Nonresident Aliens Form W-4 Instructions Updated

Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, has been updated by the IRS.

Form W-4, Employee’s Withholding Certificate, is used by employers to calculate an employee’s correct income tax withholding. (Form W-4, Instructions)

For 2020, the IRS completely redesigned Form W-4 to account for the changes to the personal exemption and standard deduction made by the Tax Cuts and Jobs Act (TCJA, PL 115-97). (The TCJA suspended personal exemptions and substantially increased the standard deduction). There is now a five-step process for completing Form W-4.

Specific rules apply to determine if an alien individual (that is, an individual who is not a U.S. citizen) is a resident alien or a nonresident alien (NRA) for federal income tax purposes. Generally, if an alien individual does not meet either the "green card test" or the "substantial presence test" for the calendar year, he or she is considered an NRA. (IRS Publication 519, U.S. Tax Guide for Aliens)

Generally, withholding calculations are different for NRA employees because NRA employees can only use single filing status (Code Sec. 3402(l)(3)(A)(ii)) and are not entitled to the standard deduction that is built into the withholding tables. (Code Sec. 63(c)) Thus, employers need to add an amount to wages (add back) before determining withholding amounts in order to offset the standard deduction built into the withholding tables. The add back amount varies by pay period (i.e., weekly, biweekly, monthly, etc.). The specific add back amounts can be found in IRS Publication 15-T, Federal Income Tax Withholding Methods.

Guidance on completing Form W-4. NRAs must complete Form W-4 using the modified instructions in Notice 1392, so that employers can withhold the correct amount of federal income tax from compensation paid for personal services performed in the U.S. Notice 1392 modifies the instructions to Form W-4 to account for the fact that NRAs can only use single filing status and can't claim the standard deduction.

The IRS is advising NRAs working in the U.S. to pay particular attention to the following lines when completing Form W-4:

• Step 1(b), Personal information. NRAs must enter a Social Security Number (SSN) in Step 1(b). If an NRA does not have one, he or she should contact the Social Security Administration (SSA) to find out if he or she is eligible for one. A taxpayer identification number (TIN) can't be used on Form W-4.
• Step 1(c), Personal information. NRAs should check the "Single or Married Filing Separately" box regardless of their actual marital status.
• Step 2, Multiple jobs or spouse works. This section should not be completed unless the NRA completing the form has more than one job at the same time. The NRA should not account for his or her spouse's job because an NRA may not file jointly.
• If the NRA has more than one job, he or she should complete Step 2(b) or 2(c). If the NRA chooses Step 2(b), he or she should complete the Step 2(b), Multiple Jobs Worksheet, for only one job and write "NRA” below Step 4(c) for only one job.
• If the NRA has only two jobs, he or she may choose Step 2(c), check the box on both Forms W-4, and write "NRA" below Step 4(c) for the Form W-4 for the highest paying job. The NRA should not write "NRA" below Step 4(c) for the other job.
• If the NRA is completing Form W-4 for more than one employer, he or she should complete Steps 3-4(b) on only one Form W-4. Withholding will be most accurate if the NRA does this on the Form W-4 for the highest paying job.
• Step 3, Claim dependents. Only NRAs from Canada, Mexico, South Korea, or India should use Step 3 because they are the only NRA that may be able to claim the child tax credit or the credit for other dependents. (IRS Publication 519) Generally, NRAs are not entitled to education credits. (IRS Publication 972).
• Step 4(a), Other income (not from jobs). This step is optional and should be completed only if the NRA wants tax withheld for other income that was not subject to withholding but is taxable in the United States. The NRA should not include any income from jobs or self-employment in Step 4(a).
• Step 4(b), Deductions. The IRS notes that NRA itemized deductions and adjustments to income may be limited (IRS Publication 519) so NRAs should be careful completing this section.
• Step 4(c), Extra withholding. The NRA should write "nonresident alien" or "NRA" in the space below Step 4(c) if he or she would like to have an additional amount withheld.
• The NRA should not claim that he or she is exempt from withholding in the space below Step 4(c) of Form W-4 even if the NRA meets the criteria for claiming an exemption from withholding listed in the instructions to Form W-4.

NRAs may be exempt from wage withholding under an income tax treaty on all or part of their compensation for dependent personal services. NRAs claiming a tax treaty withholding exemption should not complete Form W-4. Instead, they should complete Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual and give it to each withholding agent from whom amounts will be received.

In addition, compensation paid to employees of foreign employers is not subject to withholding if such pay is not more than $3,000 for the tax year and the employee is temporarily present in the United States for not more than a total of 90 days during the tax year. (IRS Publication 519)