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).

In addition, IRS Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables, published March 2, 2009, increased the original amounts to coincide with the American Recovery and Reinvestment Act of 2009.

If you have any questions regarding Nonresident Alien Tax issues, contact our Immigration & Nonresident Alien 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. 

Withholding Rules

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.

Withholding Calculations at SJSU

As SJSU employees are paid on a monthly payroll schedule, $598 will be artificially added to only the federal wage earnings before the withholding calculations is determined.

This additional amount will not be included in W-2 earnings or added to withholding calculations (e.g. state tax, FICA, Medicare, disability insurance or Federal Unemployment Act/FUTA tax liability).

Confidentiality

The information requested by the SJSU Windstar Foreign National Information 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.