In Notice 2009-91, the agency notes that the income tax withholding tables reflect two tax benefits for which nonresident alien employees are not eligible: (1) the standard deduction; and (2) the Making Work Pay Tax Credit. If adjustments from the generally applicable procedures for using the income tax withholding tables are not made in determining income tax withholding for nonresident alien employees, the withholding on the wages of such employees will generally be less than their tax liability.
Beginning with wages paid on or after January 1, 2010, employers are required to calculate income tax withholding under section 3402 of the Code on wages of nonresident alien employees by making two modifications rather than the one modification for the standard deduction described in Notice 2005-76 (part III.B).
First, employers need to add an amount to wages before determining withholding under the wage bracket or percentage method in order to offset the standard deduction built into the withholding tables. Second, employers need to determine an additional amount of withholding from a separate table applicable only to nonresident alien employees to offset the effect of the Making Work Pay Tax Credit built into the withholding tables.
The IRS said the specific steps to be followed for each of these two modifications will be set forth in Publication 15 and other IRS forms or publications.
The requirements in Notice 2005-76 (part III.A.) relating to the completion of Form W-4, Employee’s Withholding Allowance Certificate, by nonresident alien employees, continue in effect.