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U.S. Master™ Payroll Guide, 2010 Edition 
The U.S. Master Payroll Guide is designed to meet the needs of customers who outsource their payroll, handle their payroll internally, subscribe to an electronic payroll library, or who cannot afford a comprehensive payroll resource.
The IRS has modified the rules in Notice 2005-76, 2005-2 CB 947, for determining the amount of income tax employers must withhold under Code Sec. 3402 from wages paid for services performed by nonresident alien employees within the United States. The rules are modified to reflect changes made in the withholding tables by the enactment of Code Sec. 36A, the making work pay tax credit. Since nonresident aliens are not eligible for the credit, the modified rules provide withholding that more closely approximates their tax liability.
The withholding tables in IRS Publication 15 (Circular E), Employer's Tax Guide are based on the assumption that the employee receiving the wages is entitled to a standard deduction in determining his or her income tax liability. However, for a nonresident alien individual, the standard deduction is zero under Code Sec. 63(c)(6)(B). Notice 2005-76 addresses this difference by directing employers to add an amount to a nonresident alien employee's wages solely for purposes of calculating the withholding for each payroll period.
Beginning with wages paid on or after January 1, 2010, employers must calculate withholding on wages of nonresident alien employees by making two modifications: (1) before determining withholding under the wage bracket or percentage method, the employer must add an amount to wages to offset the standard deduction built into the withholding tables; and (2) the employer must 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 specific steps to be followed will be set forth in IRS Publication 15 and other IRS forms or publications.
(Notice 2009-91, I.R.B. 2009-48, November 13, 2009.)For more information on this and other topics, consult the Visit our News Library.
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