Wage Compensation for Nonresident Aliens
With regard to wages, the Internal Revenue Service places restrictions on nonresident aliens' federal tax withholding filing, limiting the number of allowable exemptions, and prohibits claiming the standard deduction, as stated in IRS Publication 15, Circular E, Employer's Tax Guide (PDF).
If you have any questions regarding Nonresident Alien Tax issues, contact our Tax Specialist.
Withholding Allowance Forms
The IRS requires nonresident employees completing withholding allowance forms to:
- Not claim exemption from income tax withholding.
- Request single status withholding, regardless of actual marital status.
- Complete the Employee Action Request form Std. 686 (PDF) claiming only 1 allowance.
- Note: Indicate NRA at the top of this document for a special federal withholding calculation.
IRS Bulletin 2005-46 Withholding on Wages of Nonresident Alien Employees, published November 14, 2005, includes Notice 2005-76 in which the IRS outlines new withholding rules for employees classified as nonresident aliens for federal tax purposes. This notice changes the method by which an employer must calculate the federal withholding amount for NRA wages issued on or after January 1, 2006.
The rule changes are designed to eliminate or reduce a general over-withholding of federal income tax on NRA employee wages for services performed in the U.S. The new IRS rule will instead assess withholding on a basis that closely approximates an individual's income tax liability. This notice requires employers to withhold taxes based on a calculation of actual earned income with an artificial amount, based on payroll frequency, added to the wages of a nonresident alien employee.
The information requested by the SJSU GLACIER Nonresident Alien Tax Compliance System is strictly confidential and used for federal tax withholding and reporting purposes only.
The information is essential for determination of applicable tax treaty benefits and assessment of federal tax liability for current and future tax years.