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Nonresident Alients

 

OUS Financial Administration Standard Operating Manual (FASOM)

Section 10.6: Nonresident Aliens





  1. General

    Nonresident alien (NRA) employees are subject to limitations on tax withholding. Some or all of a nonresident alien's income may be eligible for exemption from income taxes because of a tax treaty between his or her country and the United States. This makes it important to classify the employee correctly as a nonresident alien or resident alien. Resident aliens are treated as U.S. citizens for tax purposes.

    If an employee has been admitted to the United States under a permanent immigration visa or has acquired a "green card," he or she must be coded as a resident alien; Citizenship Code (064, CITZ) must equal 3. In other cases, a foreign student, foreign professor or foreign researcher must be coded as a nonresident alien; Citizenship Code (064, CITZ) must equal 4. The only exception is when a nonresident alien is considered a resident alien because he or she meets the substantial presence test. The Controller's Division will make that determination.

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  2. Forms
    1. General

      A nonresident alien must fill out a set of forms and return them to his or her payroll office upon beginning employment with an OUS institution. A similar set of forms must be submitted at the start of each calendar year. (See Annual Forms Distribution.) The table below indicates which forms must be submitted.

      Required Forms

      Situation Form CO-NRA IRS Form 8233 Treaty Exemption Letter IRS Form W-4
      Employee is eligible for and wants to claim a treaty exemption Yes Yes Yes Yes
      Employee is not eligible for treaty exemption or does not want to claim treaty exemption Yes No No Yes
    2. Alien Information Request Form (Form CO-NRA)

      An Alien Information Request Form (Form CO-NRA) must be completed under three circumstances:

      • Before a foreign employee begins employment
      • When a foreign employee's visa status changes
      • At the beginning of each calendar year

      This form collects personal information, citizenship and visa information, and tax residency information needed to enter a foreign employee into the payroll system and ensure taxes are properly withheld.

      If you would like to view or print a copy of the Alien Information Request Form, see Downloading Forms and Publications.

    3. IRS Form 8233 and the Treaty Exemption Letter

      If a tax treaty between an employee's country and the United States grants him or her tax exemption, and the employee wishes to claim treaty exemption, he or she must complete an IRS Form 8233 and a treaty exemption letter. When the Controller's Division receives the completed Form 8233 and treaty exemption letter, two copies are made. The original is sent to the IRS, one copy is filed with the Alien Information Request Form (Form CO-NRA) and the second copy is set aside to be mailed out with an IRS Form 1042-S at year end.

      A nonresident employee will receive an IRS Form 1042-S for wages exempt from tax because of a tax treaty and an IRS Form W-2 for non-exempt wages. Some employees may receive both forms.

      The United States maintains tax treaties with more than 40 countries. Their terms and conditions vary. For a list of treaties and their conditions for students, teachers and researchers, refer to IRS Publication 901 (revised each November.) The IRS publishes full text of treaties in its Cumulative Bulletin and provides citations in the back of Publication 901.

      Note: Use the OUS preprinted treaty exemption letter that matches the employee's country of residence and purpose for visiting the United States ( student, teacher or researcher). The wording varies depending on country and purpose.

      If you would like to view or print a copy of any form or publication mentioned in this section, see Downloading Forms and Publications.

    4. IRS Form W-4

      Often, a nonresident alien must claim single withholding status with one allowance on his or her IRS Form W-4. An additional $16 per month ($4 per week) must be withheld from most nonresident aliens' pay for federal income tax. The Controller's Division provides IRS Forms W-4 pre-coded with single marital status, one allowance and $16 additional withholding.

      Nonresident aliens from some countries may claim additional allowances, and some need not pay the additional withholding. (See the table below.) IRS Publications 519 and 515 provide further information about withholding from nonresident alien wages.

      IRS Form W-4 Coding for Nonresident Aliens

      Country of Origin Marital Status Allowances Additional Withholding
      Canada, Japan, Korea and Mexico Single X1 $16
      India (students only) Single X1 $0
      Other Single 1 $16

      1 Nonresident aliens from Canada, India (students only), Japan, Korea and Mexico claim allowances in the same manner as U.S. citizens.

      If you would like to view or print a copy of any form or publication mentioned in this section, see Downloading Forms and Publications.

    5. Annual Forms Distribution

      In early December, the Controller's Division sends out packets of forms to nonresident alien employees already on the payroll system. Each nonresident alien must complete the forms provided and return them to his or her institution's payroll office. The information gathered with these forms will be effective for the following calendar year. The packets contain the forms listed in the table below.

      Contents of annual form packets

        CO-NRA Pre-Coded W-41 8233 Treaty Exemption Letter
      Treaty Country Yes Yes Yes Yes
      Non-Treaty Country Yes Yes No No

      1 All forms are pre-coded according to the table IRS Form W-4 Coding for Nonresident Aliens except that forms sent to Indian students are coded for $16 additional withholding. Because Indian students need not indicate $16 additional withholding, they may cross this out on their pre-coded IRS Form W-4.

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  3. Coding and Processing Forms
    1. Code determination and input

      Using information from completed forms, the institutional payroll office inputs a number of data elements using NRU on the TDS system. The table below lists the elements to be entered.

      Data Elements Entered by Institution's Payroll Office

      Data Element Value Message Explanation
      FICA Code (066, FICA) 4 Exempt Special F-1 and J-1 visas only. Employee is exempt from FICA because of nonresident alien status.
       
      Citizenship Code (064, CITZ) 3 Resident Alien Lives in the United States under a permanent immigration visa or possesses a "green card."
        4 Nonresident alien Admitted to the United States under a temporary visa for a definite period of time
        6   Temporary resident
        7 Resident alien Meets the substantial presence test.
       
      Country Code (652 RESL)     Refer to list of country codes.
       
      Purpose of Visit (657, PURP) 18A Professor or Researcher Primary purpose of visit is to teach or perform research.
        19A Practical Training Employee has INS authorization to participate in practical training.
        19B Student Primary purpose of visit is studying or training.
       
      Visa Identification Type (654, VSID) _XX F1, J1, H1, etc. This is a three-position field, but the first character is blank.
       
      Exemptions (070, EXMP)     Number of allowances entered on IRS Form W-4.
       
      Tax Schedule (068, TAXS) S Single Marital status indicated on IRS Form W-4.

      After checking the forms for accuracy and entering the proper codes, the institution sends the Alien Information Request Form (Form CO-NRA), IRS Form 8233 and the treaty exemption letter to the Controller's Division. The Controller's Division inputs the Tax Exempt Code (069, TAXX) from the table below. (Codes on the table below apply to nonresident alients only; additional codes apply to U.S. citizens and resident aliens.) The Controller's Division will also review the Alien Information Request Form (Form CO-NRA) to determine whether the employee meets the substantial presence test.

      Tax Exempt Codes for Nonresident Aliens

      amount exempt code amount exempt code
      $1,000 A $7,000 G
      $2,000 B $8,000 H
      $3,000 C $9,000 J
      $4,000 D $10,000 K
      $5,000 E Total amount1 4
      $6,000 F    

      1Applies to academics only.

    2. Determination of Substantial Presence

      A person is considered a resident for tax purposes if he or she meets the substantial presence test. To establish substantial presence, a person must reside in the United States for a least 31 days in the current year and 183 days during a 3 year period that includes the current year and the two preceding years.

      Substantial presence for teachers or researchers with J or Q visas is established slightly differently. After living in the United States for two years teachers or researchers with J or Q visas must be coded as a resident aliens for tax purposes only.

      Students on F, M, J or Q visas establish substantial presence in a slightly different manner. After residing in the United States for five years, students must be coded as resident aliens for tax purposes.

      Please see IRS Publications 515 and 519 for more information on this subject. Exceptions to these general rules will be considered on a case by case basis.

      If a nonresident alien meets the substantial presence test, the Controller's Division sends him or her a notification letter and a blank W-4. The Controller's Division also changes the employee's Citizenship Code (064, CITZ) to 7. Someone who meets the substantial presence test is considered a resident alien for tax purposes and is taxed as a U.S. citizen. He or she is entitled to claim personal allowances just as a U.S. citizen would. After an employee is classified as a resident alien, he or she is subject to FICA withholding, and his or her wages will be reported on an IRS Form W-2 at calendar year end.