Pay for Personal
Services Performed
This section explains the rules for withholding tax from pay for
personal services. You generally must withhold tax at the 30% 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 withholding or subject to
graduated withholding. 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. Foreign
workers who are illegal aliens are subject to U.S. taxes in spite of their illegal
status. U.S. employers or payers who hire illegal aliens may be subject to various fines,
penalties, and sanctions imposed by the Immigration and Naturalization Service (INS). If
such employers or payers choose to hire illegal 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 who are nonresident aliens and who receive income from
performing independent personal services are subject to 30% withholding unless exempt
under some provision of law or a tax treaty. Illegal 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.
Form 8233, Exemption From
Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a
Nonresident Alien Individual, is used by a nonresident alien individual to
claim a tax treaty exemption from withholding on some or all compensation paid for:
- Independent personal services (self-employment),
- Dependent personal services, or
- Personal services income and noncompensatory scholarship or fellowship income from the
same withholding agent.
Persons providing independent personal services can use Form 8233 to claim the personal
exemption amount.
Form W-4, Employee's
Withholding Allowance Certificate, is used by a person providing dependent personal
services to claim the personal exemption amount, but not a tax treaty exemption.
Nonresident alien individuals are subject to special instructions for completing the Form
W-4. See the discussion under Wages Paid to Employees - Graduated Withholding,
later.
Pay for independent personal services (Income Code 16). 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.
Pay for independent personal services is subject to NRA withholding and reporting as
follows.
30% rate. You must
withhold at the statutory rate of 30% on all payments unless the alien enters into a
withholding agreement or receives a final payment exemption (discussed later).
The amount of pay subject to 30% withholding may be reduced by the personal exemption
amount ($3,050 for 2003) if the alien gives you a properly completed Form 8233. A
nonresident alien is allowed only one personal exemption. However, individuals who are
residents of Canada, Mexico, Japan, or South Korea, or are U.S. nationals (defined below)
are generally entitled to the same exemptions as U.S. citizens.
Students and business apprentices covered by Article 21(2) of the United States - India
Income Tax Treaty may claim an additional exemption for their spouse if a joint return is
not filed, and if the spouse has no gross income for the year and is not the dependent of
another taxpayer. They may also claim additional exemptions for children who reside with
them in the United States at any time during the year, but only if the dependents are U.S.
citizens or nationals or residents of the United States, Canada, or Mexico. They may not
claim exemptions for dependents who are admitted to the United States on F-2, J-2,
or M-2 visas unless such dependents have become resident aliens.
Each allowable exemption must be prorated according to the number of days during the
tax year during which the alien performs services in the United States. Multiply the
number of these days by $8.36 (the daily exemption amount for 2003) to figure the prorated
amount. Residents of Japan and South Korea must make a further proration of their
additional exemptions based on their gross income effectively connected with a U.S. trade
or business. The rules for this proration are discussed in detail in Publication 519.
A U.S. national is an individual who owes his sole allegiance to the
United States, but who is not a U.S. citizen. Such an individual is usually a citizen of
American Samoa, or a Northern Mariana Islander who chose to become a U.S. national.
Example 1. Hans Schmidt, who is a resident of Germany,
worked (not as an employee) for a U.S. company in the United States for 100 days during
2003 before returning to his country. He earned $6,000 for the services performed (not
considered wages) in the United States. Hans is married and has three dependent children.
His wife did not work and had no income subject to U.S. tax. Hans is allowed $836 as a
deduction against the payments for his personal services performed in the United States
(100 days × $8.36). Tax must be withheld at 30% on the rest of his earnings, $5,164
($6,000 - $836).
Example 2. If, in Example 1, Hans were a resident
of Canada or Mexico or a national of the United States, working under contract with a
domestic corporation, $4,180 (100 days × $8.36 per day for each of five exemptions) would
be allowed against the payments for personal services performed in the United States. Tax
must be withheld at 30% on the rest of his earnings, $1,820 ($6,000 - $4,180) .
Withholding agreements. Pay for personal services of a nonresident alien who is engaged during the tax
year in the conduct of a U.S. trade or business may be wholly or partially exempted
from withholding at the statutory rate if an agreement has been reached between the
Commissioner or his delegate and the alien individual as to the amount of withholding
required. This agreement will be effective for payments covered by the agreement that are
made after the agreement is executed by all parties. The alien individual must agree to
timely file an income tax return for the current tax year.
Final payment exemption. The final payment of compensation for independent personal services may be
wholly or partially exempt from withholding at the statutory rate. This exemption
does not apply to wages paid to an employee. The nonresident alien must have been engaged
during the tax year in the conduct of a U.S. trade or business. This exemption is
available only once during an alien individual's tax year. It applies to the last payment
of compensation, other than wages, for personal services rendered in the United States
that the individual expects to receive from any withholding agent during the tax year.
To obtain the final payment exemption, the nonresident alien, or the alien's agent,
must file the forms and provide the information required by the Commissioner or his
delegate. This information includes, but is not limited to, the following items.
- A statement by each withholding agent from whom amounts of gross income effectively
connected with the conduct of a U.S. trade or business have been received by the alien
individual during the tax year. It must show the amount of income paid and the amount of
tax withheld. The withholding agent must sign the statement and include a declaration that
it is made under penalties of perjury.
- A statement by the withholding agent from whom the final payment of compensation for
personal services will be received showing the amount of final payment and the amount that
would be withheld if a final payment exemption is not granted. The withholding agent must
sign the statement and include a declaration that it is made under penalties of perjury.
- A statement by the individual that he or she does not intend to receive any other
amounts of gross income effectively connected with the conduct of a U.S. trade or business
during the current tax year.
- The amount of tax that has been withheld (or paid) under any other provision of the Code
or regulations for any income effectively connected with the conduct of a U.S. trade or
business during the current tax year.
- The amount of any outstanding tax liabilities, including any interest and penalties,
from the current tax year or prior tax periods.
- The provision of any income tax treaty under which a partial or complete exemption from
withholding may be claimed, the country of the individual's residence, and a statement of
sufficient facts to justify an exemption under that treaty.
The alien individual must give a statement, signed and verified by a declaration that
it is made under the penalties of perjury, that all the information provided is true, and
that to his or her knowledge no relevant information has been omitted.
If satisfied with the information provided, the Commissioner or his delegate will
determine the amount of the alien individual's tentative income tax for the tax year on
gross income effectively connected with the conduct of a U.S. trade or business. Ordinary
and necessary business expenses may be taken into account if proved to the satisfaction of
the Commissioner or his delegate.
The Commissioner or his delegate will provide the individual with a letter to you, the
withholding agent, stating the amount of the final payment of compensation for personal
services that is exempt from withholding, and the amount that would otherwise be withheld
that may be paid to the individual due to the exemption. The amount of pay exempt from
withholding cannot be more than $5,000. The alien individual must give two copies of the
letter to you and must also attach a copy of the letter to his or her income tax return
for the tax year for which the exemption is effective.
Travel expenses. If
you pay or reimburse the travel expenses of a nonresident alien, the payments are not
reportable to the IRS and are not subject to NRA withholding if the payments are
made under an accountable plan as described in section 1.62-2 of the regulations. This
treatment applies only to that portion of a payment that represents the payment of travel
and lodging expenses and not to that portion that represents compensation for independent
personal services.
Tax treaties. Under
most tax treaties, pay for independent personal services performed in the United States is
exempt from U.S. income tax only if the independent nonresident alien contractor
performs the services during a period of temporary presence in the United States (usually
not more than 183 days) and is a resident of the treaty country.
Independent nonresident alien contractors use Form 8233 to claim an exemption from
withholding under a tax treaty. For more information, see Form 8233, earlier.
Often, you must withhold under the statutory rules on payments made to a treaty country
resident contractor for services performed in the United States. This is because the
factors on which the treaty exemption is based may not be determinable until after the
close of the tax year. The treaty country resident contractor must then file a U.S. income
tax return (Form 1040NR) to recover any overwithheld tax and to provide the IRS with proof
that he or she is entitled to a treaty exemption.
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 in the same way as for U.S. citizens and residents if the wages are
effectively connected with the conduct of a U.S. trade or business. Any wages paid to a
nonresident alien individual for personal services performed as an employee for an
employer are generally exempt from the 30% withholding if the wages are subject
to graduated withholding.
Also exempt from the 30% withholding is pay for personal services performed as an
employee for an employer if it is effectively connected with the conduct of a U.S. trade
or business and is specifically excepted from wages. See Pay that is not wages,
later.
Employer-employee relationship. For pay for personal services to
qualify as wages, there must be an employer-employee relationship.
Under the common law rules, every individual who performs services subject to the will
and control of an employer, both as to what shall be done and how it shall be done, is an
employee. It does not matter that the employer allows the employee considerable discretion
and freedom of action, as long as the employer has the legal right to control
both the method and the result of the services.
If an employer-employee relationship exists, it does not matter what the parties call
the relationship. It does not matter if the employee is called a partner, coadventurer,
agent, or independent contractor. It does not matter how the pay is measured, how the
individual is paid, or what the payments are called. Nor does it matter whether the
individual works full-time or part-time.
The existence of the employer-employee relationship under the usual common law rules
will be determined, in doubtful cases, by an examination of the facts of each case.
Employee. An employee
generally includes any individual who performs services if the relationship between the
individual and the person for whom the services are performed is the legal
relationship of employer and employee. This includes an individual who receives a
supplemental unemployment pay benefit that is treated as wages.
No distinction is made between classes of employees.
Superintendents, managers, and other supervisory personnel are employees. Generally, an
officer of a corporation is an employee, but a director acting in this capacity is not. An
officer who does not perform any services, or only minor services, and neither receives
nor is entitled to receive any pay is not considered an employee.
Employer. An employer
is any person or organization for whom an individual performs or has performed any
service, of whatever nature, as an employee. The term employer includes
not only individuals and organizations in a trade or business, but organizations exempt
from income tax, such as religious and charitable organizations, educational institutions,
clubs, social organizations, and societies. It also includes the governments of the United
States, the states, Puerto Rico, and the District of Columbia, as well as their agencies,
instrumentalities, and political subdivisions.
Two special definitions of employer that may have considerable application to
nonresident aliens are:
- An employer includes any person paying wages for a nonresident alien individual, foreign
partnership, or foreign corporation not engaged in trade or business in the United States
(including Puerto Rico as if a part of the United States), and
- An employer includes any person who has control of the payment of wages for services
that are performed for another person who does not have that control.
For example, if a trust pays wages, such as certain types of pensions, supplemental
unemployment pay, or retired pay, and the person for whom the services were performed has
no legal control over the payment of the wages, the trust is the employer.
These special definitions have no effect upon the relationship between an alien
employee and the actual employer when determining whether the pay received is considered
to be wages.
If an employer-employee relationship exists, the employer ordinarily must withhold the
income tax from wage payments by using the percentage method or wage-bracket tables as
shown in Publication 15, (Circular E).
Pay that is not wages. Employment
for which the pay is not considered wages (for graduated income tax withholding) includes,
but is not limited to, the following items.
- Agricultural labor if the total cash wages paid to an individual worker during the year
is less than $150 and the total paid to all workers during the year is less than $2,500.
But even if the total amount paid to all workers is $2,500 or more, wages of less than
$150 per year paid to a worker are not subject to income tax withholding if certain
conditions are met. For these conditions, see Publication 51 (Circular A), Agricultural
Employer's Tax Guide.
- Services of a household nature performed in or about the private home of an employer, or
in or about the clubrooms or house of a local college club, fraternity, or sorority. A
local college club, fraternity, or sorority does not include an alumni club or chapter and
may not be operated primarily as a business enterprise. Examples of these services include
those performed as a cook, janitor, housekeeper, governess, gardener, or houseparent.
- Certain services performed outside the course of the employer's trade or
business for which cash payment is less than $50 for the calendar quarter.
- Services performed as an employee of a foreign government, without regard to
citizenship, residence, or where services are performed. These include services performed
by ambassadors, other diplomatic and consular officers and employees, and nondiplomatic
representatives. They do not include services for a U.S. or Puerto Rican corporation owned
by a foreign government.
- Services performed within or outside the United States by an employee or officer
(regardless of citizenship or residence) of an international organization designated under
the International Organizations Immunities Act.
- Services performed by a duly ordained, commissioned, or licensed minister of a church,
but only if performed in the exercise of the ministry and not as an employee of the United
States, a U.S. possession, or a foreign government, or any of their political
subdivisions. These also include services performed by a member of a religious order in
carrying out duties required by that order.
- Tips paid to an employee if they are paid in any medium other than cash or, if in cash,
they amount to less than $20 in any calendar month in the course of employment.
Services performed outside the United States. Compensation paid to a nonresident alien (other than a
resident of Puerto Rico, discussed later) for services performed outside the United States
is not considered wages and is not subject to graduated withholding or 30% withholding.
Withholding exemptions. The
amount of wages subject to graduated withholding may be reduced by the personal exemption
amount ($3,050 for 2003). The personal exemptions allowed in figuring wages subject
to graduated withholding are the same as those discussed earlier under Pay for
independent personal services, except that an employee must claim them on Form W-4.
Special instructions for Form W-4. A nonresident alien subject to wage withholding must give the employer a
completed Form W-4 to enable the employer to figure how much income tax to
withhold. In completing the form, nonresident aliens should use the following instructions
instead of the instructions on Form W-4.
- Check only Single marital status on line 3 (regardless of actual marital
status).
- Claim only one withholding allowance on line 5, unless a resident of Canada, Mexico,
Japan, or South Korea, or a U.S. national.
- Request that additional tax of $7.60 per week be withheld on line 6. If the pay period
is two weeks, request that $15.30 be withheld instead. For other payroll periods, see the
amounts in Publication 15 (Circular E).
- Do not claim Exempt withholding status on line 7.
These instructions restrict a nonresident alien's filing status, generally limit the
number of allowable exemptions, and require additional tax to be withheld because a
nonresident alien cannot claim the standard deduction.
Students and business apprentices from India. Students and business apprentices who are eligible for
the benefits of Article 21(2) of the United States - India Income Tax Treaty can claim
additional withholding allowances on line 5 for the standard deduction and their spouses.
In addition, they can claim an additional withholding allowance for each dependent who has
become a resident alien. Furthermore, they do not have to request additional withholding
on line 6 of Form W-4.
Reporting requirements for wages and withheld taxes paid to nonresident aliens.
The employer must report the amount of wages and
deposits of withheld income and social security and Medicare taxes by filing Form 941.
Household employers should see Publication 926, Household Employer's Tax Guide,
for information on reporting and paying employment taxes on wages paid to household
employees.
Form W-2. The
employer must also report on Form W-2 the wages subject to NRA withholding and the
withheld taxes. You must give copies of this form to the employee. Wages exempt
from tax under a tax treaty are reported on Form 1042-S and not in block 1 of Form W-2.
Wages exempt under a tax treaty may still be reported in the state and local wages blocks
of Form W-2 if such wages are subject to state and local taxation. For more information,
see the instructions for these forms.
Trust fund recovery penalty. If
you are a person responsible for withholding, accounting for, or depositing or paying
employment taxes, and willfully fail to do so, you can be held liable for a penalty
equal to the full amount of the unpaid trust fund tax, plus interest. A responsible person
for this purpose can be an officer of a corporation, a partner, a sole proprietor, or an
employee of any form of business. A trustee or agent with authority over the funds of the
business can also be held responsible for the penalty.
Willfully in this case means voluntarily, consciously, and intentionally. You
are acting willfully if you pay other expenses of the business instead of the withholding
taxes.
Federal unemployment tax (FUTA). The employer must pay FUTA and file Form 940 or 940-EZ, Employer's Annual
Federal Unemployment (FUTA) Tax Return. Only the employer pays this tax; it is
not deducted from the employee's wages. In certain cases, wages paid to students and
railroad and agricultural workers are exempt from FUTA tax. For more information, see the
instructions for these forms.
Wages paid to nonresident alien students, teachers, researchers, trainees, and other
nonresident aliens in F-1, J-1, M-1, or Q nonimmigrant
status are not subject to FUTA tax.
Pay for dependent personal services (Income Code 17).
Dependent personal services are personal services performed in the
United States by a nonresident alien individual as an employee rather than as an
independent contractor.
Pay for dependent personal services is subject to NRA withholding and reporting as
follows.
Graduated rates. Ordinarily,
you must withhold on pay (wages) for dependent personal services using graduated rates.
The nonresident alien must complete Form W-4 as discussed earlier under Special
instructions for Form W-4, and you must report wages and income tax withheld on Form
W-2. However, the nonresident alien may be exempt from tax or withholding of tax if any of
the following four exceptions applies.
Exception 1. Compensation paid for labor or personal
services performed in the United States is deemed not to be income from sources within the
United States and is exempt from U.S. income tax if:
- The labor or services are performed by a nonresident alien temporarily present in the
United States for a period or periods not exceeding a total of 90 days during the tax
year,
- The total pay does not exceed $3,000, and
- The pay is for labor or services performed as an employee of, or under a contract with:
- A nonresident alien individual, foreign partnership, or foreign corporation that is not
engaged in a trade or business in the United States, or
- A U.S. citizen or resident alien individual, a domestic partnership, or a domestic
corporation, if the labor or services are performed for an office or place of business
maintained in a foreign country or in a possession of the United States by this
individual, partnership, or corporation.
If the total pay is more than $3,000, the entire amount is income from sources in the
United States and is subject to U.S. tax.
Also, compensation paid for labor or services performed in the United States by a
nonresident alien in connection with the individual's temporary presence in the United
States as a regular member of the crew of a foreign vessel engaged in transportation
between the United States and a foreign country or a U.S. possession is not income from
sources within the United States.
Exception 2. Compensation paid by a foreign employer to a
nonresident alien for the period the alien is temporarily present in the United States on
an F,J, or Q visa is exempt from U.S. income tax. For this purpose, a
foreign employer means:
- A nonresident alien individual, foreign partnership, or foreign corporation, or
- An office or place of business maintained in a foreign country or in a U.S. possession
by a domestic corporation, a domestic partnership, or an individual U.S. citizen or
resident.
You can exempt the payment from withholding if you can reliably associate the payment
with a Form W-8BEN containing the taxpayer identification number of the payee.
Exception 3. Compensation
paid to certain residents of Canada or Mexico who enter or leave the United States at
frequent intervals is not subject to withholding. These aliens must either:
- Perform duties in transportation services (such as a railroad, bus, truck, ferry,
steamboat, aircraft, or other type) between the United States and Canada or Mexico, or
- Perform duties connected with an international project, relating 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.
To qualify for the exemption from withholding during a tax year, a Canadian or Mexican
resident must give the employer a statement with name, address, and identification number,
and 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 the described duties 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 penalties of perjury.
Canadian and Mexican residents employed entirely within the United States.
Neither the transportation service exception nor the international projects exception
applies to the pay of a resident of Canada or Mexico who is employed entirely within the
United States and who commutes from a home in Canada or Mexico to work in the United
States. If an individual works at a fixed point or points in the United States (such as a
factory, store, office, or designated area or areas), the wages for services performed as
an employee for an employer are subject to graduated withholding.
Exception 4. Compensation
paid for services performed in Puerto Rico by a nonresident alien who is a resident of
Puerto Rico for an employer (other than the United States or one of its agencies)
is not subject to withholding.
Compensation paid for either of the following types of services is not subject to
withholding if the alien does not expect to be a resident of Puerto Rico during the entire
tax year.
- Services performed outside the United States but not in Puerto Rico by a nonresident
alien who is a resident of Puerto Rico for an employer other than the United States or one
of its agencies, or
- Services performed outside the United States by a nonresident alien who is a resident of
Puerto Rico, as an employee of the United States or any of its agencies.
To qualify for the exemption from withholding for any tax year, the employee must give
the employer a statement showing the employee's name and address and certifying that the
employee:
- Is not a citizen or resident of the United States, and
- Is a resident of Puerto Rico who does not expect to be a resident for that entire tax
year.
The statement must be signed and dated by the employee and contain a written
declaration that it is made under penalties of perjury.
Tax treaties. Pay for
dependent personal services under some tax treaties is exempt from U.S. income tax
only if both the employer and the employee are treaty country residents and the
nonresident alien employee performs the services while temporarily living in the United
States (usually for not more than 183 days). Other treaties provide for exemption from
U.S. tax on pay for dependent personal services if the employer is any foreign resident
and the employee is a treaty country resident and the nonresident alien employee performs
the services while temporarily in the United States.
Pay for teaching (Income Code 18). This category is given a separate income code number because many tax treaties
provide at least partial exemption from withholding and from U.S. tax. Pay for
teaching means payments to a nonresident alien professor, teacher, or researcher by a U.S.
university or other accredited educational institution for teaching or research work at
the institution.
Graduated rates. Graduated withholding of income tax
usually applies to all wages, salaries, and other pay for teaching and research paid by a
U.S. educational institution during the period the nonresident alien is teaching or
performing research at the institution.
A nonresident alien temporarily in the United States on an F-1,J-1,M-1, or Q-1
visa is not subject to social security and Medicare taxes on pay for services performed to
carry out the purpose for which the alien was admitted to the United States. Social
security and Medicare taxes should not be withheld or paid on this amount. However, if an
alien is considered a resident alien, as discussed earlier, that pay is subject to social
security and Medicare taxes even though the alien is still in one of the nonimmigrant
statuses mentioned above. This rule also applies to FUTA (unemployment) taxes paid by the
employer. Teachers, researchers, and other employees temporarily present in the United
States on other nonresident visas or in refugee, or asylee immigration status are fully
liable for social security and Medicare taxes unless an exemption applies from one of the
totalization agreements in force between the United States and several other nations.
The Social Security Administration publishes the complete texts and
explanatory pamphlets of the totalization agreements which are available by calling
1-800-772-1213 or by visiting the Social Security Administration web site at: www.ssa.gov/international/inter_intro.html.
Tax treaties. Under
most tax treaties, pay for teaching or research is exempt from U.S. income tax and
from withholding for a specified period of time when paid to a professor, teacher, or
researcher, who was a resident of the treaty country immediately prior to entry into the
United States and who is not a citizen of the United States (see Table 2). The
U.S. educational institution paying the compensation must report the amount of
compensation paid each year which is exempt from tax under a tax treaty on Form 1042-S.
The employer should also report the compensation in the state and local wages blocks of
Form W-2 if the wages are subject to state and local taxes, or in the social security and
Medicare wages blocks of Form W-2 if the wages are subject to social security and Medicare
taxes.
Claimants must give you either Form W-8BEN or 8233, as applicable, to obtain these
treaty benefits.
Pay during studying and training (Income Code 19).
This category refers to pay (as contrasted with remittances, allowances,
or other forms of scholarships or fellowship grants - see Scholarships and
Fellowship Grants, earlier) for personal services performed while a nonresident alien
is temporarily in the United States as a student, trainee, or apprentice, or while
acquiring technical, professional, or business experience.
Graduated rates. Wages,
salaries, or other compensation paid to a nonresident alien student, trainee, or
apprentice for labor or personal services performed in the United States are
subject to graduated withholding.
A nonresident alien temporarily in the United States on an F-1,J-1,M-1, or Q-1
visa is not subject to social security and Medicare taxes on pay for services performed to
carry out the purpose for which the alien was admitted to the United States. Social
security and Medicare taxes should not be withheld or paid on this amount. This exemption
from social security and Medicare taxes also applies to employment performed under
Curricular Practical Training and Optional Practical Training, on or off campus, by
foreign students in F-1, J-1, M-1 or Q status as long
as the employment is authorized by the Immigration and Naturalization Service. However, if
an alien is considered a resident alien, as discussed earlier, that pay is subject to
social security and Medicare taxes even though the alien is still in one of the
nonimmigrant statuses mentioned above. This rule also applies to FUTA (unemployment) taxes
paid by the employer.
Any student who is enrolled and regularly attending classes at a school may be exempt
from social security, Medicare, and FUTA taxes on pay for services performed for that
school. See Publication 15 (Circular E).
Tax treaties. Many
tax treaties provide an exemption from U.S. income tax and from withholding on
compensation paid to nonresident alien students or trainees during training in the United
States for a limited period. In addition, some treaties provide an exemption from tax and
withholding for compensation paid by the U.S. Government or its contractor to a
nonresident alien student or trainee who is temporarily present in the United States as a
participant in a program sponsored by the U.S. Government (see Table 2). However,
a withholding agent who is a U.S. resident, a U.S. Government agency, or its contractor
must report the amount of pay on Form 1042-S.
Claimants must give you either Form W-8BEN or 8233, as applicable, to obtain these
treaty benefits.
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