Nonresident aliens who live and work in the United States may encounter specific employment-related issues. In this guide, you'll learn about these potential problems and how to handle them appropriately.

Note: These requirements only apply to nonresident aliens working within the U.S. Foreign workers who perform their services for a U.S. business from their native countries are not subject to information reporting requirements (thus no 1099 reporting requirements) or withholding requirements. Nonresident aliens working outside the U.S. have no U.S. income tax liabilities and the U.S. employer can deduct the amounts paid.

Foreign workers must file withholding documents with their U.S. employer or withholding agent. Which form they file will depend upon their circumstances.

Form 8233 - Claiming Tax Treaty Exemptions from Withholding - If a foreign worker claims a tax treaty exemption from Social Security and Medicare, the foreign individual must complete a Form 8233 and provide it to the employer. The employer must review, accept and sign the form, and within 5 days of acceptance forward a copy to the IRS. The employer must wait 10 days to see if the IRS has any objections to the withholding. See the instructions for Form 8233 for more detailed information. Publication 515 identifies countries that have treaties with the United States.

W-4 – Employee’s Withholding Certificate - All compensation does not exempt under the tax treaty will be subject to employment taxes in conjunction with the nonresident alien’s Form W-4, which is subject to special adjustments, that take into account restrictions on a nonresident alien’s filing status, ability to claim the standard deduction, and restrictions on claiming certain credits and deductions. U.S. employers should advise nonresident aliens to review IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, before completing the Form W-4. U.S. employers should know that nonresident aliens:

Since the foreign employee is not allowed a standard deduction when filing, the U.S. employer cannot use the regular withholding table and must follow a special procedure outlined in Publication 15-T, page 4 (2022).

Note: Under the tax treaty with India, nonresident alien students and business apprentices from India use the regular withholding tables.

Totalization (International Social Security) Agreements - These agreements are like tax treaties but are between the Social Security Administration and various foreign countries. The agreement is to address a situation where dual Social Security taxation occurs when a foreign employee is working within the United States and required to pay these taxes to both the U.S. and the foreign employee’s country of residence on the same wages. Totalization agreements must be honoured by a U.S. employer.

The foreign worker who claims an exemption under a totalization agreement needs to provide the U.S. employer with a certificate of coverage from the resident country that will be collecting the taxes. The U.S. employer should keep a copy of the certificate in the event the IRS questions why FICA taxes are not being withheld.

More information on totalization agreements is available in Section 7, Page 23 of 2022 IRS Publication 15-A, 2021 Publication 519 (page 44), and at www.socialsecurity.gov/international.

Resident alien and non-resident alien employees’ wages are reported on the Forms 941 or 944 and W-2 in the same manner as normal payroll reporting. However, when the wages for a non-resident alien are exempt under a tax treaty those payments are reported on Forms 1042 and 1042-S.

A Form W-2 is usually required to report state and local wages and income taxes withheld even in situations in which all of a non-resident alien’s wages are exempt from federal income tax under a treaty, and all federal wages would be reported on Form 1042-S. A tax treaty only applies to the Federal tax regime and not state taxes. There are no tax treaties between a foreign government and a state.