The W-4 tax form explained for nonresident aliens
Let’s face it…
Nobody wants to pay more tax than they need to!
That’s why, if you’re working while in the US as a nonresident alien, it’s very important to fill out your tax and pre-employment documents correctly.
Besides, how you handle your US tax affairs can also play a big part in whether or not your future visa or Green Card applications will be successful.
One of the most important forms that you’ll need to complete is the W-4 form.
In this blog we’ll lay out some of the key information you need to know before filling out the W-4 form, so that the correct amount of tax is withheld from your paychecks.
What is a W-4 Form?
Form W-4, Employee’s Withholding Allowance Certificate, is an Internal Revenue Service (IRS) tax form that you must fill out when you start working in the US so that your employer can get a better understanding of your tax profile.
What is the purpose of the W-4 form
The form helps to determine how much should be withheld from each payslip you receive through federal taxes and sent to the IRS. You can find the form here – W-4 (2024).
What’s more, the W-4 allowances reduce how much income tax is deducted from your paycheck.
Essentially, correctly filling out your W-4 will mean you will pay the correct amount of taxes over the tax year.
You will see seven lines on the form, and all seven must be filled out before sending it off.
What is the difference between a W-2, W-4 and a W-9?
The W-2 and W-4 forms are both tax forms in the US that nonresidents will likely encounter at some stage.
As previously stated, the W-4 will allow you to pay the right amount of taxes to avoid overpayment.
On the other hand, the W-2 form summarizes the employee’s annual earnings and the amount of taxes withheld from their paychecks throughout the year.
So, while the W-4 form is completed by employees to determine the amount of tax withholding from their paychecks, the W-2 form is provided by employers to summarize an employee’s annual earnings and the taxes withheld during the year.
Elsewhere, the W-9 is used by individuals or businesses to provide their taxpayer identification information to entities paying them income.
Did the W-4 form change?
In 2020, a change to the form was implemented with the aim of further helping individuals withhold federal income tax correctly.
Before the changes in 2020, a system of allowances was used to determine the amount of tax withheld from an employee’s paycheck on the form.
The number of allowances claimed on the form affected the amount of tax withheld, with a higher number of allowances resulting in less tax withheld and a lower number resulting in more tax withheld.
What changes were made?
Following the changes, the new W-4 form got rid of the concept of allowances.
Instead, it focused on a more detailed and personalized approach to withholding calculations.
The new version of the form requires employees to provide additional information about their income, deductions, and tax credits.
The purpose of this change was to provide a more accurate withholding amount based on individual circumstances, such as multiple jobs or a working spouse.
Do I have to update my W-4 every year?
In short, no.
It is not mandatory for you to update your W-4 form every year.
Your employer should remind you before December 1 each year to submit a new W-4 form if you feel that your withholding allowances have changed or will change for the next year.
What does Filing Exempt mean on a W-4?
Filing exempt on a W-4 means that you are claiming an exemption from having federal income tax withheld from your paycheck.
Generally, you can only claim exempt status if you meet both of the following conditions:
- You had no federal income tax liability in the previous year: If you owed no federal income tax in the previous year and expect to owe none in the current year, you may qualify for exempt status.
- You expect to have no federal income tax liability in the current year: If you expect to earn below the minimum income threshold ($14,600) that requires you to file a federal income tax return, you may qualify for exempt status.
How to have less tax taken out of your paycheck
Exactly how much tax you will be required to pay on your income will depend on your personal circumstances.
In the US, there are ways to offset some of your tax liability, so long as you are eligible.
If your home country has a tax treaty with the US, then you may be able to claim some of the benefits of this treaty, including a reduction in taxes paid.
If you can avail of a tax treaty will depend on:
- Your visa type
- Your income type
- The type of work you are being compensated for
- The duration of time you are spending in the US
- Whether your home country has a tax treaty with the US
How to fill out a W-4 form
It is hugely important that you complete the W-4 form correctly as you may end up not paying enough taxes and will be struck with a large balancing payment at the end of the year.
On the form itself, you will be asked to fill out some personal details including your name, US address, TIN (Tax Identification Number), and marital status.
While there are a set of instructions on the form itself, they are tricky to understand for some nonresidents.
The good news is, the new W-4 is relatively easier to fill out in comparison to the older version, with more straightforward information required for you to fill out.
You will need to fill out the form specifically based on your own personal circumstances.
Step 1
You should complete Step 1 in full. On line (c), check only “single or married filing separately” marital status, regardless of your marital status.
Step 2 and 3
Both of these steps will require information related to your personal circumstances, where applicable. If you wish to claim dependents on W4, you can do so here.
Step 4
In the blank space under Step 4 (c) enter “NRA”.
Step 5
For Step 5, fill out dates, employer’s details and sign in the relevant spaces and leave the rest of the form blank.
Always be sure to double-check the form to make sure all the information you have filled in is correct.
Other important information about the W-4 form
Additional tax deductions and credits for Indian residents
Due to a tax treaty between the Indian and US governments, if you are an Indian resident then you are entitled to some additional deductions and credits that are not available to pretty much any other country.
Tax credits for Canada, Mexico and South Korea
Canada, Mexico and South Korean citizens cannot claim the same standard deductions as Indian apprentices, but they can still claim child tax credit or credit for other dependents.
If they do not apply for those, the form is the same as for all other nonresident aliens.
Who can help me complete a W-4 form?
You can always complete the form yourself.
The main disadvantage of completing the form yourself is that that it is quite complex and it will be up to you to ensure that you have filed it correctly and that you are tax compliant.
Sprintax Forms can help you complete it easily!
When you complete a W-4 form with Sprintax, you are ensuring you pay the right amount of tax and you are FULLY compliant with tax laws in the US!
Our team will take all of your information and complete it efficiently, so you can relax knowing you are on the right side of IRS rules.
So, get started with your application today!
