Nonresident alien employee withholding tax calculation has changed

[Lyle Phipps]

Nonresident alien employee withholding tax calculation has changed [IRS Publication 15, Section 9, Withholding Adjustment for Nonresident Aliens]:  The IRS has revised the amount that must be added to a nonresident alien employee's wages to compute withholding, effective with wages paid beginning Jan. 1, 2012. The withholding calculations for nonresident alien employees are different than for other employees, because nonresident alien employees are not entitled to the standard deduction that is built into the withholding tables. Notice 2005-76, 2005-2 CB 947, requires employers to add an amount to wages before determining withholding under the wage bracket or percentage methods in order to offset the standard deduction built into the withholding tables. The addback amount varies by pay period (i.e., weekly, biweekly, monthly, etc.). The addback amounts for the 2012 tax year are as follows:

• Weekly Payroll: $41.35
• Biweekly Payroll: $82.69
• Semimonthly Payroll: $89.58
• Monthly Payroll: $179.17
• Quarterly Payroll: $537.50
• Semiannual Payroll: $1,075.00
• Annual Payroll: $2,150.00
• Daily or Miscellaneous Payroll: $8.27

Employers should add the above amounts to the wages that the nonresident alien employee earns during the payroll period before computing withholding. Employers must also consider the number of withholding allowances that the nonresident alien employee claimed before computing withholding (generally limited to one allowance). The addback does not apply to wages earned by nonresident alien students from India and business apprentices from India.

Publication 15 can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/p15.pdf.