nun

Your payroll department has the responsibility to get your tax withholding correct. If they aren't as worried about this as you then I'd look for another employer.

NRA employees working abroad are not subject to U.S. withholding because the source of income is where the work is performed, not where payment is made. NRAs are not subject to tax on foreign-source income. Your employer should request that you document your foreign status on Form W-8BEN, you can also get relief from the 30% withholding tax on this form too, probably under the US/Spanish tax treaty.

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

Your responsibility should be to make sure you are paying your Spanish taxes.

Michael

Since he is working in a war zone and is probably not a resident of Spain (only vacationing in Spain), it is likely that he doesn't owe Spanish taxes either. Therefore he should probably see a tax attorney to try to determine his tax status in Spain. If he starts paying taxes in Spain, he may be jumping from the frying pan into the fire.

In a sense, this may be similar to a UK citizen working in one of the tax free Caribbean Islands and only vacationing in the UK where he probably wouldn't owe UK taxes either. So I doubt filing a W-8BEN will accomplish anything.

Form W-8BEN is usually used only for unearned income made in the US to get tax relief for non resident aliens and we are talking about earned income made outside of the US by a non resident alien.

I suspect the company usually only hires Americans for these jobs and doesn't know or understand the tax status of the few foreigners they hire so they give them US tax status thinking that they are probably not breaking any laws.

nun

I was going on the fact that he has a house there and returns there regularly. Obviously the residency rules will have to be checked with Spain.

The W-8BEN will stop the 30% withholding he's experiencing now. It wlll also document is NRA status and residency abroad. That should allow is company to pay him free of US tax and FICA.

Agreed, the situation would be entirely different for a US citizen because that are taxed by the US on worldwide income.

Michael

I'm not sure it will since the W-8BEN is normally for unearned income made in the US by a non resident alien. A w-2 or quarterly reporting of paid income to the IRS for a non resident alien generally assumes that earned income is made in the US by a non resident alien (especially if FICA taxes are withheld). So in my opinion, the only way the issue can be resolved is to have the company quit withholding FICA taxes and not report his income to the IRS and then hire a tax attorney to try to get a tax refund for back taxes paid including FICA taxes.

Also his assumption that the IRS won't help if he called them is probably incorrect. They will likely advise him to contact his HR department to straighten out the mess. The IRS has been know to be helpful in matters such as this.

nun

This might be helpful. I believe that you can replace "contractor" in the text with "employee" id the employee is an NRA and does all the work outside the US.

http://intltax.typepad.com/intltax_blog/form-w-8-ben/

Michael

That might work but the payroll department (or possibly ADP if they use them for payroll like many US corporations) has to have the ability to not withhold FICA taxes and not report that income to the IRS for non resident aliens. Or maybe HR could remove him from the payroll system and just start writing manual checks for his pay and refer to his pay as a company expense for the companies tax purposes like any invoice (he may have to invoice the company every pay period similar to the way contractors invoice companies but the invoice should be handled differently since a 1099 shouldn't be reported to the government). The problem is that if he is not in the payroll system, then there may be problems providing him employee benefits since that will likely also have to be handled manually.

Jscl

The I-9 (I said W-9, I meant I-9, too late last night!) isn't really a tax form, it's a form companies are required to have their employees fill in to establish identity and ensure that the employee is allowed to work in the US. It's not sent to the IRS, and looks like an information gathering form, so you might have filled it in without realising what it was for, and once you gave your SSN their HR probably just ran with it as if you were a US citizen.

Talk to your HR and ask them what information they had from you which made them think you were a US citizen or subject to US payroll taxes, and fill in the correct forms with them instead (I still think a W8-BEN, but they should know - if they don't know it is THEIR job to consult someone and find out, not yours). It might be your responsibility to sort out your current tax situation with the IRS withholding, but the employer's HR department need to immediately fix how they handle your pay going forward, once you have told them you are not a US citizen not a US resident. Your pay might still be subject to the 30% withholding until the IRS have cleared your case, but the payroll taxes (SS, Medicare) should go away as soon as you are flagged as a non-citizen/non-resident.

If you're lucky HR have dealt with this with other employees and know what you should do next with regard to being paid your wrongly withheld taxes. If not, you will have to tackle the IRS through their helpline or hire a tax attorney.

bealerDSB

Nun, Michael, Jscl : Many Many Thanks for your detailed responses. It seems there are a few opinion floating around out there. I may enage with a Tax Lawyer and see what there first thoughts are. Having said that, collectively, if there were (3) bullets of "to do" things, what would you all suggest ?

1. XYZ
2. XYZ
3. XYZ

Again, thanks for all your help, you are opening the thought process for me a lot. Have a great weekend,

DSB.

Pulaski

1. Speak to HR
2. Speak to manager/ director of HR (1. above is unlikely to get you anywhere. )
3. Find an tax attorney with some experience of international income/ employment taxes

nun

When you speak to HR mention the W-8BEN and that as a Non-Resident Alien working outside the US you have no liability to US tax, FICA or Medicare.

Michael

I think your biggest problem is that it appears that you don't want to approach your HR department for some reason and they are the only ones that can straighten out the mess since they are the ones that are withholding your taxes (not the IRS). Although the IRS has directed the company to withhold taxes, that is only because the company has you on the US payroll and are sending quarterly reports and FICA taxes to the IRS and the IRS is accessing the maximum amount allowed by law since they don't understand what is going on.

If for some reason, you don't want to contact your HR department, a tax attorney can't do anything to stop the withholding of taxes but only possibly get the income taxes refunded at the end of the year by filing a 1040 NR EZ form by claiming that the w-2 income was made outside the US. Getting a refund for FICA taxes paid may be more complex.

My suggestions are as follows.

1. Contact the HR department to stop the withholding including FICA taxes.
2. Contact a tax attorney to possibly get a refund of all taxes previously paid including possibly FICA taxes.
3. Sleep better when all that is completed since that should be the end of your US tax problems.

If the HR department is not contacted and the problem not straightened out, you will have constant US tax problems until you leave the company.

As far a US employees are concerned, they likely filled out their W-4 (form to tell the company how much income taxes to withhold) indicating that they are exempt from taxes so no income tax are withheld by the company. Then they filed form 1040 at the end of the year to prove that no taxes were owed due to exclusions and tax credits so the IRS is happy and doesn't direct the company to withhold income taxes.

bealerDSB

Thank you ALL ! I will speak with HR this coming week, depending on when I get decent answers, and other updates, I will update this thread.

Thanks so much, again !!!!!
DSB.

bealerDSB

Small but interesting update from a Tax Lawer in the States...

//
If (i) you are not a U.S. citizen and not a U.S. resident, (ii) you are being paid for services, and (iii) the services are taking place entirely outside the U.S., then you should not be subject to U.S. income tax or U.S. social security/Medicare tax.

The fact that you have a social security number may be what is confusing your employer and the I.R.S. It may take a bit of work to convince your employer and the I.R.S. that no income tax or social security/Medicare withholding is required.
//

He forwarded me to over to a CPA who specializes in NRA / International Tax laws & situations. Awaiting there guidance.

DSB.

Michael

That is exactly what we have been saying. You have to contact your HR department first to stop the withholdings (both FICA and income taxes). However your HR department can't refund back taxes withheld since that is already in the hands of the IRS. A tax attorney will then be needed to figure out how to get a refund for back income and FICA taxes paid. Probably the only reason that the IRS has ordered the company to withhold income taxes is because they received FICA taxes that were withheld from your paycheck and you didn't file a tax return.

If you did not tell your HR department that you are not a USC but gave then your social security number, they have no way of knowing that FICA taxes are not supposed to be withheld and W-2 forms are not supposed to be filed with the IRS.

bealerDSB

Appreciate your quick reply Michael.

But I can't raise the levy by engaging with my employer as the IRS letter to them & I stated "do not honour any new W-4 from your employee unless it results is mroe income tax being taken" (!?)

DSB.