The Payroll Book

CHAPTER 16US Citizens Abroad, Resident and Nonresident Aliens, and Illegal Aliens

Wages paid to US citizens and to resident aliens employed outside the United States are generally subject to Social Security and Medicare tax if the employer is an American employer.

The term American employer means a person who is:

• An individual who is a citizen or resident of the United States.
• A partnership, if two thirds or more of the partners are citizens or residents of the United States.
• A trust, if all of the trustees are citizens or residents of the United States.
• A corporation organized under the laws of the United States or of any state or the District of Columbia.

In some situations, a foreign country will impose its own Social Security tax on the wages of a US citizen or resident alien employed in that foreign country by an American employer. This could create a situation in which an employee's wages are subject to Social Security taxes imposed by two different countries. The United States has entered into agreements with some countries in order to avoid this double taxation.

For a list of other exempt services, refer to Publication 15, Circular E, and Employer's Tax Guide (www.irs.gov/forms-pubs/about-publication-15).

NONRESIDENT ALIEN SERVICES PERFORMED OUTSIDE THE UNITED STATES

Compensation paid to a nonresident alien for services performed outside the United States is not considered wages and is not subject to graduated withholding or 30% withholding.

PAYING NONRESIDENT ...