IRS Rules For Employer Reporting Of Wages Paid to Nonresident Alien Employees Performing Services In U.S. Change

November 13, 2009

Employers of nonresident aliens performing services in the U.S. should review and update their existing practices for reporting and withholding income taxes on wages paid to these employees in response to impending changes in Internal Revenue Service (IRS) rules. 

Effective for wages paid on or after January 1, 2010, IRS Notice 2009-91 IRS Notice 2009-91 implements new rules for determining the amount of income tax to be withheld from the wages of nonresident alien employees performing services within the United States.  These new rules will be set forth in the new revision of Publication 15 (Circular E), Employer’s Tax Guide, and other IRS publications. Notice 2009-91 will appear in IRB 2009-48, dated Nov. 30, 2009. An advance copy of the Notice 2009-91 is available for review here.

Notice 2009 modifies the rules for employers to use in calculating income tax withholding on nonresident alien employees to reflect two tax benefits for which nonresident alien employees are not eligible: (1) the standard deduction; and (2) the Making Work Pay Tax Credit.

Beginning with wages paid on or after January 1, 2010, employers are required to calculate income tax withholding under section 3402 of the Code on wages of nonresident alien employees by making two modifications:

  • Employers need to add an amount to wages before determining withholding under the wage bracket or percentage method in order to offset the standard deduction built into the withholding tables; and
  • Employers need to determine an additional amount of withholding from a separate table applicable only to nonresident alien employees to offset the effect of the Making Work Pay Tax Credit built into the withholding tables.

The specific steps to be followed for each of these two modifications will be set forth in Publication 15 and other IRS forms or publications.

Under the Obama Administration, the IRS is placing renewed regulatory and enforcement emphasis on employer classification of worker and proper wage reporting and income and employment tax withholding and payment. In light of these liabilities, employers should ensure that their current practices are properly updated and administered.

If you have questions about or need assistance with these or other employment, compensation, employee benefit, workplace health and safety, corporate ethics and compliance practices, concerns or claims, please contact the author of this article, Curran Tomko Tarski LLP Labor & Employment Practice Group Chair Cynthia Marcotte Stamer.  Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group, Ms. Stamer is experienced with assisting employers and others about compliance with federal and state equal employment opportunity, compensation and employee benefit, workplace safety, and other labor and employment, as well as advising and defending employers and others against tax, employment discrimination and other labor and employment, and other related audits, investigations and litigation, charges, audits, claims and investigations by the IRS, Department of Labor and other federal and state regulators. Ms. Stamer has advised and represented employers on these and other labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 20 years. Ms. Stamer also speaks and writes extensively on these and other related matters. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.   For additional information about the experience and services of Ms. Stamer and other members of the Curran Tomko Tarksi LLP team, see here.

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©2009 Cynthia Marcotte Stamer. All rights reserved.