Tax Break for Nonresident Aliens Working in US or for US Source Businesses.

Courtesy of IRS

This notice provides new rules for determining the amount of income tax employers must withhold under section 3402 of the Internal Revenue Code (Code) from wages paid for services performed by nonresident alien employees within the United States.

This notice also provides new rules for use by nonresident alien employees in completing Form W-4, Employee's Withholding Allowance Certificate. The rules for employers and employees are effective with respect to wages paid on or after January 1, 2006.

Because certain nonresident alien employees were experiencing overwithholding of income tax on their wages for services performed within the United States, the Internal Revenue Service has reconsidered the requirements for determining the amount of income tax to be withheld under section 3402 from the wages of nonresident alien employees. These new rules are designed to provide for withholding on the wages of a nonresident alien employee that more closely approximates the income tax liability of the nonresident alien.

TaxMama's summary: If the nonresident alien works in the US for less than 90 days and earns $3,300 or less, no withholding needs to be taken from their compensation. (Note: $3,300 is the amount of the personal exemption for nonresident aliens on Form 1040NR.)

For more details please read IRS Notice N-2005-77