| U.S.-source income of nonresident alien individuals, nonresident alien fiduciaries, and foreign corporations not engaged in a U.S. business or trade is generally subject to a gross withholding tax fixed at a statutory rate of 30% unless such income is exempt from U.S. taxation, or unless a lower rate is established by an income treaty. Income subject to withholding includes, but is not limited to, dividends, interest, rents and royalties, compensation for personal services, and retirement payments. If you are the employer of a nonresident alien employee, you may have to withhold taxes at graduated rates.
Any U.S. or a foreign company is called a withholding agent if it has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. As a withholding agent, a company is liable for any tax required to be withheld. This liability is independent of the tax liability of the foreign person, such as a foreign national employee, to whom the payment is made. If the company fails to withhold and the employee fails to satisfy its U.S. tax liability, then both the company and the employee (subcontractor or other foreign person) are liable for tax, as well as interest and any applicable penalties.
Salaries, wages, or any other pay for personal services (referred to collectively as wages) paid to nonresident alien employees are subject to graduated withholding in the same way as for U.S. citizens and residents if the wages are effectively connected with the conduct of a U.S. trade or business. Any wages paid to a nonresident alien individual for personal services performed as an employee for an employer are generally exempt from the 30% withholding if the wages are subject to graduated withholding.
You may also be responsible as a payer for reporting on Form 1099 payments made to a U.S. person. You must backup withhold 30%(or the applicable rate established by legislation amending IRC section 3406) from a reportable payment made to a U.S. person that is subject to Form 1099 reporting if:
- The U.S. person has not provided its TIN in the manner required,
- The IRS notifies you that the TIN furnished by the payee is incorrect,
- There has been a notified payee under-reporting, or
- There has been a payee certification failure.
LBF is well positioned to assist in administration of foreign national employees by determining their tax status, calculating and making tax withholdings, and providing year-end reporting on behalf of the company and employees.
If you would like to learn how LBF can benefit your business, please tell us about yourself and our representative will contact you promptly or simply call us at 877-772-6222. |
