On January 26th, IRS published Notice 1392 regarding the special instructions for Non Resident Aliens (NRA) receiving compensation in the United States. NRAs must follow special instructions to complete Form W-4. Compensation for dependent personal services includes amounts paid as wages, salaries, fees, bonuses, commissions, compensatory scholarships, fellowship income, and similar payments made to NRAs as employees.
Compensation paid to a nonresident alien for performing personal services as an employee in the United States is subject to graduated withholding. Compensation for personal services also includes amounts paid as a scholarship or fellowship grant to the extent it represents payment for past, present, or future services performed as an employee in the United States. NRAs must complete Form W-4 using the modified instructions provided later, so that employers can withhold the correct amount of federal income tax from compensation paid for personal services performed in the United States. This Notice modifies the instructions on Form W-4 to take into account the restrictions on a nonresident alien’s filing status, the limited number of personal exemptions allowed, and the restriction on claiming the standard deduction.
NRAs working in the United States should pay particular attention to the following lines when completing 2011 Form W-4.
- SSN: NRA must enter a Social Security Number on line 2. If the worker filing the Form W-4 doesn’t have a SSN, he or she must apply for one on Form SS-5, Application for a Social Security Card. An individual taxpayer identification number (ITIN) may not be entered on line 2 of Form W-4.
- Filing Status: NRAs should check the “single” box, regardless of their actual marital status.
- Total Number of Allowances: Generally, NRA should claim only one withholding allowance. However, if the individual is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, or a U.S. national, the nonresident alien may be able to claim additional allowances for his/her spouse or children. IRS Publication 519 should be consulted for more specific information. If the person completing Form W-4 has more than one job, the total number of allowances should be determined, and no more than that amount should be claimed on all of the Forms W-4 combined. The IRS notes that withholding is usually most accurate when all allowances are claimed on the Form W-4 for the highest paying job, and zero allowances claimed for the other jobs.
- Additional Withholding Allowance: NRAs should write “nonresident alien” or “NRA” on the dotted line, and indicate the additional amount, if any, that they would like to have withheld.
- Exemption from Withholding: NRAs should not claim exemption from withholding, even if they meet both of the conditions set forth on Line 7.
There are many exceptions available to NRAs, for example, their income may be exempt from United States tax under a treaty. Employers should ask NRA employees to carefully review these special instructions in completing the 2011 Form W-4.