You may have decided you need some of your key employees to help you set up your US operation. In doing so, they obtained a non-immigrant visa allowing them to legally work in the US. The question is often asked whether these employees need to pay US taxes.
As a holder of a non-immigrant visa, a person is not a permanent resident of the US, however, he/she may be classed by the IRS as a tax resident by meeting the “substantial presence test” for the calendar year. This occurs when an employee is physically present in the US for 31 days of the current year and 183 days during the current and preceding two years using a weighted average total number of days. The weighted average is calculated using:
- each day of the current tax year,
- 1/3 of the days in the first preceding year and
- 1/6 of the days in the second preceding year
As a tax resident, your employee is required to file a US tax return and potentially pay US taxes on their entire worldwide income regardless of the nature of the income or where it was earned.There may be tax treaty benefits, however, that may reduce or eliminate their tax obligation.
All employees working in the US regardless of whether they qualify as a tax resident, they need to apply for an Individual Tax Identification Number (ITIN) from the IRS and file a US Federal and State income tax return by April 15th of the year following the end of the tax year. (The tax year for individuals is the same as the calendar year in the US). The type of return filed will depend on determination of tax residency. This will enable the balance of taxes to be paid or a refund of over-withheld taxes to be claimed.
As a US employer, you will be withholding taxes from your UK employee’s paycheck as you do with your US resident employees. There are specific rules regarding withholdings from non-resident aliens which should be followed.
US tax laws are complex, particularly if you are encountering them for the first time. It is strongly advised that you and your UK employees working in the US consult a US tax professional to navigate this process.