Nonresident Alien Payments
All payments made to or on behalf of a nonresident alien must be reported to the Internal Revenue Service (IRS).
In addition, all payments are subject to federal income tax withholding unless they are specifically exempted by either U.S. tax law, or by an income tax treaty. (Note: the U.S. has tax treaties with over 40 countries, each of which is unique.)
Examples of payments made to nonresident aliens include, but are not limited to:
- Stipends or Fellowships
- Independent Contractor Payments
- Consultant Payments
- Honoraria Prizes/Awards
Requirements for Payment to a Non-Resident Alien
In order to make a payment to a nonresident alien, the individual must have a U.S. social security number or a U.S. ITIN (Individual Tax Identification Number).
Each payment requires the review of certain key factors:
- Visa Type
- U.S. Residency Status (U.S. citizen, resident alien, nonresident alien)
- Substantial Presence Test
Payments requiring federal income tax withholding are taxed at 14 percent, 30 percent, or graduated withholding rates depending on the type of payment.
The Form 1042-S is the annual tax form that is used to report payments and tax withholding to nonresident aliens.
Tax-Exempt Non-Resident Aliens
If a non-resident alien is exempt from federal income tax withholding because of either U.S. tax law or a tax treaty, that individual must file the appropriate form:
Compensation (independent contractors and employees) and related payments
Scholarship, fellowship (no service), royalties and other payments
To obtain more information on international taxation, please visit the IRS web site.