For tax purposes, nonresident alien employees are taxed at different, and generally higher, rates on income than are resident alien and citizen employees. Off-campus employers should be aware of these tax considerations when processing income related to nonresident alien employees, as well as the specific documents authorizing work in the U.S. and needed to process employment paperwork.
For questions, please reach out to the Nonresident Alien Taxation Office.
Student Employment Authorizations
International student employees will have a number of documents and authorizations that outline their capacity to work in the United States and assist with completing the necessary paperwork for employment and tax withholding. These documents and authorizations vary depending on the student’s visa status.
Importance of Correct Withholdings
Because of the different tax rates applied to the income of nonresident aliens, employers should ensure to withhold taxes from pay made to nonresident aliens at the correct rate, which will not be the same as the rate applied to U.S. citizen employees. Doing so will allow the employer to avoid the following inadvisable scenarios:
- In the event of an IRS audit, if the employer under-withheld income tax, penalties and interest will be assessed to the employer, in addition to the taxes owed. The IRS will not attempt to seek retribution from the nonresident alien employee.
- FICA withholding is not required for nonresident aliens in F-1 and J-1 status who are working legally. Therefore, the off-campus employer is not liable for the matching portion of FICA payments.
- The nonresident alien has significantly higher federal tax liability than a U.S. tax resident. When off-campus employers under-withhold taxes, the employee is required to make high payments to the IRS at the time of their tax return, which is often a significant hardship.
- Off-campus employers often mistakenly issue a Form-1099 to nonresident alien employees treated as independent contractors. This provides documentation to the IRS that the employer has not followed required procedures for nonresident alien employees. Such payments should be documented on the Form 1042-S showing appropriate withholding (up to 30%).