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W-4 - Allowances, Excess FICA, Students, Withholding

This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

I changed jobs this year. At my first job, I was over the yearly Social Security FICA limit. My employer at my second job also withheld Social Security taxes even though I was over the limit. How do I get the excess Social Security FICA back?

If you have more than one employer and your wages were over the annual social security wage limit of $84,900.00 for 2002, you probably had too much social security tax withheld. (There is no wage limit for Medicare tax.)

You can take a credit for the excess withheld in the "Payments" section of Form 1040 or Form 1040A. Since it is credited in the payment section, it is a refundable credit and is applied like a payment. It will either be applied against any tax owed or refunded to you. The maximum social security tax for the tax year can be found in the Instructions for Form 1040 for the "Payments" section under "Excess Social Security and RRTA Tax Withheld," or in Publication 505 (PDF), Tax Withholding and Estimated Tax.

References:

I have a part-time job and a full-time job. My wages at the full-time job always exceed the FICA limit. Does my part-time employer have to withhold FICA taxes on my part-time wages?

Yes, if your part-time job is with a different employer. Each employer is responsible for withholding on wages subject to social security up to the annual wage limit which is $84,900.00 for the 2002 tax year. They are not responsible for determining any amount withheld by another employer. Consequently, with two or more employers, too much social security will be withheld if your total wages exceed the annual wage limit. (The wage limit is adjusted annually for inflation.) That is the reason there is a credit for excess social security and RRTA withheld. It is in the "Payments" section of Forms 1040 and 1040A so that if it is not needed to apply against tax owed, it is refunded to you.

The Medicare tax has no annual wage limit.

References:

Why are Social Security and Medicare taxes deducted from my earnings even through I am already collecting Social Security? Can I get these taxes back?

There is no provision in the law for people already collecting social security to be exempt from paying social security and medicare taxes on current earnings.

References:

For the first half of the year I was self-employed. I have now started employment with a new company and realized that they will be withholding for social security, too. Am I responsible for paying the social security part up to the limit twice?

There is a provision on Form 1040, Schedule SE (PDF), Self-Employment Tax, that limits the maximum amount of combined wages and self-employment earnings subject to social security tax. Thus, your wages as an employee will offset your self-employment earnings when you calculate the amount of your self-employment tax.

References:

If I have overpaid to Social Security or Medicare, can I get that money back?

If you worked for two or more employers, too much social security tax may have been withheld from your pay.There are procedures for taking a credit on your individual income tax return for excess social security tax withheld. There are no provision for receiving a tax credit for medicare that is overpaid. Refer to Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in Chapter 38 of Publication 17 (PDF), Your Federal Income Tax.

References:

We had too much social security tax taken out this year. What form do we need to fill out to request some of these monies back?

Credit for excess social security withheld is claimed on page 2 of Form 1040, U.S. Individual Income Tax Return. Refer to Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in Chapter 38 of Publication 17 (PDF), Your Federal Income Tax.

References:

What can be done if an employer will not withhold income taxes, social security, and Medicare from my pay?

Generally, in situations such as this, the employer is not considering you to be an employee. Rather, you are being treated as an independent contractor (self-employed person). If you cannot resolve this matter with your employer, and if you feel that an employer-employee relationship exists, you should submit a Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The factors used to determine if an employer-employee relationship exists are covered in Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.

If your status as an employee is not at issue, it may be that you are in a category of employment whose earnings are not defined as wages under U.S. social security law. Find out from your employer the reason that social security and Medicare taxes are not being withheld from your pay. If you have further questions, contact the IRS at 800-829-0922 or visit an IRS walk-in office for assistance.

References:

  • Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding
  • Publication 15-A (PDF), Employer's Supplemental Tax Guide

I am a graduate student and serve as a teaching assistant. I would like to know whether FICA taxes need to be withheld from my paychecks?

Students who perform services for the school, college, or university where they are enrolled and regularly attend classes are usually not subject to social security and Medicare taxes.

If the student works for a public school, college or university which is subject to a section 218 agreement, the student's services are automatically subject to social security and Medicare taxes if the state has chosen to cover students under its section 218 agreement with the Social Security Administration. The employer may be able to tell you whether its students' services are subject to social security and Medicare taxes under a section 218 agreement.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Federal Regulation section 31.3121(b)(10)-1

As I understand the law, student stipends are exempt from FICA and Medicare taxes. If my university takes these taxes out of my stipend income, can these taxes be recovered in some way?

If you are not performing a service for the university, your stipend would be subject to income tax only if it does not meet the qualified scholarship rules. Please refer to Publication 520 (PDF), Scholarships and Fellowships, for information on when a stipend would be a qualified scholarship, which would not be subject to social security and Medicare taxes. If you are performing a service for the university, your income is taxable for income tax purposes, but would generally be exempt from social security and Medicare taxes if you are enrolled and regularly attending classes unless you are covered under a section 218 agreement. Refer to Publication 15 (PDF), Employer's Tax Guide.

If your employer has been withholding social security and Medicare taxes from your stipend, the employer should refund the withheld tax. If the employer refuses to do so, Form 843 (PDF), Claim For Refund and Request For Abatement, can be filed to claim credit for the incorrectly withheld tax.

References:

Is the housing allowance for a minister subject to Social Security Tax and Medicare Tax under FICA?

The entire amount of a minister's housing allowance is subject to social security and Medicare taxes, even though it may be excluded from taxable income for income taxes. A minister's compensation for services as an employee, as well as from self-employment, is subject to Self-Employment Contributions Act (SECA) taxes, not the Federal Insurance Contributions Act (FICA). Under SECA the self-employed person pays all the taxes while under FICA the employer and employee each pay half of the taxes.

However, if you are a duly ordained Commissioned, or licensed minister, or member of a religious order not under a vow of poverty, or a Christian Science Practitioner who elected and was approved for exemption from Social Security coverage and self-employment tax, your housing allowance would not be subject to social security or Medicare taxes under SECA.

References:

  • Publication 517 (PDF), Social Security and Other Information for the Members of the Clergy and Religious Workers
  • Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders
  • Tax Topic 417, Earnings for clergy

4.3 Interest, Dividents, Other Types of Income: 1099-MISC, Independent Contractors, and Self-employed
I thought I was an employee and thought my employer was withholding tax from my pay. My former employer sent me a Form 1099-MISC and didn't withhold any taxes. Is there a procedure to have the situation reviewed and possibly make the former employer pay the taxes due? What can I do?

You can ask the IRS to make a determination as to whether an employer-employee relationship exists by filing Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. If the IRS finds that an employer incorrectly treated an employee as a nonemployee, the employer will be liable for the social security and Medicare tax withholding that he or she failed to withhold and pay. (There are some exceptions to this noted in Publication 15-A (PDF), Employer's Supplemental Tax Guide.)

Holding the employer liable for the tax that was not withheld does not relieve you from the liability for your share of social security and Medicare taxes. To pay your portion, attach Form 4137 (PDF), Social Security and Medicare Tax on Unreported Tip Income, to your individual income tax return and report the employee share of social security and Medicare on page 2 of Form 1040. Cross out the word "Tip" and insert the word "Wages" at the top of the Form 4137 and also at the top of Schedule U, U.S. Schedule of Unreported Tip Income, which is attached to the bottom of Form 4137. Also notate on the Form 4137 that a Form SS-8 has been filed. You may call us at 1 800-829-1040, the toll-free information number if further clarification of the procedure is necessary.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Publication 15-A (PDF), Employer's Supplemental Tax Guide
  • Form 4137 (PDF), Social Security and Medicare Tax on Unreported Tip Income
  • Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding
  • Tax Topic 762, Independent contractor vs. employee

The instructions for Form 1099-MISC, Box 7, say if you are not self-employed, call the IRS for information about how to report any social security and Medicare taxes. I need to know how do I report social security and Medicare taxes if I received income reported on a Form 1099-MISC, but was not self-employed?

You need to use Form 4137 (PDF), Social Security and Medicare Tax on Unreported Tip Income. Cross out the word "Tip" and insert the word "Wages" at the top of the form and also at the top of Schedule U, which is attached to the bottom of the form. Follow the instructions on Form 4137 to compute your share of your social security and Medicare taxes. Attach Form 4137 to your Form 1040. You may call us at 1 800-829-0922 if further clarification of the procedures is necessary.

You may want to file Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. This form requests the IRS to make an official determination of whether or not you were an employee. To make this determination, the IRS will need information from you and your employer.

References:

  • Form 4137 (PDF), Social Security and Medicare Tax on Unreported Tip Income
  • Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding

I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?

You are a sole proprietor if you are the sole owner of a business that is not a corporation. Report your income and expenses from your sole proprietorship on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.

If the total of your net profit from all businesses is $400 or more, you must pay into the Social Security system by filing Form 1040, Schedule SE (PDF), Self-Employment Tax. For more information on this, refer to Publication 533 (PDF), Self-Employment Tax.

The Federal tax system is based on a pay-as-you-go plan. Tax is generally withheld from your wages or salary before you get it. However, tax is generally not withheld from self-employment income. Thus, you may be required to make estimated tax payments. Publication 505 (PDF), Tax Withholding and Estimated Tax, provides information on making estimated tax payments.

References:

How do you determine if a person is an employee or an independent contractor?

The determination is complex, but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, nor whether the person works work part-time or full-time. There is no statutory definition of what an employee is, but from common law three basic areas have been identified:

  • behavioral control,
  • financial control, and
  • type of relationship.

For more information on employer-employee relationships, refer to Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide. If you would like the IRS to determine whether services are performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Unless you have requested a determination by filing Form SS-8, you generally have to report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment, if you had net earnings from self-employment of $400 or more. This is the method by which self-employed persons pay into the social security and Medicare trust funds. Generally, there are no tax withholdings on this income. Thus, you may have been subject to the requirement to make quarterly estimated tax payments. If you did not make timely estimated tax payments, you may be assessed a penalty for an underpayment of estimated tax. Employees pay into the social security and Medicare trust funds, as well as income tax withholding, through payroll deductions.

References:

I received a Form 1099-MISC with an amount in box 7, (nonemployee compensation). What forms and schedules should be used to report income earned as an independent contractor?

Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship). You should also be aware of Form 1040, Schedule SE (PDF), Self-Employment Tax, which must be filed if net earnings from self-employment are $400 or more. This form is used to figure your social security and Medicare tax which is based on your net self-employment income. You may also need to file Form 2210, Underpayment of Estimated Tax by Individuals, Estate & Trust, if you do not make estimate tax payments.

References:

I made several thousand dollars moonlighting as an independent contractor. What taxes do I need to pay?

You are responsible for Federal income tax and self-employment taxes on your income as an independent contractor. Self-employment taxes are your contributions to Social Security and Medicare. Your self-employment income and expenses will be reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to use Form 1040, Schedule SE (PDF), Self-Employment Tax, to compute and report your social security and Medicare tax, if you had net earnings from self-employment of $400 or more. Since there is no withholding on your self-employment income, you may need to make quarterly estimated tax payments. This is done using a Form 1040ES (PDF), Estimated Tax for Individuals.

References:

9.3 Estimated Tax: Individuals
I was self-employed for the first half of the year and made estimated tax payments. Now, I am a wage earner and my employer withholds taxes. Must I continue to make estimated tax payments?

In general, you may owe a penalty for 2002 if the total of your withholding and estimated tax payments did not equal at least the smaller of:

  • 90% of your 2002 tax, or
  • 100%* of your 2001 tax. (Your 2001 tax return must cover a 12-month period.)
If your timely and correct estimated tax payments plus the Federal withholding from your wages meet the estimated tax requirements shown above, you will not need to make any additional payments for estimated tax, nor will you need to inform the IRS of the change.

*If the total amount of your withholding and estimated tax payments equalled 100% of your 2001 income tax liability, you will not be subject to the failure to pay estimated tax penalty. However, not making additional estimated tax payments may mean that you have a large income tax liability when you file your income tax return. (If you are a higher income taxpayer with a AGI of more than $150,000 ($75,000 if your filing status is married filing separate)), substitute 112% for 100% if last year is 2001. Note: the percentage change depending on the tax refer to Publication 505 (PDF) , Tax Withholding and Estimated Tax.

References:

Is there a way to have Federal income tax withheld from unemployment compensation, in lieu of making estimated tax payments?

You may have Federal income tax withheld from unemployment compensation by filing Form W-4V (PDF), Voluntary Withholding Request. For additional information on unemployment compensation, refer to Tax Topic 418, Unemployment Compensation.

References:

12.3 Small Business/Self-Employed/Other Business: Form W-2, FICA, Medicare, Tips, Employee Benefits
If our company pays for the employee's health care costs directly to the medical facility, as opposed to a reimbursement, is the employee benefit reported on Form W-2 and subject to social security withholding?

Health care costs paid directly to the medical facility is a nontaxable employee benefit provided that it is paid as part of an accident and health plan. Refer to Publication 535 (PDF), Business Expenses, for more information on employee benefit programs.

References:

12.4 Small Business/Self-Employed/Other Business: Form W-4 & Wage Withholding
Can an employer take out taxes if a Form W-4 was never filed?

Yes, the employer is required to withhold income taxes. Publication 15 (PDF), Circular E, Employer's Tax Guide, states that if an employee does not give you a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, withhold tax as if he or she is single, with no withholding allowances.

The employer is also required to withhold social security and Medicare taxes.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Form W-4 (PDF), Employee's Withholding Allowance Certificate
  • Tax Topic 753, Form W-4 - employee's withholding allowance certificate

If an employee claims more than 10 exemptions on their Form W-4, does the employer have to report this to the IRS?

Yes, if you receive a Form W-4 (PDF), Employee's Withholding Allowance Certificate, on which the employee claims more than 10 withholding allowances, you must send a copy of that Form W-4 to the IRS service center with your next employment tax return.

Also, if an employee claims exemption from withholding and his or her wages would normally be expected to exceed $200 or more a week, you must also send a copy of that Form W-4 to the service center with your next employment tax return.

If you want to submit the Form W-4 earlier, you can send a copy of the Form W-4 to the IRS with a cover letter, including your name, address, employer identification number, and the number of forms included. The service center will send you further instructions if it determines that you should not honor the Form W-4.

References:

  • Form W-4 (PDF), Employee's Withholding Allowance Certificate
  • Tax Topic 753, Form W-4 - employee's withholding allowance certificate

One of my employees gave me a W-4 form claiming exemption from withholding. Do I have to send the W-4 to the IRS?

If you receive a Form W-4 (PDF) on which an employee claims:

  • exemption from withholding and his or her wages would normally be expected to exceed $200 or more a week, or
  • more than 10 withholding allowances, you must send a copy of that W-4 to the IRS service center with your next Form 941 (PDF) return or with a cover letter that includes yours name, address, EIN, and number of forms included. The IRS will send you further instructions if it is determined that you should not honor the Form W-4. For additional information on Form W-4, refer to Tax Topic 753 and/or Publication 15 (PDF), Circular E, Employer's Tax Guide.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Form W-4 (PDF), Employee's Withholding Allowance Certificate
  • Form 941 (PDF), Employer's Quarterly Federal Tax Return
  • Tax Topic 753, Form W-4 - employee's withholding allowance certificate

If we received a Form W-4 with a blank in the number of withholding exemptions. How should we handle this?

This should be treated as claiming zero withholding allowances. If the employee has completed the remainder of and signed the Form W-4 (PDF), Employee's Withholding Allowance Certificate, and indicated that he or she is single or married, withhold from the single or married table as indicated on the employee's form with zero withholding allowances. If the employee has not indicated that he or she is single or married, or if the employee has not signed the Form W-4 and otherwise completed the Form W-4, withhold as if he or she is single with zero withholding allowances.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Form W-4 (PDF), Employee's Withholding Allowance Certificate
  • Tax Topic 753, Form W-4 - employee's withholding allowance certificate

I hired a babysitter to care for my children in my home. Do I need to withhold taxes on her wages?

Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. If you pay a household employee cash wages of $1,300 or more in 2002, you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. For specific information, refer to Tax Topic 756, Employment Taxes for Household Employees, or Publication 926 (PDF), Household Employer's Tax Guide.

References:

12.6 Small Business/Self-Employed/Other Business: Forms 941, 940, Employment Taxes
We are about to hire employees and need to know how much tax to take out and where to send this money?

You will need to secure a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, from each employee. You will need Publication 15 (PDF), Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine the amount of withholding and for directions on depositing the withholding amounts and other employment taxes.

Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.

References:

  • Publication 15 (PDF), Circular E, Employer's Tax Guide
  • Publication 15-A (PDF), Employer's Supplemental Tax Guide
  • Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return
  • Form 941 (PDF), Employer's Quarterly Federal Tax Return
  • Form W-2 (PDF), Wage and Tax Statement
  • Form W-3 (PDF), Transmittal of Income and Tax Statements
  • Form W-4 (PDF), Employee's Withholding Allowance Certificate

If a new employee has reached the limit for social security taxes with a previous employer in the same year, does the new employer need to take out the tax for both the company and employee?

Yes, the social security wages base limit is applied to each separate employer. The individual employee is subject to social security taxes up to the maximum amount from each employer. As a result of an employee working for two or more employers in the same year, social security tax in excess of the maximum wage base may be withheld from his or her pay. An employee can claim the excess of social security tax withheld from pay resulting from working for two or more employers as a credit against the employee's income tax when filing Form 1040 (PDF), U.S. Individual Income Tax Return. However, there is no provision for an employer to get a credit for the employer portion of social security tax paid in this situation.

References:

We have an employee who has reached the limit for social security tax. We understand that this limits withholding requirements on the employee's portion of social security tax. However, is the employer still required to contribute their portion of the social security tax for this employee?

The employer is subject to the same social security tax rate and wage base limits as the employee. When the employee reaches their limitation, the employer also reaches the limitation and no longer has to pay social security taxes for that employee.

References:

If an employee is collecting social security benefits, is the employer required to take out social security and medicare taxes?

Yes, the employer is required to follow the withholding requirements for social security and medicare taxes even if an employee is collecting social security benefits. Per Chapter 9 of Publication 15 (PDF), Circular E, Employer's Tax Guide, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits.

References:

What are the maximum wages subject to social security and the maximum social security tax to be withheld for 2002?

The maximum wages subject to social security is $84,900 for 2002 resulting in a maximum for the employee portion of social security tax of $5,263.80 (of course, there is no limit on wages subject to medicare tax). Additional information can be found at the Social Security Administration web site.

References:

Are housing allowances for ministers subject to social security and Medicare taxes?

Yes, housing allowances for ministers are subject to social security and Medicare taxes, under the Self-Employment Contributions Act. However, if you are a duly ordained, commissioned, or licensed minister of a church, a member of a religious order not under a vow of poverty, or a Christian Science practitioner who elected and was approved for exemption from social security coverage and self-employment tax, your housing allowance would not be subject to social security or Medicare taxes. Refer to Publication 517 (PDF), Social Security and Other Information for Members of the Clergy and Religious Workers, for additional information.

References:

  • Publication 517 (PDF), Social Security and Other Information for Members of the Clergy and Religious Workers
  • Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners

We hired a nanny to look after our baby while we work. We would like to make it all legal, i.e. pay her social security taxes and so forth. How do we do this?

A nanny is considered a household employee. A household employer only has to pay social security and Medicare tax for the employee(s) that receive $1,300 or more in cash wages for the year 2002. If the amount paid is less than $1,300, no social security or Medicare tax is owed.The taxes are 15.3% of cash wages. Your share is 7.65% and the employee's share is 7.65%. You can choose to pay the employee's share yourself and not withhold it. You may also be responsible for paying federal unemployment taxes. For directions on household employees, refer to Publication 926 (PDF), Household Employer's Tax Guide.

References:

13.1 Aliens and U.S. Citizens Living Abroad: Canadian & U.S. Tax Issues
I won money at a Las Vegas casino and my winnings were subject to a 30% withholding tax. I am a Canadian citizen. How can I get the withholding tax back?

Generally, you must file a tax return to claim a refund of withholding. Gambling winnings by nonresidents of the U.S. are taxed at a flat 30% tax rate. However, under the U.S./Canada Tax Treaty, residents of Canada may claim gambling losses, but only to the extent of gambling winnings. You should report both your total gambling winnings and your total gambling losses on page 4 of Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return on the dotted portion of line 79. If you have net gambling winnings (after offsetting your total losses against your total winnings), you should include this net amount on line 79, column (d) of the Form 1040NR. You should also attach a copy of the Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, showing the taxes withheld to your Form 1040NR.

A diary of your losses should be kept for your records.

To file a Form 1040NR you must have a valid identification number. For most people this is a social security number (SSN). However, if you do not have and cannot obtain a SSN you may use an Individual Taxpayer Identification Number (ITIN). If you do not have an ITIN you may apply by filing Form W-7 (PDF), Application for IRS Individual Taxpayer Identification Number. Along with the completed Form W-7, you must submit document that verify both your identity, that is, contain your name and a photography, and your foreign status. If you have one document that verifies both, such as a passport, then one document is enough. You may, however, have to provide a combination of documents, for this purpose.

References:

  • Publication 515 (PDF), Withholding of Tax on Nonresident Aliens and Foreign Corporations Publication
  • Publication 519 (PDF), U.S. Tax Guide for Aliens
  • Publication 597 (PDF), Information on the United States-Canada Income Tax Treaty
  • Publication 901 (PDF), U.S. Tax Treaties
  • Form W-7 (PDF), IRS Application for Individual Taxpayer Identification Number
  • Form 1040NR (PDF), U.S. Nonresident Income Tax Return
  • Publication 1915 (PDF), Understanding Your IRS Individual Taxpayer Identification Number

13.5 Aliens and U.S. Citizens Living Abroad: Nonresident Alien - Tax Withholding
I entered the U.S. in August and I have a J-2 visa with an Employment Authorization (work permit). Can I be considered as a U.S. resident for tax purposes under the substantial presence test? Since my visa does not allow me to stay in this country am I subjected to social security tax and Medicare tax?

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

  • 31 days during the current year, and
  • 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
  • All the days you were present in the current year, and
  • 1/3 of the days you were present in the first year before the current year, and
  • 1/6 of the days you were present in the second year before the current year.

For purposes of the substantial presence test, certain days of physical presence do not count. Please refer to Publication 519 (PDF), U.S. Tax Guide for Aliens, for additional information.

In general, U.S. social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. In limited situations, these taxes apply to wages for services performed outside the United States. Your employer should be able to tell you if social security and Medicare taxes apply to your wages.

References:

Under my visa as a temporary nonresident alien, I'm not subject to social security and Medicare withholding. My employer withheld the taxes from my pay. What should I do to get a refund of my social security and Medicare?

If social security tax was withheld in error from pay received which was not subject to the tax, contact the employer who withheld the tax for reimbursement. If you are unable to get a refund from the employer, file a claim for refund with the Internal Revenue Service on Form 843 (PDF), Claim for Refund and Request for Abatement.

Attach the following to your claim:

  • a copy of the [Form W-2], Wage and Tax Statement, to prove the amount of social security tax withheld,
  • a copy of INS Form I-94, Arrival/Departure Record,
  • a copy of INS Form I-538, Application of Nonimmigrant Student (F1) for Extension to Stay, School Transfer or Permission to Accept or Continue Employment, and
  • a statement signed by the student stating that he/she has asked the employer for reimbursement of social security tax withheld in error but has been unable to get a refund.

File the claim for refund (with attachments) with the IRS office where the employer's returns were filed. If you do not know where the employer's returns were filed, file the claim with the Internal Revenue Service Center, Philadelphia, PA 19255

For more information, refer to Publication 519 (PDF), U.S. Tax Guide for Aliens.

References:

I am a U.K. resident and I need to recover withholding tax on a U.S. capital gain. Do I need an ITIN?

Yes, you need to secure an Individual Taxpayer Identification Number, or ITIN. To secure an ITIN, you must file Form W-7 (PDF), Application for IRS Individual Taxpayer Identification Number. Along with the completed Form W-7, you must submit document that verify both your identity, that is, contain your name and photography, and your foreign status. If you have one document that verify both, such as a passport, then that one document is enough. You may, however, have to provide a combination of documents for this purpose.

You can apply for your ITIN by mail or in person at most IRS offices in the U.S. If you apply in person, your documents will be reviewed and returned to you. Publication 1915 (PDF), Understanding Your IRS Individual Taxpayer Identification Number, has a list of IRS offices abroad which can accept Form W-7. If you apply by mail, use the address shown in the W-7 instructions and the Publication 1915. If you send original supporting documentation with your application, your documentation will be returned within 14 days. Once you have applied, you should get acknowledgment that your Form W-7 was received within 14 days; you should receive your ITIN within 4 to 6 weeks.

References:

  • Publication 515 (PDF), Withholding of Tax on Nonresident Aliens and Foreign Corporations
  • Publication 519 (PDF), U.S. Tax Guide for Aliens
  • Publication 1915 (PDF), Understanding Your IRS Individual Taxpayer Identification Number
  • Form W-7 (PDF), Application for IRS Individual Taxpayer Identification Number
  • Tax Topic 857, Individual Taxpayer Identification Number - Form W-7

I am a foreign citizen and resident from the European Union. I plan to buy U.S. stocks, but what tax will I have to pay if I have earnings on stocks?

U.S. source dividend income is subject to 30% tax rate when paid to nonresident aliens. A lower rate may apply to residents of a country with which the United States has an income tax treaty.

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I am a nonresident alien. Our broker withholds 30% tax on dividends. Can I get this tax back since I already owe tax in my resident country on overseas income?

Generally, this type of income paid to nonresident aliens is taxable at the 30% or lower treaty rate. If your country has a tax treaty with the U.S., you may have a reduced rate of tax. If that is the case, you should file Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return, to claim a refund of federal income taxes withheld.

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13.6 Aliens and U.S. Citizens Living Abroad: Nonresident Alien - Students
I am an F-1 student status who was employed during my school studies and directly afterwards I completed practical training. Do I have to pay FICA taxes? Which taxes should be taken out of my pay?

Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. However, you are covered under the social security program for these services if you are considered a resident alien, even though your nonimmigrant classification ("F," "J," "M," or "Q") remains the same. Social security and Medicare taxes will be withheld from your pay.

Additionally, any student who is enrolled and regularly attending classes at a school, college, or university may be exempt from social security and Medicare taxes on pay for services performed for such school, college, or university.

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Are nonresident alien students, with F-1 visas and employed by a U.S. company during the summer, required to have federal income taxes withheld from their paychecks?

The following discussion generally applies only to nonresident aliens. Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U.S. citizens. Therefore, your compensation, unless it is specifically excluded from the term "wages" by law, or is exempt from tax by treaty, is subject to graduated withholding. Nonresident aliens must follow modified instructions when completing Form W-4. Please refer to Publication 519 (PDF), U.S. Tax Guide for Aliens, for directions on completing Form W-4 (PDF), Employees Withholding Allowance Certificate.

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