Policies and Procedures
Policy 1122 – Federal and State Income Tax Withholding for Foreign Nationals
July 1, 2004
September 2, 2009
Director of Payroll Services
Under federal and state tax laws, nonresident aliens generally are required to file a U.S. Nonresident Income Tax Return with the IRS and a North Carolina Individual Income Tax Return with the North Carolina Department of Revenue by April 15 of the following calendar year.
Payroll Services issues a Wage and Tax Statement, Form W-2, to employees with taxable income by January 31st of each year, and Form 1042-S with nontaxable income is mailed to the individual’s home address by February 28th of each year. These forms are used to complete the U.S. Nonresident Income Tax Return Form 1040 NR and the N.C. Individual Income Tax Return Form D-400.
I. Employees from Countries with Tax Treaties
In lieu of Forms W-4 and NC-4, nonresident alien employees from countries with relevant tax treaties must complete Form 8233 and an Official Attachment (provisions unique to a particular country) to claim exemption from federal and state income tax. The claim for exemption from federal income tax and North Carolina income tax must be renewed each calendar year by February 15th. Resident aliens who may qualify for a tax treaty exemption should use Form W-9 to claim the exemption.
A current listing of countries with applicable tax treaties may be obtained from the IRS. Forms for specific countries regarding Teachers/Researchers and Students may be obtained from Payroll Services. Payroll Services will assist with the treaty analysis and completion of Form 8233 in addition to Official Attachments.
Please note that some tax treaties contain a provision that imposes tax on a retroactive basis if the person works beyond the designated time period.
After earnings exceed the tax treaty maximum, withholding will begin automatically as though the student had filed Forms W-4 and NC-4 claiming single filing status with one withholding allowance. When a new calendar year begins, the foreign student will once again be eligible for the tax exemption if neither the earnings ceiling nor the time limit stipulated in the tax treaty has been exceeded.
Reason for Policy
The University has created this policy as a guide for those foreign nationals who may qualify for a tax exemption under a specific tax treaty prepared between the United States and his/her country of residence.
II. Employees from Countries without Tax Treaties
The IRS imposes special requirements on the deductions and exemptions that can be claimed by nonresident alien employees whose income is not exempt under an income tax treaty. These employees will complete federal Form W-4.
The N.C. Department of Revenue follows federal tax guidelines for nonresident aliens. These employees will complete state Form NC-4.
- 1122.1 - Determining Federal and State Income 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 face.
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September 2, 2009
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January 3, 2005