How to maintain compliance with IRS rules and regulations when hiring resident and nonresident aliens.
The world is shrinking. We live in an era of rapid globalization, where cross-border and cross-cultural travel, play, and work are a common occurrence. Americans work in other countries all the time, and American companies love hiring competent workers from abroad. Love it or hate it, globalization has truly made the job market a global one. However, if your company is looking to hire non-citizen job candidates, just be sure to give the IRS and the Uncle Sam his cut – or face the consequences of non-compliance.
Who is an “alien”?
According to United States immigration laws, an “alien” is, quite simply, an individual who is not a U.S. citizen. (Persons born in Puerto Rico, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands are U.S. citizens and subject to U.S. immigration laws.) Aliens can be classified as either “resident” or “nonresident”
How do I know if an employee or job candidate is a “resident” or “nonresident” alien?
There are two approved methods, or tests, for determining a person’s classification. The first is known as the Green Card Test. If the person in question has been issued a green card, they are a resident alien. If the individual in question has spent at least 31 days in the U.S. during the current tax year, and a total of 183 days during the last three tax years (inclusive of the current tax year), they satisfy the Physical Presence Test and are also treated as a resident alien. Those who do not pass the Green Card or Physical Presence Test are usually considered non-resident aliens in the eyes of the IRS.
Here’s where things get tricky.
When counting the 183 days for the Physical Presence Test, two of the three years counted work by different rules. For year three (The year for which you are determining tax classification) you would count all the days a person has lived in the U.S. For year two, you would only count one-third of the days spent in the US, and for year one, you would only count one-sixth of the days. If the totals for all three years add up to 183, the person in question is classified as a resident-alien. Please note that there are, naturally, a myriad of exceptions to the rule that can be found on the IRS website.
What documents do I need?
These forms will help you determine employee work eligibility and whether or not these employees are resident or nonresident aliens.
What are my payroll obligations?
Hiring, firing, and paying both resident and nonresident aliens can be a challenge for many employers thanks to the exceptions and special circumstances that exist. Businesses should make themselves familiar with the IRS website.
How can I avoid the paperwork?
Hire a PEO.
A PEO, or Professional Employer Organization, is a third-party provider that specializes in HR and administrative duties. In essence, PEOs take on the paperwork burden, ensure compliance, and help their clients navigate tricky regulatory waters. A PEO broker can help you find the best fit for your company.
Get in touch with PEO Broker today for a complimentary consultation.