IRS Issues Guidance on Nonresident Alien Wages

The Internal Revenue Service has released guidance to employers paying wages to nonresident alien employees for services performed within the U.S.

Notice 2009-91 indicates that effective for wages paid on or after Jan. 1, 2010, new rules will be used in determining the amount of income tax to be withheld from their wages. The notice modifies the rules in Notice 2005-76, 2005-2 C.B. 947, for determining the amount of income tax employers must withhold under Section 3402 of the Tax Code for such employees. Notice 2005-76 provides rules for determining the amount of withholding on wages paid to nonresident alien employees.

The IRS said the rules needed to be modified to reflect changes made in the withholding tables as a result of the enactment of the Making Work Pay Tax Credit in the American Recovery and Reinvestment Act of 2009.  Nonresident alien individuals are not eligible for the Making Work Pay Tax Credit under Section 36A of the Tax Code. The modified rules provide for withholding on the wages of nonresident alien employees that more closely approximates their income tax liability.

The 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.