Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-29

1969-1 C.B. 273

IRS Headnote

Nonresident alien employees must file a timely return, Form 1040NR, to obtain a refund of tax withheld from wages paid after December 31, 1966, for services performed within the United States; such tax cannot be refunded by the employer.

Full Text

Rev. Rul. 69-29

Advice has been requested whether under the circumstances described below an employer may refund tax withheld from wages under section 3402 of the Internal Revenue Code of 1954 for services performed within the United States by nonresident alien employees who are paid after December 31, 1966.

The taxpayer, a nonresident alien individual, was employed in the United States as an entertainer from February 1, 1968, through July 31, 1968. Tax was withheld on the taxpayer's wages from this employment by his employer pursuant to the provisions of section 3402 of the Code.

Prior to 1967, income tax was withheld from wages for services performed within the United States by a nonresident alien individual, with certain exceptions, at a flat withholding rate of 30 percent of the gross wages, less the personal exemption, pursuant to section 1441 of the Code. However, the Foreign Investors Tax Act of 1966, Public Law 89-809, C.B. 1966-2, 656, resulted in certain changes in the withholding rules applicable to nonresident alien individuals. One of the changes is that, with respect to wages for services performed within the United States by nonresident alien individuals who are paid after December 31, 1966, income tax is withheld at the domestic graduated rates provided in section 3402 of the Code.

Under changes effected by the Foreign Investors Tax Act of 1966, employers will withhold tax from remuneration for services performed within the United States by nonresident alien individuals, with certain exceptions, that is paid after December 31, 1966, in the same manner as for employees who are United States citizens (section 31.3401(a)(6)-1(a) of the regulations), except that such nonresident aliens, other than individuals who are residents of Canada or Mexico or who are residents of Puerto Rico during the entire taxable year, are entitled to only one personal exemption for withholding purposes (section 31.3402(f)(6)-1 of the regulations). The tax withheld is reported along with other employee withholding taxes on the Employer's Quarterly Federal Tax Return, Form 941, filed with the District Director of Internal Revenue (section 31.6011(a)(4) of the regulations), and a Form W-2 will be issued to the nonresident alien employee (section 31.6051-1(a) of the regulations).

Remuneration for services performed within the United States by nonresident alien individuals that is paid after December 31, 1966, is not subject to withholding in the following situations: (1) remuneration for services of residents of Canada or Mexico who enter and leave the United States at frequent intervals while performing duties in transportation services between points in the United States and Canada or Mexico, or in connection with the construction, maintenance, or operation of a waterway, viaduct, dam or bridge traversed by, or traversing, the boundary between the United States and Canada or Mexico, as the case may be (section 31.3401(a)(6)-1(c)(1) and (2) of the regulations), and (2) remuneration paid for services performed within the United States which is, or will be, exempt from tax by reason of a provision of the Internal Revenue Code or an income tax convention to which the United States is a party (section 31.3401(a)(6)-1(e) of the regulations).

The regulations provide that in order for the above exceptions to apply to any taxable year, the nonresident alien employee must furnish his employer a statement in duplicate for the taxable year setting forth the employee's name, address, and taxpayer identifying number, and certifying (1) that he is not a citizen of the United States and that he is a resident of Canada or Mexico, as the case may be, and expects to meet the requirements for the exception to withholding, applicable to residents of those countries, or (2) that he is not a citizen or resident of the United States and that the wages to be paid to him are, or will be, exempt from tax and the reason for the exemption. No particular form is prescribed for this statement but it must be dated, identify the taxable year to which it relates, be signed by the employee, and contain, or be verified by, a written declaration that it is made under the penalties of perjury. Where the employer does not withhold tax because of such statement, the wages should be reported on a U.S. Annual Information Statement of Income Paid to Nonresident Aliens, Etc. (Under Chapter 3, Internal Revenue Code), Form 1042S, filed with the Director of International Operations, accompanied by a copy of the statement. See section 31.3401(a)(6)-1(c)(4) and section 31.3401(a)(6)-1(e) of the regulations.

There is no authority in the Code for an employer to refund tax withheld from wages for services performed within the United States by nonresident alien individuals who are paid after December 31, 1966. Accordingly, the tax withheld in the instant case cannot be refunded by the employer. Instead, the nonresident alien employee must timely file a correct annual return on Form 1040NR in order to obtain a refund.

Because of the changes effected by the Foreign Investors Tax Act of 1966, the refund procedure described in  Revenue Ruling 54-584, C.B. 1954-2, 212, and  Revenue Procedure 57-13, C.B. 1957-1, 741, is not applicable to income tax withheld pursuant to section 3402 of the Code on wages for services performed by nonresident alien taxpayers within the United States after December 31, 1966.