Form W-4 Instructions Updated Regarding Nonresident Aliens
12/01/18
Author: Jody Rodney/Friday, November 30, 2018/Categories: News
Overview: The Internal Revenue Service (IRS) via Notice 1392 has updated the Form W-4 instructions for alien employees working in the United States.
Details:
Background
There are specific rules that apply to determine if an alien individual (that is, an individual who is not a U.S. citizen) is a resident alien or a nonresident alien for federal income tax purposes. Generally, an alien individual is a resident alien if the individual meets either the "green card test," or the "substantial presence test," for the calendar year. Any alien individual not meeting either test is generally a nonresident alien.
The withholding calculations for nonresident alien employees are different than for other employees, because nonresident alien employees are not entitled to the standard deduction that is built into the withholding tables. Employers need to add an amount to wages before determining withholding under the wage bracket or percentage methods in order to offset the standard deduction built into the withholding tables. The addback amount varies by pay period (i.e., weekly, biweekly, monthly, etc.).
Exemptions from withholding. Nonresident aliens may be exempt from wage withholding under an income tax treaty on all or part of their compensation for dependent personal services. In addition, compensation paid to employees of foreign employers is not subject to withholding if such pay is not more than $3,000 and the employee is temporarily present in the U.S. for not more than a total of 90 days during the tax year.
In Notice 1392, the IRS is advising nonresident aliens working in the United States to pay particular attention to the following lines when completing Form W-4:
- Line 2-Social Security Number. Nonresident aliens must enter a Social Security Number (SSN) on line 2. If they don't have an SSN, they should contact the Social Security Administration to find out if they are eligible for one. They may not enter an individual taxpayer identification number (ITIN) on line 2 of Form W-4.
- Line 3-Filing status. Nonresident aliens should check the "single" box, regardless of their actual marital status.
- Line 5-Total number of allowances. Generally, nonresident aliens should claim only one withholding allowance. There are other adjustments that might reduce the amount of withholding such as the child tax credit and the credit for other dependents (see IRS Publication 519 and the Personal Allowances Worksheet in the Form W-4 instructions). If nonresident aliens use the Personal Allowances Worksheet to complete line 5, they should enter one personal allowance for themselves on Line A. They should not enter an amount on Lines B, C, or D of the worksheet.
- Line 6-Additional withholding amount. Nonresident aliens should write "nonresident alien" or "NRA" on the dotted line, and indicate the additional amount, if any, that they would like to have withheld.
- Line 7-Exemption from withholding. Nonresident aliens should not claim exemption from withholding, even if they meet both of the conditions set forth on Line 7.
- Deductions, Adjustments, and Additional Income Worksheet. Nonresident aliens should use the Form W-4 Deductions, Adjustments, and Additional Income Worksheet only if they itemize deductions, claim certain adjustments to income, or have a large amount of nonwage income. Generally, nonwage income is not included in the computation of income tax withholding at graduated rates.
For a copy of Notice 1392, please click on the link here.
Call to Action: Please contact your Relationship Manager or Service Team with any questions.