Transcript Document

Inpatriate/
Nonresident Alien
L.Dukhovnaya, MST, CPP 2013
Classification of Taxpayers for
U.S.Tax Purposes
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U.S. law treats U.S. persons and foreign
persons differently for tax purposes.
U.S. citizens and resident aliens are
taxed on the worldwide income
Nonresident alien is taxed on the USsource income only
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Classify the Payee
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US citizen
US lawful permanent resident
Alien authorized to work
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Classify the Payee
An alien is any individual who is not
a U.S. citizen or U.S. national.
 A nonresident alien is an alien who
has not passed the green card test
or the substantial presence test.
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L.Dukhovnaya, MST, CPP 2013
Alien Residency - Green
Card Test
A Lawful Permanent Resident of US.
is a resident for tax purposes based
on the U.S. Citizenship and
Immigration Services (USCIS) alien
registration card, Form I-551, also
known as a "green card.“
 Taxed on worldwide income as US
citizens
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Substantial Presence Test
If the individual didn’t pass the green
card test, he or she is still considered
a permanent resident for the tax
purposes if:
1. The alien is present in the U.S. for
at least 31 days during the current
calendar year, and
L.Dukhovnaya, MST, CPP 2013
Substantial Presence Test
2. 183 days during the 3-year period that
includes the current year and the 2 years
immediately before that, counting:
All the days present in the current
year,
And 1/3 of the days present in the 1st
year before the current year,
And 1/6 of the days present in the 2nd
year before the current year.
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Substantial Presence Test - example
The person was present in US 120 days
in each of the years: 2010, 2011, 2012.
120 + 40 (1/3 in 2011) + 20 (1/6 in 2010)
= 180
This individual is not considered a
resident under the substantial presence
test for 2012
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Substantial Presence Test exemption
Days excluded from substantial presence
test when individual qualifies as exempt:
o Foreing government individuals (A visa)
o Teacher or trainee with J or Q visa
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Substantial Presence Test exemption
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Substantial Presence Test –
exemption example
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Substantial Presence Test –
exemption example
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Wei Wu was a citizen and resident of China
immediately prior to his entry into the US.
He is temporarily present in the United States
as a graduate student at a university in
Cleveland on an F-1 visa (student visa).
He arrived in the United States on 08-152007. Assume that Wei Wu has not changed
his immigration status since his arrival in the
United States. Determine his residency
starting date.
L.Dukhovnaya, MST, CPP 2013
Substantial Presence Test –
exemption example
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Date of entry into US: 08-15-2007. Exempt
for 5 calendar years (2007 through 2011).
Then, begin counting 183 days at this date: 0101-2012.
Number of nonexempt days in United States
during 2012: 366 days – current year
Prior year (2011) days in US × 1/3 = 0 days
Second Prior year (2010) days in US (0) × 1/6
=0
Total = 366 days
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Substantial Presence Test –
exemption example
Wei Wu passed the substantial presence test on
07-01-2012 (the 183rd day of 2012).
Wei Wu's residency starting date under I.R.C. §
7701(b) is 01-01-2012 (the first day he was
present in United States during the calendar year in
which he passed the substantial presence test).
L.Dukhovnaya, MST, CPP 2013
Payroll Delivery Methods
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Home country payroll
Host country payroll
Shadow payroll
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Taxes for Resident Aliens
Wages paid to resident aliens are subject to
the federal income tax withholding and the
employee and employer share of social
security, Medicare, and FUTA taxes.
Employers must obtain Forms W-4 and
I-9 from resident aliens.
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Taxes for Nonresident Aliens, special instruction
for the form W-4
Nonresident aliens:
 can only check “Single” on Line 3.
 can claim only one withholding allowance on Line 5,
unless residents of Canada, Mexico, Japan, or South
Korea, or are U.S. nationals.
 must indicate nonresident alien status above Line 6.
 cannot claim “Exempt” withholding status on Line 7.
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Withholding procedure for NR
alien employees
1. Add to the wages paid to NRA the amounts
shown below (Pub.15, p.21)
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Withholding procedure for NR
alien employees
2. Use the amount calculated in the step 1 and the
number of withholding allowances claimed (usually not
more than one) to figure income tax withholding with
the Wage Bracket Method or Percentage Method.

The amounts added under the chart
(“Phantom gross-up”) are to remove effect
of the standard deduction from the wagewithholding table & added to wages just for
calculating income tax withholding, but they
are not included on the W-2.
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Tax Treaties
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Treaties between the US and other countries
provide relief from the double –taxation.
Tax treaties may allow residents of foreign
countries to be taxed at a reduced rate, or to
be exempt from U.S. income taxes on certain
items of income they receive from sources
within the United States.
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Tax Treaties
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The US has income tax treaties with a number
of foreign countries.
These reduced rates and exemptions vary
among countries and specific items of income
If there is no treaty between the home country
and the US, the tax is withheld as described
above.
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Tax Treaties
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If the NRA pay is exempt from U.S. income
tax under a tax treaty, the NRA needs to
provide the employer with the Form 8233
for the tax year to claim the exemption.
The Form 8233 must report the Taxpayer
Identification Number (TIN) or the U.S.
Social Security Number.
L.Dukhovnaya, MST, CPP 2013
Tax Treaties and State IT
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Some states honor the provisions of U.S. tax
treaties and some states do not.
Therefore, you should consult the tax
authorities of the state to find out if the
income tax treaty applies in the state in
which the NRA resides.
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Exceptions to NRA withholding
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Exceptions to NRA withholding
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Aliens Employed in the U.S. FUTA
Wages paid to aliens employed in the US are subject to FUTA tax
under the same conditions that would apply to U.S. citizens.
However, certain types of services are exempt from FUTA
taxes. Some examples of exempt services include (Publication
15, Circular E, Employer's Tax Guide):
 Compensation paid to agricultural workers, including foreign
agricultural workers in H-2A nonimmigrant status;
 Compensation paid to employees of religious, charitable,
educational, or certain other tax-exempt organizations;
 Compensation paid to nonresident aliens temporarily
present in the United States in F-1, J-1, M-1, Q-1, or Q-2
nonimmigrant status.
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Social Security & Medicare Tax
In general, U.S. social security and Medicare taxes
apply to payments of wages for services performed
as an employee in the United States, regardless of
the citizenship or residence of either the employee
or the employer.
The US has entered into social security agreements
with foreign countries to coordinate social security
coverage and taxation of workers employed for part
or all of their working careers in two countries to
make sure that social security taxes are paid only to
one country.
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Totalization Agreements
Purpose
Since the late 1970's, the US has established a
network of Social Security agreements that
coordinate the U.S. Social Security program
with the comparable programs of other
countries.
L.Dukhovnaya, MST, CPP 2013
Totalization Agreements
Purpose
 International Social Security agreements, often called
"Totalization agreements," have two main purposes.
 First, they eliminate dual Social Security taxation, the
situation that occurs when a worker from one
country works in another country and is required to
pay Social Security taxes to both countries on the
same earnings.
 Second, the agreements help fill gaps in benefit
protection for workers who have divided their
careers between the United States and another
country.
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Totalization Agreements
 Administration
 Workers who are exempt from U.S. or foreign Social
Security taxes under an agreement must document
their exemption by obtaining a certificate of coverage
from the country that will continue to cover them.
 For example, a U.K.-based employee working
temporarily in the United States would need a
certificate from the U.K. authorities as evidence of
the exemption from U.S. Social Security tax.
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Totalization Agreements
 Each
agreement (except the one with Italy) includes
an exception to the territoriality rule called
"detached-worker" exception.
 Under this exception, a person who is temporarily
transferred to work for the same employer in
another country remains covered only by the
country from which he or she has been sent.
 The detached-worker rule in U.S. agreements
generally applies to employees whose assignments
in the host country are expected to last 5 years or
less.
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FICA Withholding Exceptions
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FICA Withholding Exceptions
example
 A NRA is issued a visa to teach for an
University. He takes a PT job working
for a chemical company while in the US.
 The wages earned while teaching at the
University y are exempt from FICA.
 The wages earned at the chemical
company are subject to FICA
L.Dukhovnaya, MST, CPP 2013
Publications & helpful links
 Publication
519, U.S.Tax Guide for Aliens
 Publication 901, U.S. Tax Treaties
 Publication 515, Withholding of Tax on
Nonresident Aliens and Foreign Entities
 http://www.socialsecurity.gov/international
/agreements_overview.html
 http://www.irs.gov/Individuals/International
-Taxpayers/
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Links to Social Security Web Pages
of other Countries and International
Organizations listed on
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http://www.socialsecurity.gov/international/
index.html
L.Dukhovnaya, MST, CPP 2013