A number of companies have relationships with contractors who are not U.S. citizens. Companies may employ day-laborers to assist with varying needs. This item discusses the different classes and definitions of individuals who are subject to wage withholding, the new wage-withholding method for nonresident aliens (NRAs), the Service's individual taxpayer identification number (ITIN) program, and the preparation of a wage-only income tax return for an NRA.
Individuals who are subject to tax in the U.S. fall into two classes: (1) citizens and resident aliens taxable under Sec. 1; and (2) NRAs taxable under Sec. 871 or 877. Businesses must identify whether a worker is a citizen, resident or NRA as part of the hiring process. In some cases, employers treat these individuals as independent contractors. Employers may be asked or required to withhold taxes (Federal, state or both) from these workers.
A resident alien is an individual who is not a citizen or national of the U.S. and meets the green-card or substantial-presence test. The green-card test is met when an individual can show that he or she has an immigrant visa ("green card"). The substantial-presence test requires that the individual be present in the U.S. for 31 days during the current year and a total of 183 days during the current and two preceding years. For this purpose, all the days of physical presence in the current year are counted, as are one-third of the days in the first preceding year, and one-sixth of the days in the second preceding year. An NRA is an individual who is not a U.S. citizen or resident alien; see IRS Pub. 515, Withholding, of Tax on Nonresident Aliens and Foreign Entities, p. 6.
U.S. citizens and resident aliens are subject to withholding in the same way. NRAs differ, because they are subject to a 30% rate, unless an exemption or treaty applies. A tax adviser can check the IRS's website to determine if there is a treaty with a foreign country or review Pub. 515, Table 3, List of Tax Treaties. However, if an NRA is married to a U.S. citizen, withholding on compensation will be processed in the same way as for a U.S. citizen or resident alien.
Employers and other payers are required to withhold taxes on various types of income (i.e., gross income from sources within the U.S.) of NRAs pursuant to Sec. 1441. The practical problem is how to report multiple payments and pay the withholdings to the respective taxing authorities without identification...