Income Tax Withholding Elections
There are specific federal income tax withholding laws in effect for nonresident aliens. Generally, an employee is a resident alien for tax purposes if you meet either the green card test or substantial presence test for the calendar year. Any person not meeting either test is generally a nonresident alien for tax purposes.
Exempt Individuals
Students on a F-1 visa or J-1 student visa and faculty/researchers on a J-1 visa are generally classified as "exempt individuals". An "exempt individual" is any person who is temporarily exempt from the substantial presence test. Time spent as an "exempt individual" does not count toward the 183 days in the U.S.
Students present in the U.S. under an "F", "J", "M," or "Q" immigration status are exempt from the substantial presence test for 5 years. Faculty/researchers present in the U.S. under a "J" or "Q" immigrations status are exempt from the substantial presence test for two years (including the current and past six calendar years). However, any part of a calendar year in which the student or faculty/researcher is present in the U.S. counts as a full year.
If the employee is a resident of a country with which the U.S. has entered into a tax treaty, a portion of wages can be exempted from federal and state income tax withholding.
Income Tax Withholding Elections
On wage or salary payments to nonresident alien employees, the University must withhold U.S. income tax at the normal graduated rates that are applicable to all U.S. employees. The Internal Revenue Service treats income earned by nonresident aliens differently from income earned by U.S. citizens and resident aliens in two ways: by limiting the number of personal exemptions that can be claimed by nonresident aliens and by prohibiting many nonresident aliens from claiming the standard deduction when filing U.S. income tax forms each year.
As a result, income tax withholding elections must be completed by nonresident alien employee according to the following instructions:
- Federal Tax Withholding Instructions For Nonresident Aliens
- State County Tax Withholding Instructions For Nonresident Aliens
Although no withholding is required if the compensation payments are exempt from income tax under a provision of a tax treaty, the nonresident alien employee is still required to complete their income tax withholding elections. In addition, Form 8233 must be completed prior to payment to claim a treaty-based exemption from withholding.