What is NRA Withholding?
The National Resistance Authority (NRA) withholding, also known as National Resident Alien Withholding Tax, is a taxation requirement in the United States that affects non-resident aliens (NRAs) and foreign nationals who work or have income in the US. As of January 2020, a 24% withholding rate applies to most NRA witholding types.
In this article, we’ll delve into the basics of NRA withholding, its requirements, and what you need to know as a non-resident alien with income in the US.
What Does NRA Withholding Apply to?
NRA withholding applies to various types of income earned by non-resident aliens, including but not limited to:
- Wages and salaries (employment income)
- Prizes and awards
- Rent or royalty income from US-based assets
- Income from US-based property (real estate, buildings, etc.)
- Interests in US-based partnership or corporation
- Investment income (dividends, interest, etc.)
The NRA withholding tax is used to satisfy the US non-resident alien’s withholding obligation under the Internal Revenue Code (IRC) §1441 and the Income Tax Treaty Act.
Who is Eligible for NRA Withholding?
To be subject to NRA withholding, you must be a non-resident alien, meaning:
- You are not a US citizen
- You are not a resident alien (having a green card or satisfying the Substantial Presence Test)
- You have a tax home or reside in a foreign country
- You are eligible to a foreign tax treaty
How is NRA Withholding Calculated and Collected?
Withholding agents, typically the payer or employer, withhold taxes at the applicable 24% rate (15% for certain small, unrelated businesses under IRC §1446). The withholding tax is deducted from the payable amount, and the individual or company is responsible for filing an annual tax return to claim any refund if overwithheld.
Key Points to Note:
• Self-employment income: Self-employed NRAs may be required to report and pay taxes on income earned through a US business, which may involve state and local taxes as well.
• TIP income: Non-resident aliens earning tips in the US must report and pay taxes on these earnings under IRC §6041.
Exemptions and Exceptions
Exempt income: certain types of income, like US-government-issued coupons or stamps, are specifically exempt from NRA withholding under IRC §6047.
Exception from withholding: some non-resident aliens may be excepted from withholding under Section 501(c)(10) or Section 521(c) of the IRA Code.
Reducing withholding: NRAs might be eligible for reduced or zero withholding under certain Income Tax Treaties, Foreign Tax Credits, or deemed-paid credit.
Conclusion
As a non-resident alien with income in the US, it is crucial to understand NRA withholding and your obligations. Knowing what applies to you can help minimize tax burdens, ensure compliance, and simplify your international tax situation. Always consult with a professional tax expert or attorney specializing in international taxation to review your specific situation and confirm any claims or questions raised.
Additional Resources:
• IRS Guidelines: See the Internal Revenue Service’s (IRS) guidance on NRA withholding in Publication 519, Foreign Tax Credits, and Internal Revenue Code (IRC).
• Tax Treaties: Check the Income Tax Treaties between the United States and your home country for possible exemptions or reduction in NRA withholding.
• Form W-4: If you’re hired as a non-resident alien employee, complete this form to claim exemptions from withholding.
• Consult a Professional: Schedule an appointment with a tax or international lawyer to ensure personalized guidance.
Remember, navigating international tax laws can be complex, so don’t hesitate to seek expert guidance. Stay informed, avoid penalties, and optimize your NRA withholding experience!
