Page 38 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
exercise of the ministry and not as an em- employee submits Form 8233 to claim exemp- Form W-4, and you must report wages and in-
ployee of the United States, a U.S. posses- tion from withholding under a tax treaty, the wa- come tax withheld on Form W-2. However, you
sion, or a foreign government, or any of ges are reported on Form 1042-S and not in do not have to withhold if any of the following
their political subdivisions. These also in- box 1 of Form W-2. Wages exempt under a tax four exceptions applies.
clude services performed by a member of treaty may still be reported in the state and local
a religious order in carrying out duties re- wages boxes of Form W-2 if such wages are Exception 1. Compensation paid for labor
quired by that order. subject to state and local taxation. For more in- or personal services performed in the United
• Tips paid to an employee if they are paid in formation, see the instructions for these forms. States is deemed not to be income from sour-
any medium other than cash or, if in cash, ces within the United States and is exempt from
they amount to less than $20 in any calen- Trust fund recovery penalty. If you are a per- U.S. income tax if:
dar month in the course of employment. son responsible for withholding, accounting for, 1. The labor or services are performed by a
Services performed outside the United or depositing or paying employment taxes, and nonresident alien temporarily present in
willfully fail to do so, you can be held liable for a
States. Compensation paid to a nonresident penalty equal to the full amount of the unpaid the United States for a period or periods
not exceeding a total of 90 days during the
alien (other than a resident of Puerto Rico, dis- trust fund tax, plus interest. A responsible per- tax year;
cussed later) for services performed outside the son for this purpose can be an officer of a cor-
United States is not considered wages and is poration, a partner, a sole proprietor, or an em- 2. The total pay does not exceed $3,000;
not subject to withholding. ployee of any form of business. A trustee or and
Special instructions for Form W-4. A agent with authority over the funds of the busi- 3. The pay is for labor or services performed
nonresident alien subject to wage withholding ness also can be held responsible for the pen- as an employee of, or under a contract
must give the employer a completed Form W-4 alty. with:
to enable the employer to figure how much in- “Willfully” in this case means voluntarily, a. A nonresident alien individual, foreign
come tax to withhold. consciously, and intentionally. You are acting partnership, or foreign corporation
A nonresident alien cannot claim ex- willfully if you pay other expenses of the busi- that is not engaged in a trade or busi-
ness instead of the withholding taxes.
! emption from withholding on Form ness in the United States; or
CAUTION W-4. Use Form 8233 to claim a tax Social security and Medicare tax. The em- b. A U.S. citizen or resident alien individ-
treaty exemption from withholding. See Form ployer generally also must withhold Federal In- ual, a domestic partnership, or a do-
8233, earlier. surance Contributions Act (FICA) tax and file mestic corporation, if the labor or
In completing Form W-4, nonresident aliens Form 941, Employer's QUARTERLY Federal services are performed for an office or
should use the following instructions instead of Tax Return. In certain cases, wages paid to stu- place of business maintained in a for-
the instructions on Form W-4. dents and railroad and agricultural workers are eign country or in a possession of the
1. Check “Single or Married filing separately” exempt from FICA tax. Wages paid to nonresi- United States by this individual, part-
dent alien students, teachers, researchers,
nership, or corporation.
on Step 1(c) (regardless of actual marital trainees, and other nonresident aliens in “F-1,”
status). “J-1,”“ M-1,” or “Q” nonimmigrant status are not If the total pay is more than $3,000, the en-
2. Write “Nonresident Alien” or “NRA” in the subject to FICA. See Pub. 15-T for the rules on tire amount is income from sources in the Uni-
space below Step 4(c). withholding. ted States and is subject to U.S. tax.
In addition to withholding Medicare tax at
For more information see Notice 1392. 1.45%, you must withhold a 0.9% Additional Also, compensation paid for labor or serv-
Nonresident alien employees are not Medicare Tax from wages you pay in excess of ices performed in the United States by a non-
resident alien in connection with the individual's
TIP required to request an additional with- $200,000 in a calendar year. See Pub.15 for temporary presence in the United States as a
holding amount, but they can choose to more information.
have an additional amount withheld. regular member of the crew of a foreign vessel
Federal unemployment tax (FUTA). The em- engaged in transportation between the United
ployer must pay FUTA tax and file Form 940, States and a foreign country or a U.S. posses-
Determining amount to withhold. Employers Employer's Annual Federal Unemployment sion is not income from sources within the Uni-
are required to add an amount to the wages of a (FUTA) Tax Return. Only the employer pays ted States.
nonresident alien employee solely for the pur- this tax; it is not deducted from the employee's
pose of calculating income tax withholding. The wages. In certain cases, wages paid to students Exception 2. Compensation paid by a for-
specific amounts depend on the payroll period. and railroad and agricultural workers are ex- eign employer to a nonresident alien for the pe-
These amounts can be found in Withholding empt from FUTA tax. For more information, see riod the alien is temporarily present in the Uni-
Adjustment for Nonresident Alien Employees in the instructions for Form 940. ted States on an “F,” “J,” or “Q” visa is exempt
the Introduction of Pub. 15-T. This adjustment Wages paid to nonresident alien students, from U.S. income tax. For this purpose, a for-
does not apply to students and business ap- teachers, researchers, trainees, and other non- eign employer means:
prentices from India. resident aliens in “F-1,” “J-1,” “M-1,” or “Q” non- • A nonresident alien individual, foreign part-
nership, or foreign corporation; or
Do not include the additional amount immigrant status are not subject to FUTA tax. • An office or place of business maintained
! on the employee's Form W-2, Wage in a foreign country or in a U.S. possession
CAUTION and Tax Statement. Pay for dependent personal services (In- by a domestic corporation, a domestic
come Code 18). Dependent personal services partnership, or an individual U.S. citizen or
Reporting requirements for wages and are personal services performed in the United resident.
States by a nonresident alien individual as an
withheld taxes paid to nonresident aliens. employee rather than as an independent con-
The employer must report the amount of wages tractor. You can exempt the payment from withhold-
and deposits of withheld income and social se- ing if you can reliably associate the payment
curity and Medicare taxes by filing Form 941. Pay for dependent personal services is sub- with a Form W-8BEN containing the TIN of the
Household employers should see Pub. 926, ject to Chapter 3 withholding and reporting as payee.
Household Employer's Tax Guide, for informa- follows.
tion on reporting and paying employment taxes Graduated rates. Ordinarily, you must Exception 3. Compensation paid to certain
on wages paid to household employees. withhold on pay (wages) for dependent per- residents of Canada or Mexico who enter or
leave the United States at frequent intervals is
Form W-2. The employer also must report sonal services using graduated rates. The non- not subject to withholding. These aliens must
on Form W-2 the wages subject to Chapter 3 resident alien must complete Form W-4 as dis- either:
withholding and the withheld taxes. You must cussed earlier under Special instructions for • Perform duties in transportation services
give copies of this form to the employee. If the (such as a railroad, bus, truck, ferry,
Page 36 Publication 515 (2020)