en_us_publink1000222654
Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,650 for 2010).
To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U.S. national and are not a resident of Canada, Mexico, or South Korea. For purposes of 30% withholding, the exemption is prorated at $10.00 a day in 2010 for the period that labor or personal services are performed in the United States. To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. taxmap/pubs/p519-039.htm#en_us_publink1000222655
Eric Schmidt, who is a resident of Country X worked under a contract with a U.S. firm (not as an employee) in the United States for 100 days during 2010 before returning to his country. He earned $6,000 for the services performed (not considered wages) in the United States. Eric is married and has three dependent children. His wife is not employed and has no income subject to U.S. tax. The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2010 is $1,000 (100 days × $10.00), and withholding at 30% is applied against the balance. Thus, $1,500 in tax is withheld from Eric's earnings (30% of $5,000 ($6,000 − $1,000)).taxmap/pubs/p519-039.htm#en_us_publink1000222656
If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. However, if you are a U.S. national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U.S. citizens. For the 30% (or lower treaty rate) withholding, you can take $10.00 per day for each allowable exemption in 2010. If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions
If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2010 and cannot be claimed as a dependent on another U.S. taxpayer's 2010 return. You are also allowed an exemption for each dependent not admitted to the United States on "F-2," "J-2," or "M-2" visas if they meet the same rules that apply to U.S. citizens. For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10.00 per day for each allowable exemption in 2010.