Policies and Procedures
Policy 1121 – Social Security Tax Withholding for Foreign Nationals
July 1, 2004
August 24, 2009
Director of Payroll Services
In accordance with U.S. tax law, the University imposes the U.S. Social Security tax on wages paid to both U.S. citizen and nonresident alien employees, including students, teachers, and researchers. A nonresident alien is subject to the tax only if s/he is working as an employee within the U.S. In addition to withholding the applicable Social Security tax rate from employees' wages, the University will withhold the employer matching portion.
The Internal Revenue Code (IRS) has established two Social Security tax exemptions applicable to foreign national students, teachers, and researchers, the Nonresident Alien Exemption that applies generally to all nonresident aliens who meet certain criteria, and the Student Exemption, limited to students who earn wage income during the course of their studies. Both resident and nonresident aliens can qualify under the student exemption.
I. Nonresident Alien Social Security Tax Exemption
This exemption is applicable if the foreign national receiving the wage payments meets all of the following criteria:
1. The person has been defined as a nonresident alien, as described in Policy 1120.
2. The person holds an F, J, M, or Q visa when the wage payments are made.
3. The service performed is aligned with and permitted by the person's particular visa category.
II. Student Social Security Tax Exemption
Student employees who are U.S. citizens, as well as resident and nonresident alien student employees (including graduate teaching and research assistants) are eligible for a Social Security tax exemption on the wages that they earn.
If a foreign national student does not qualify for the nonresident alien Social Security tax exemption, s/he may qualify for the student exemption, provided the activities of the student employee are primarily those of a student, not an employee, as determined by meeting these criteria:
1. Student employees must be enrolled on at least a half-time basis as determined under the University's enrollment policies.
2. A student employee cannot be considered a "career employee" (eligible to participate in a retirement plan, to receive tuition waiver benefits, (with the exception of graduate teaching and research assistants), or classified by the University as a career employee). This latter requirement reflects the IRS belief that the student Social Security tax exception should not be available to full-time employees of the institution who may also be enrolled in classes at the school.
III. Additional Considerations
Social Security Totalization Agreements
In order to minimize or eliminate double Social Security taxation of U.S. citizens working abroad and foreign nationals working in the U.S., the federal government has entered into Social Security Totalization Agreements with a number of foreign countries.
As of 2003, totalization agreements were in effect with the following countries: Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Italy, South Korea, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
The purpose of a totalization agreement is two-fold: (1) to relieve treaty country citizens from double Social Security tax so that Social Security tax is paid to only one of the two countries, and (2) to "totalize" the Social Security benefits so credits earned in one country can qualify for benefits in the other.
Reporting Social Security Tax Withholdings
If a foreign national employee receives wages that are exempt from tax under a tax treaty between the U.S. and the employee's country of residence, the wages will be reported to the IRS and the individual on Form 1042-S (rather than a W-2). However, if the person's wages are subject to U.S. Social Security tax because they do not qualify for any of the tax exemptions discussed above, the wages and Social Security tax withholding will be reported on Form W-2. Thus, in certain circumstances, it is possible for a foreign national employee to receive both a Form 1042-S and a Form W-2 with respect to the same wage payments.
Reason for Policy
The purpose of this policy is to outline the conditions which must be met by foreign national employees to exempt them from paying Social Security tax.
The third condition of the Social Security tax exemption qualification for nonresident aliens is most often easily met for primary visa holders (F-1, J-1, etc.). However, the condition is not transferable to spouses and dependents of nonresident aliens, even if they hold an F, J, M, or Q visa. Spouses and dependents are normally issued a "-2" visa (e.g., F-2, J-2), signifying that their primary purpose for visiting the U.S. is to accompany the holder of the primary visa, not to work. Therefore, while spouses and dependents might meet the first two conditions because they are nonresident aliens and hold an F, J, M, or Q visa, any employee services that they might perform would not align with the purposes of the "-2" visas, making exemption unattainable.
During much of the time that students, teachers, and researchers are in the U.S., they are "exempt individuals" who do not have to count days toward the substantial presence test and are therefore classified as nonresident aliens. But this "exempt individual" status terminates on December 31 of a calendar year; beginning on January 1, the person must start counting days toward the substantial presence test for that year. If and when the person is in the U.S. for at least 183 days in this year, s/he is classified as a resident alien retroactively to January 1 and is subject to Social Security tax on a retroactive basis. To ensure that the proper Social Security tax is withheld, the University will begin withholding Social Security tax beginning January 1, on the assumption that the person will meet the 183-day test for the year. A student, teacher, or researcher who knows that s/he will not be in the U.S. for 183 days during the year should contact Payroll Services to discuss whether Social Security withholding can be avoided.
- 1121.1 - Determining Social Security Tax Withholding of Foreign Nationals
Frequently Asked Questions
This policy provides general information about tax issues for foreign nationals. Although every effort has been made to provide accurate information in this policy and the related procedure, we cannot guarantee accuracy and completeness due to the complexity of the tax regulations and their capacity to change. This policy does not purport to give legal advice. For complex situations, individuals are advised to consult a tax attorney or other reputable tax advisor familiar with U.S. taxation of foreign nationals.
Please note that residency or nonresidency for tax purposes may vary from residency or nonresidency for immigration status. This policy primarily addresses tax issues. ISSS can assist foreign nationals with all questions that they might have.
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August 24, 2009
January 3, 2005