Making Work Pay Credit Withholding for Nonresident Aliens

By Alistair M. Nevius, J.D.

The IRS has issued guidance on determining the amount of income tax employers must withhold from wages for services performed by nonresident alien employees within the United States (Notice 2009-91). The notice modifies rules issued in Notice 2005-76 to take into account the Sec. 36A making work pay tax credit.

The making work pay credit was created by the American Recovery and Reinvestment Act of 2009, P.L. 111-5. As a result, the IRS amended the employer withholding tables to reflect the credit. However, nonresident aliens are not eligible for the credit. Notice 2005-76 was issued to provide guidance to employers on adding an amount to the wages of nonresident employees in order to account for the fact that they are not eligible to take a standard deduction. Notice 2009-91 requires employers to make a similar adjustment to the withholding for nonresident aliens to ensure they are not underwithheld as a result of not being eligible for the making work pay credit. The exact steps employers will need to follow will be spelled out in IRS Publication 15, Circular E, Employer’s Tax Guide.

Employers are required to start withholding from the wages of nonresident aliens using the new adjustments starting with wages paid on or after January 1, 2010.

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