What withholding rate applies for NRA on work visa with US employer?

Thanks for clarifying! So just to double check - if I'm on an H1B visa but haven't been in the US long enough to meet the Substantial Presence Test, I still get regular progressive tax rates on my salary? Do I need to fill out a different W-4 form or something to let my employer know?

Yes, that's exactly right. Even if you don't meet the Substantial Presence Test, your wages earned while physically working in the US on your work visa (like an H1B) are considered ECI and subject to regular progressive tax rates, not the 30% flat rate. For your W-4, you should complete it normally, but you should check the box on line 6 that indicates you're a nonresident alien. Some employers might ask you to complete Form 8233 instead if they're uncertain, but for standard W-2 employment, the regular W-4 with the NRA box checked is typically sufficient.

Does it work for all visa types? I'm on an L-1 and my company keeps withholding at the wrong rate despite me telling them repeatedly that my income is ECI.

I'm interested but skeptical. How does it determine your residency status? I was in the US for 122 days last year, 110 the year before, and 75 in 2022. Would it correctly apply the SPT formula to determine if I'm an NRA?

Yes, it works for all visa types including L-1. It has specific sections for each visa category and knows the withholding rules for each one. You just select your visa type from the dropdown and it applies the correct rules. For the SPT calculation, it absolutely handles that correctly. You input your US presence days for the current and previous two years, and it applies the formula (current year days + 1/3 of last year + 1/6 of two years ago). It then tells you your status and which tax forms you'll need to file. In your case with 122 + (110/3) + (75/6), it would calculate your SPT days and determine your status.

How does this work exactly? Do they just keep redialing the IRS for you? And did the IRS actually help with your employer's withholding questions or did they just tell you to have your employer figure it out?

That sounds too good to be true. I've tried calling the IRS international taxpayer line multiple times and always get disconnected after waiting an hour. Did you actually get clear guidance you could use?

They don't redial, they use a system that monitors the IRS phone lines and holds your place in queue. When you're getting close to an agent, they call you so you can take the call. It's basically like having someone wait on hold for you. The IRS was very helpful once I got through. I explained my NRA status and work visa situation, and the agent confirmed that my income was ECI and subject to regular withholding, not the 30% rate. She even emailed me a reference document that I could share with my employer's payroll department to explain the correct withholding procedure. It took about 15 minutes once I got an agent on the line.

Do tax treaties apply for regular employment income too? I thought they mainly affected things like royalties and dividend income. I'm from Canada working in the US but haven't looked into the treaty stuff.

Yes, tax treaties absolutely can apply to regular employment income! For example, some treaties have special provisions for teachers, researchers, students, and trainees that can exempt certain amounts of income or provide for reduced withholding. The US-Canada tax treaty (Article XV) has specific provisions for cross-border employment. If you're a Canadian resident working temporarily in the US, you might qualify for exemption from US tax on your employment income under certain conditions. Definitely worth looking into Publication 901 and the specific treaty text.

State tax rules for NRAs vary by state but generally follow federal determination of income source. For California specifically, they're pretty aggressive about taxing income earned while physically working in CA, regardless of your federal residence status. So yes, if your income is ECI for federal purposes, CA will tax it at their regular rates too.

Watch out for state-specific rules. I'm in Texas (no state income tax), but my friend in New York had issues as an NRA. NY made him file a nonresident state return but still taxed all his NY-sourced income. Each state has its own rules for NRAs.

This is really helpful, thank you for sharing your experience! I'm in a similar situation on an L-1 visa and my company's HR has been going back and forth on this. Quick question - when you say "ask HR to consult with their payroll provider," did you have to push them to do this or were they receptive? I'm worried about seeming like I'm telling them how to do their job, but I also don't want to end up with a huge tax bill because of incorrect withholding. Also, do you know if the Form 1040NR filing affects things like eligibility for tax software discounts or free filing programs? I've been using TurboTax but not sure if they handle NRA returns the same way.