Foreign Agricultural Workers |
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Withholding Tax Requirements
Foreign agricultural workers temporarily admitted into the United States on H-2A visas are always exempt from U.S. social security and Medicare taxes, whether they are resident aliens or nonresident aliens[1]. In addition, payments made to H-2A alien agricultural workers are not considered to be "wages" for the purposes of income tax withholding and reporting on forms 943 and W-2.[2] The employee is required to report his Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) to his agricultural employer. Please see IRS Publication 51 Circular A, Agricultural Employer's Tax Guide for the withholding tables and deposit requirements on agricultural employees.
Since payments made to H-2A alien agricultural workers do not constitute “wages” reportable on forms 943 and W-2 as described above, such payments do constitute "wages" for the purposes of Form 1099 reporting, both in the case of resident alien and nonresident alien payees.[3] The payor will report the wages paid to H-2A alien agricultural workers on form 1099-MISC if the amount paid to the H-2A alien agricultural worker during the calendar year equals or exceeds $600. The payor will do no income tax withholding on the payment unless the payee neglects or refuses to provide a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). If the payee neglects or refuses to give the payor an SSN or an ITIN, and if the aggregate annual payments made to this particular payee equal or exceed $600, then the payor must do backup withholding on the payment(s) at the rate of 28%. [4] The payor will report the backup withholding on forms 945 and 1099-MISC. See the instructions for those forms.
The payor who neglects or refuses to do backup withholding when required will himself be held liable for the amount of the backup withholding tax which should have been withheld from the agricultural employee's wages. Under regulations which took effect on January 1, 2001, the usual 30% withholding requirement under section 1441 of the Internal Revenue Code with respect to personal service income paid to a nonresident alien does not apply in the case of a nonresident alien H-2A agricultural worker. [5] Similarly, the Form 1042-S reporting requirement on wages paid to a nonresident alien H-2A agricultural worker is waived because the payments are required to be reported on Form 1099-MISC. [6]
Please be aware that income tax treaties with Canada, Mexico, and other countries may affect the taxation of H-2A agricultural workers in the United States. In general, the treaty articles on "independent personal services" or "dependent personal services" would be the operable articles. However, remember that the saving clauses of most tax treaties will cause the H-2A agricultural workers to lose their treaty benefits under those two articles once the workers become resident aliens of the United States. Thus, the residency rules of IRC 7701(b) must always be applied to any potential treaty claimants among the H-2A agricultural workers in order to determine their eligibility for any tax treaty benefits. Please see IRS Publication 519 U.S., Tax Guide for Aliens for an explanation of the alien residency rules for tax purposes. Finally, be aware that a tax treaty claim cannot be honored on form 8233 or form W-8BEN for a treaty claimant who does not report his SSN or ITIN to the withholding agent on those forms. [7]
Income Tax Filing Requirements
Income tax filing requirements for H-2A agricultural workers are as follows:
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Nonresident aliens whose total annual wages are less than the personal exemption amount (refer to Publication 501), and who have no other U.S. source income, are not required to report their wages on Form 1040NR or Form 1040NR-EZ.
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Nonresident aliens whose total annual wages are more than the personal exemption amount are required to report their wages on Form 1040NR or Form 1040NR-EZ, even though part or all of their wages may be exempt under an income tax treaty.
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Resident aliens are required to file Form 1040, Form 1040A or Form 1040-EZ if their total worldwide income equals or exceeds the filing requirement amounts published annually in the Instructions for Form 1040.
[1] IRC 3121(b)(1)
[2] IRC 3401(a)(2); IRC 3121(a) in conjunction with IRC 3121(b)
[3] IRC 6041(a) ; IRC 6041A(a); Rev.Rul.56-679; Private Ruling 5505234250A
[4] IRC 3406(a)(1) as amended by sec. 101(c)(10) of PL 107-16
[5] Treas.Reg. 1.1441-4(b)(1)(ii)
[6] Treas.Reg. 1.1461-1(c)(2)(ii)(D) and (E); Rev.Rul 56-679.
[7] Treas.Reg. 1.1441-1(e)(4)(vii)
Note: This page contains one or more references to Internal Revenue Code (IRC) sections. A link to the Internal Revenue Code is included for the convenience of those who would like to read the technical reference material. To access the applicable Internal Revenue Code sections visit the Tax Code, Regulations, and Official Guidance page.
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Page Last Reviewed or Updated: April 13, 2009