It’s common for companies to employ people who may not be U.S. citizens. Sometimes, organizations have workers who are only living in the country temporarily or for work purposes. In these cases, businesses and their payroll teams have their work cut out for them. It’s crucial for staff members in charge of wage disbursement and tax withholding to understand the requirements of paying foreign national employees.
Alien status makes a difference
Companies usually encounter two scenarios when it comes to foreign nationals. These employees are considered either nonresident alien – they do not have a green card and have not met substantial presence requirements for the U.S. – or a resident alien, meaning they’ve met both obligations. Each classification comes with different tax requisites.
Foreign nationals categorized as resident aliens are subject to the same tax and payroll withholding requirements as a regular U.S. citizen.
Nonresident alien employees, on the other hand, receive different rules and regulations in reference to their tax status and the ways in which they can file their returns. Wage withholding rules designed to approximate the tax liability of these workers that apply to their wages are dissimilar from those meeting resident status, according to Thomson Reuters. Since these foreign nationals’ home countries may be part of an income tax treaty with the U.S., they must report on form 1040 instead of a W-2. Furthermore, state definitions of resident and nonresident vary, so the local withholding and reporting requirements and rules also differ in that way.
Nonresident aliens often experience higher withholding amounts, as not being able to claim many personal deductions, exemptions and credits results in increased taxes. These foreign nationals are exempt from FICA – Federal Insurance Contribution Act – contributions including Medicare and Social Security. If these employees’ home countries have entered into a treaty with the U.S., they may be exempt from wage and income tax withholding.
“Businesses should implement software that can keep track of tax requisites for foreign nationals.”
Paying foreign national employees
Once HR and payroll teams are familiar with the tax requirements for foreign nationals, companies can develop a strategy for accurate payment of these employees. Since precise monetary disbursement requires an in-depth understanding of the intricacies of tax and wage regulations for nonresident aliens, as well as possible treaties with the U.S., organizations need a system that will manage all of these obligations and ensure proper income.
Aside from the knowledge of payroll personnel, businesses should implement software that can keep track of requisites for foreign nationals. Companies will benefit from this kind of technology as a means of ensuring they’re compliant with IRS standards.
These programs can monitor changing tax requirements for nonresident aliens over time to ensure companies are compliant with IRS obligations while also maintaining awareness of treaties that will affect taxes and wages. Payroll software will also guarantee disbursement is completed in a timely manner.
Companies across the U.S. employ foreign nationals, both with resident and nonresident status. There are certain tax and wage implications these businesses must take into consideration when managing their payroll processes. Since this procedure is subject to changing laws, requirements and treaties, it benefits organizations to introduce payroll software to ensure all operations are accurate and compliant with government standards and that workers are taxed appropriately.Contact us to learn about paying foreign nationals and payroll, HR and HCM services