30% Federal Tax Withholding for Foreign Nationals
Resident and nonresident aliens are taxed in different ways. Resident aliens are generally taxed in the same way as U.S. citizens. Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U.S. trade or business.
A nonresident alien’s income that is subject to U.S. income tax must be divided into two categories:
- Income that is effectively connected with a trade or business in the United States, and
- Income that is not effectively connected with a trade or business in the United States
The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. These rates are the same that apply to U.S. citizens and residents. Income that is not effectively connected is taxed at a flat 30% (or lower if they have treaty benefits) rate.
Foreign Nationals who are engaged in a U.S. trade or business only because they performed personal services in the United States during the tax year, are usually NOT considered engaged in a trade or business in the United States. Many foreign nationals are paid as independent contractors for the personal services they provide during their trip to the United States. This is usually the case with Foreign Nationals who visit the UNCW campus.
This type of payment is generally subject to the 30% withholding if there is no treaty between the foreign national’s country and the United States, see IRS publication 515, pg 3 for more information. If a foreign national does not have a valid U. S. social security number or Individual Taxpayer Identification Number (ITIN) they are not entitled to treaty benefits if available. A foreign national MUST have a valid U. S. social security number or ITIN to receive any treaty benefits.
For further information on tax withholding for foreign nationals please see IRS publications 515 and 519.