Page 39 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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Fileid: … tions/P515/2020/A/XML/Cycle10/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
steamboat, aircraft, or other type) between U.S. income tax only if both the employer and teacher, or researcher who was a resident of
the United States and Canada or Mexico; the employee are treaty country residents and the treaty country immediately prior to entry into
or the nonresident alien employee performs the the United States and who is not a citizen of the
• Perform duties connected with an interna- services while temporarily living in the United United States. The U.S. educational institution
tional project, relating to the construction, States (usually for not more than 183 days). paying the compensation must report the
maintenance, or operation of a waterway, Other treaties provide for exemption from U.S. amount of compensation paid each year that is
viaduct, dam, or bridge crossed by, or tax on pay for dependent personal services if exempt from tax under a tax treaty on Form
crossing, the boundary between the United the employer is any foreign resident and the 1042-S. See Tax Treaties, later, for information
States and Canada or the boundary be- employee is a treaty country resident and the about treaty benefits. The employer also should
tween the United States and Mexico. nonresident alien employee performs the serv- report the compensation in the state and local
To qualify for the exemption from withhold- ices while temporarily in the United States. See wages boxes of Form W-2 if the wages are sub-
ing during a tax year, a Canadian or Mexican Tax Treaties, later, for information about treaty ject to state and local taxes, or in the social se-
resident must give the employer a statement benefits. curity and Medicare wages boxes of Form W-2
with the employee's name, address, and identi- Pay for teaching (Income Code 19). This if the wages are subject to social security and
fication number, and certifying that the resident: category is given a separate income code num- Medicare taxes.
Claimants must give you either Form
• Is not a U.S. citizen or resident; ber because some tax treaties exempt a
• Is a resident of Canada or Mexico, which- W-8BEN or 8233, as applicable, to obtain these
ever applies; and teacher from tax for a limited number of years. treaty benefits.
• Expects to perform the described duties Pay for teaching means payments to a nonresi-
during the tax year in question. dent alien professor, teacher, or researcher by Pay during studying and training (Income
Code 20). This category refers to pay (as con-
a U.S. university or other accredited educa-
The statement can be in any form, but it tional institution for teaching or research work at trasted with remittances, allowances, or other
must be dated and signed by the employee and the institution. forms of scholarships or fellowship grants—see
must include a written declaration that it is Scholarships and Fellowship Grants Subject to
made under penalties of perjury. Graduated rates. Graduated withholding Chapter 3 Withholding, earlier) for personal
of income tax usually applies to all wages, sal- services performed while a nonresident alien is
Canadian and Mexican residents em- aries, and other pay for teaching and research temporarily in the United States as a student,
ployed entirely within the United States. paid by a U.S. educational institution during the trainee, or apprentice, or while acquiring techni-
Neither the transportation service exception nor period the nonresident alien is teaching or per- cal, professional, or business experience.
the international projects exception applies to forming research at the institution.
the pay of a resident of Canada or Mexico who Graduated rates. Wages, salaries, or
is employed entirely within the United States Social security and Medicare tax. A non- other compensation paid to a nonresident alien
and who commutes from a home in Canada or resident alien temporarily in the United States student, trainee, or apprentice for labor or per-
Mexico to work in the United States. If an indi- on an “F-1,” “J-1,” “M-1,” or “Q-1” visa is not sonal services performed in the United States
vidual works at a fixed point or points in the Uni- subject to social security and Medicare taxes are subject to graduated withholding.
ted States (such as a factory, store, office, or on pay for services performed to carry out the
designated area or areas), the wages for serv- purpose for which the alien was admitted to the Social security and Medicare tax. A
ices performed as an employee for an employer United States. Social security and Medicare nonresident alien temporarily in the United
are subject to graduated withholding. taxes should not be withheld or paid on this States on an “F-1,” “J-1,” “M-1,” or “Q-1” visa is
amount.
not subject to social security and Medicare
Exception 4. Compensation paid for serv- taxes on pay for services performed to carry out
ices performed in Puerto Rico by a nonresident Example. A nonresident alien is issued a the purpose for which the alien was admitted to
alien who is a resident of Puerto Rico for an em- visa to teach for a university. While in the United the United States. Social security and Medicare
ployer (other than the United States or one of its States, he takes a part-time job working for a taxes should not be withheld or paid on this
agencies) is not subject to withholding. chemical company. The wages earned while amount. This exemption from social security
Compensation paid for either of the follow- teaching at the university are exempt from so- and Medicare taxes also applies to employment
ing types of services is not subject to withhold- cial security and Medicare taxes. The wages performed under Curricular Practical Training
ing if the alien does not expect to be a resident earned at the chemical company are subject to and Optional Practical Training, on or off cam-
of Puerto Rico during the entire tax year. social security and Medicare taxes. pus, by foreign students in “F-1,” “J-1,” “M-1,” or
• Services performed outside the United If an alien is considered a resident alien, as “Q” status as long as the employment is author-
States but not in Puerto Rico by a nonresi- discussed earlier, that pay is subject to social ized by the U.S. Citizenship and Immigration
dent alien who is a resident of Puerto Rico security and Medicare taxes even though the Services.
for an employer other than the United alien is still in one of the nonimmigrant statuses
States or one of its agencies. mentioned above. This rule also applies to Example. A nonresident alien is admitted
• Services performed outside the United FUTA (unemployment) taxes paid by the em- to the United States to study surveying. As part
States by a nonresident alien who is a resi- ployer. Teachers, researchers, and other em- of her course, she apprentices to a surveyor.
dent of Puerto Rico, as an employee of the ployees temporarily present in the United She also works part-time at a restaurant to sup-
United States or any of its agencies. States on other nonimmigrant visas or in refu- plement her income. The wages she earns as
To qualify for the exemption from withhold- gee or asylee immigration status are fully liable an apprentice are not subject to social security
ing for any tax year, the employee must give the for social security and Medicare taxes unless and Medicare taxes. The wages and tips she
employer a statement showing the employee's an exemption applies from one of the totaliza- earns at the restaurant are subject to social se-
name and address and certifying that the em- tion agreements in force between the United curity and Medicare taxes.
ployee: States and several other nations. If an alien is considered a resident alien, as
• Is not a citizen or resident of the United The Social Security Administration discussed earlier, that pay is subject to social
States, and (SSA) publishes the complete texts security and Medicare taxes even though the
• Is a resident of Puerto Rico who does not and explanatory pamphlets of the total- alien is still in one of the nonimmigrant statuses
expect to be a resident for that entire tax ization agreements, which are available by call- mentioned above. This rule also applies to
year. ing 800-772-1213 or by going to SSA.gov/ FUTA (unemployment) taxes paid by the em-
ployer.
The statement must be signed and dated by international/totalization_agreements.html. Any student who is enrolled and regularly at-
the employee and contain a written declaration tending classes at a school may be exempt
Tax treaties. Under most tax treaties, pay
that it is made under penalties of perjury. for teaching or research is exempt from U.S. in- from social security, Medicare, and FUTA taxes
Tax treaties. Pay for dependent personal come tax and from withholding for a specified on pay for services performed for that school.
services under some tax treaties is exempt from period of time when paid to a professor, See Pub.15.

Publication 515 (2020) Page 37