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Tax Treatment of Foreign Workers

While resident aliens working in the United States have tax obligations similar to those of citizens, employers and employees alike are often confused about their duties regarding non-resident temporary workers.

But temporary workers do indeed have tax obligations in the United States — many of which are substantially more complicated than those of residents. Moreover, temporary workers must obtain a certification of compliance with U.S. tax laws prior to leaving the United States. Misunderstanding these tax laws can have future consequences for employers and workers. Therefore, it is important for employers to understand these obligations and advise their foreign employees of how U.S. tax laws affect them.

Generally, non-residents engaged in trade or business within the United States must file a Form 1040NR nonresident personal income tax return. This remains the case even if you received no income from that business or other U.S. sources or your income is otherwise exempt from income taxation. Non-residents not engaged in trade or business activity but who have unsatisfied U.S. income tax liability from other sources must also file.

Non-resident aliens and other foreign individuals who derive income from U.S. sources may incur income tax liability in the United States. U.S. companies may be required to withhold income tax from these non-resident aliens under circumstances where they would not normally be required to do so if the individual was a citizen or permanent resident.

American companies that employ non-resident aliens in the U.S. are subject to similar withholding requirements as those that apply to citizens and residents. Companies that engage non-residents as independent contractors, partners or in other non-employment relationships may be required to withhold up to 30 percent of the income those individuals derive from trade and business in the U.S.

These rules are exceedingly complex and should be interpreted on a case-by-case basis by an experienced immigration and taxation attorney.

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