How do I withhold Federal Income tax for nonresident alien employees?

A Non-Resident Alien is a foreign national working in the U.S. on a temporary visa. According to IRS guidelines, there’s a special procedure in calculating the amount of federal income tax withholding for this type of employee. Under this procedure, an additional amount must be included in the employee’s wages exclusively for calculating the income tax withholding for each payroll period. Follow the steps outlined below:

Step 1: Set up the Payroll Field

1. Click Maintain, Default Information, Employees.
2. On the Employee Fields tab, add the Field Name of NonResAlien. Select the Memo box on this line. This will ensure that this amount won’t affect your company’s general ledger.
3. Click OK.
4. Go back to Maintain, Default Information, Employees.
5. Click the Adjust button on the Fed_Income Field. Note: Do NOT click Adjust on the NonResAlien field.
6. Check the Use box for the NonResAlien field. This will increase the taxable wages for federal income tax only. Click OK.
7. Click OK in the Employee Defaults window to save your changes. Proceed to section II to enter the additional wage amount on the employee’s record.

Step 2: Enter Additional Wage Amount

1. Click Maintain, Employees/Sales Reps.
2. Select a nonresident alien employee.
3. On the Employee Fields tab, uncheck the “Use Defaults” box for the NonResAlien Field. This will enable you to enter the additional wage amount.
4. Enter the appropriate amount based on the employee’s Pay Frequency. To determine the amount that should be withheld see the website listed in the Additional Information section.
5. Click Save to save the changes. With this setup, NonResAlien will appear on the paycheck but won’t affect the employees' gross wages.
6. Repeat these steps for each applicable nonresident alien employee.