The day test is a numerical formula for counting days of presence in the United States over a 3-year period. For example, you do not count the days someone is present in the United States as a "teacher" or "trainee" under a valid J or Q visa. If you need help, use the substantial presence test webpage or refer to Publication , U. Tax Guide for Aliens. I think I'll call the IRS for help if I'm not sure how to figure out if the person can pass the substantial presence tests. If you're still confused after checking the webpage, then call the IRS Business and Specialty Tax toll-free line at Make sure you have the information on the number of days the person has been in the U.
If your potential employee has a green card, an I stamp, or passes the substantial presence tests, there's nothing more to do. Residents of the U. Territories - Puerto Rico, U. The withholding and reporting rules for them are a little different from the rules for U. Citizens and resident aliens. See Publication , U.
Tax Guide for Aliens for those special withholding and reporting rules. Once you've verified the individual's identity and Nonresident Alien status with proper documentation, the next step is to withhold taxes at the proper withholding or tax treaty rate. They follow the same rules for withholding exemptions as your U. Citizens or resident aliens. A nonresident alien employee may be a resident of a country with which the United States has a tax treaty.
The treaty may provide for lower tax rates or even exemption from withholding for residents working in the U. If a nonresident alien employee wants to claim a tax treaty exemption from withholding, instead of Form W-4, the employee must give you a Form , Exemption from Withholding on Compensation for Independent and Certain Dependent Personal Services of a Nonresident Alien Individual.
It also takes care of nonresident aliens who are residents of countries with which the United States has a tax treaty favorable to them for income tax withholding purposes. When you hire a nonresident alien from any other country as an employee, they must give you a Form W So, some adjustments are necessary before you can use the general withholding tables in Publication 15, Employer's Tax Guide.
There are two steps required for figuring how much income tax to withhold from the wages of these nonresident alien employees. It has a table of amounts to add to your nonresident alien employee's wages depending on whether you pay them weekly or at some other frequency. The purpose of this adjustment is to take into account that they may not claim the standard deduction when they file their income tax returns. Use this adjusted amount and the withholding allowances from Form W-4 usually limited to one to figure out the income tax withholding from the tables used for all employees.
The only significantly different procedures for nonresident alien employees who receive wages from you are that they must:. Follow special rules for nonresident aliens who don't claim tax treaty benefits and are not residents of Canada, or South Korea when they complete their Form W-4;. And, make an adjustment to their wages before using the withholding tables in Publication 15, Section 9.
We've already covered the filing of a Form if an employee wants to claim tax treaty benefits. There is, however, one more way for a nonresident alien employee to be exempt from Social Security and Medicare.
These agreements are like tax treaties but are between the Social Security Administration and various foreign countries. They address the situation where dual Social Security taxation might occur when a foreign employee works within the United States and must pay these same kinds of taxes to their country of residence on the same wages.
The foreign worker who claims an exemption under a Totalization agreement needs to give you a certificate of coverage from their resident country that collects its own Social Security-type taxes. You must keep a copy of the certificate for your records in case IRS questions why you didn't withhold Social Security taxes.
Independent personal services is a tax treaty term and it refers to work performed by an independent nonresident alien contractor.
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. The big difference here is that you might have to withhold taxes on payments to them even though they are not your employee. This makes nonresident alien independent contractors very different from independent contractors who are U. Or, give you a Form to claim a tax treaty exemption from all or part of the required withholding.
Citizens or residents aliens. All other nonresident alien independent contractors may only claim one personal exemption allowance. Third, you must pro-rate each allowable exemption according to the number of days during the tax year.
On their Form , the nonresident alien enters the number of personal exemptions claimed and the number of days they will perform services in the U. Your next step is to divide the personal exemption amount for the year by if it's a leap year and multiply that by the number of personal exemptions claimed. Let's review how nonresident alien independent contractors are different from independent contractors who are U.
Citizens or residents. And, nonresident alien independent contractors use Form not a Form W-4 to claim their withholding exemptions and tax treaty benefits. Do I determine if a nonresident alien is an employee or an independent contractor the same way as I do a U.
Citizen who works for me? Classify nonresident aliens as either an independent contractor or an employee using the same rules as you use for U. Citizens who work for you. When it comes to making tax deposits or paying the tax, you do it the same way for everyone For more information on depositing and paying business taxes go to IRS.
When it comes to filing for your resident alien employees and for the nonresident alien employees who did not use Form to claim tax treaty benefits, give them a Form W-2 and include them on your Form , Employer's Quarterly Federal Tax Return and any other employment tax returns. For nonresident alien employees who claimed tax treaty benefits or nonresident independent contractors who gave you a Form to claim a right to reduced withholding, there are some different things to do.
Mail one copy to the IRS within five days after you receive it, give one copy to the nonresident alien and keep one copy for your records. If the IRS notifies you that it objects to the nonresident alien's claim for exemption from withholding, you must immediately begin withholding. In a nutshell, for your Form filers, you will have new employment tax return filing requirements with the IRS. And remember, this is for your nonresident alien employees who claimed tax treaty benefits as well as for any nonresident alien independent contractors you paid.
By March 15th of the year following the calendar year during which the nonresident alien performed the services, you must file Forms and S with the IRS. File a separate Form S for each person and each type of income you paid that person whether you actually withheld money or not. If you live in a state or other locality that taxes this income and that might even require withholding, you will need to file a Form W-2 with those taxing authorities for the income and any withholding.
Give a copy of the Form S and any Form W-2 you filed for each nonresident alien who provided independent personal services whether you withheld taxes or not and to each nonresident alien employee who claimed tax treaty benefits.
If you file your Forms S on paper, you must also include a Form T that's the transmittal form with the copies you send to the IRS. Finally, if you must file Form S for even one person, then you must also file an annual return on Form You do not need to give a copy of this form to the individuals who worked for you, but you do need to keep a copy for your records. The penalties for not meeting your withholding requirements can be pretty stiff - just as they can be for not withholding or reporting properly when you pay U.
Here's a quick rundown on what you need to know about withholding and reporting when you pay people who reside in the U. Citizens to do work for your small business. Treat employees and independent contractors who are resident aliens exactly the same as you treat U. Use a Form W-4 on which they may claim only one withholding exemption and figure their withholding using the graduated withholding rates;.
Remember you may also need to make an adjustment to their income before going into the withholding tables, that's to account for the fact that they aren't allowed to claim the standard deduction;. To this, you will need to attach a completed federal income tax return.
The purpose of this is to show that you need the ITIN for tax-filing purposes. This can be either an original or a copy of a return you filed in the past in which case you'll need to write "COPY" at the top. Then you will need to gather original documentation or certified copies verifying your identity and foreign status. The only documents the IRS will accept are the following, which must be current and show an expiration date and your name and photograph:. You can apply either by mail or in person at a local IRS office.
If successful, you will receive a letter containing your number. You will not receive an actual card; this was a move to avoid confusion with SSNs and their accompanying status to work. Once you have an ITIN, you will need to use it regularly namely by entering it onto a tax return, or being claimed as a dependent on someone else's tax return.
If you don't use it for three years in a row, you will need to revalidate it—that is, reapply. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state.
These taxpayers include unauthorized immigrants as well as lawfully present individuals, such as certain survivors of domestic violence, Cuban and Haitian entrants, and spouses and children of individuals with employment visas. In , 3. Federal law requires individuals with U. ITINs are for paying federal taxes and opening an interest-bearing bank account. They are required to do so by law. Also, immigrants want to file their taxes because they see it as an opportunity to contribute and to prove their economic contribution to the U.
In June , the IRS announced an interim policy change that restricts the type of documentation that new ITIN applicants may use to establish their identity. This change places additional burdens on eligible individuals. Why does the federal government issue ITINs?
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