Visa holders may need to submit new withholding forms to adjust for treaty income exclusions or changes in tax status. Tax residency will affect how payors should withhold for income tax and FICA taxes (social security and Medicare). A visa holder should alert payors to these situations.
International students and exchange visitors (F, J, M, Q visa holders) may need to submit updated withholding documents for 2014 to their sponsors or employers. The payor needs a signed withholding form from the payee to start or change special withholding even if it is aware of every change in the situations of all its payees,
Treaty Exclusions: People who claim bilateral income tax treaty exclusions submit Form 8233 to the payor. They should submit new forms each year they claim the exclusion. If the treaty-based income exclusion will end this year, before the income does, the payor may find this information helpful.
If the treaty excludes only part, and not all, of the income from U.S. taxation, submit both a W-4 and a Form 8233 to the payor.
Residency change: Some visa holders will become tax residents during the year by meeting the substantial presence test. Some will be married to a U.S. citizen or resident and the couple will elect to file jointly as residents on Form 1040. Either change will make certain compensation subject to FICA – social security and Medicare tax – from the beginning of the year. And, changing tax filing from form1040NR to 1040 may change the taxable income and the withholding needed.
FICA – Federal Insurance Contribution Act: Provides for collecting social security tax and Medicare tax. There is no form for starting or stopping FICA withholding. If your payor is erroneously collecting FICA when you are exempt from paying it, or not collecting FICA when you are not exempt from paying it, you should so notify your employer in person and in writing. You may need to cite government regulations or publications to make your case. These situations are presented in a single IRS article which can be found by going to the IRS website, www.irs.gov, and entering into the search box ‘J visa and FICA’. Looking in Publication 519, or the Internal Revenue Code, requires synthesizing information from three different locations. This is more confusing than the IRS article for those who are not tax nerds.
F,J,M,Q visa holders are exempt from paying FICA income earned in compliance with their visa while they are considered to be temporarily in the U.S. This ends when they are no longer exempt from counting days towards substantial presence and have qualified as tax residents by the substantial presence test.
All students who are at least half-time students at the school, college, or university that pays them, and are not career employees, are exempt from paying FICA on that income. This ‘student FICA exemption’ has many twists and turns, known as ‘facts and circumstances’. Rev. Proc. 2005-11 is meant to clarify who qualifies, even when at first glance they might not, for instance, might seem to be career employees
(Note: Visa – based FICA exemptions apply only to the primary visa holder, as, J1. Spouses or dependents on secondary visas, as, J2, would generally pay FICA tax as well as income tax on compensation).
Citations
INA (Immigration and Naturalization Act) 101 (a)(15) – Definitions of types of visas
IRC (Internal Revenue Code) 3121(b)(19) – F,J,M,Q visa holders temporarily present in U.S. do not pay FICA taxes – social security and Medicare
IRC 7701(b) – Defines how visa holders determine (tax) resident alien or non-resident alien status
IRC 3121(b)(10) – Students employed by their school, college, or university do not pay FICA on those wages. (The ‘student FICA exemption’)
Rev. Proc. 2005-11 elaborates on how facts and circumstances determine eligibility for the student FICA exemption.
Social Security Handbook Citations
Section 939 – Foreign Students, Exchange Visitors, and International Cultural Visitors
IRS Publications
Publication 519 – U.S. Tax Guide for Aliens
Publication 515 – Withholding of Tax on Nonresident Aliens and Foreign Entities
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