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Does payroll have to know the immigration status of the new employee?

We hire non resident aliens employees but since a while the HR refuses to provide any info related to VISA status. The HR considers the info 'strict personal'. Instead, we are given an info sheet about what tax to deduct from payroll but not any info if the person is NRA(non resident alien) or resident alien for payroll tax purposes. Does HR have to provide the immigration status of the newly hired for payroll tax purposes? Should payroll rely on HR' info sheet ?

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

If the Payroll Manager and the HR Manager agree to this set-up, there is no issue, as you have information regarding the tax to deduct and you have documentation to justify your actions. If not done already, I would only add that the individual that gives you the form should have it signed by the HR Manager, prior to receipt by the Payroll department. With this modification, you could withstand any audit.

Personally I believe this set-up has potential problems, as HR is driving tax decisions. But if your company believes the risk of a taxation error is below the privacy risk, it is their decision.

Your goal is to be audit ready with documentation and signature approval.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I take a slightly different spin on this question.

HR has validated the right of an candidate to work in the US. They hired the candidate who is now an employee. That employee has provided HR with a W4, indicating their taxing wishes (plus any other payroll deductions).

Payroll just has to add them into the pay-run, code them properly and that's the end.

It is not Payroll's job to ascertain their ability to work legally in the US (or for that matter double-check HR's work).

If Payroll feels something is amiss, there is the Controller, VP Finance, CFO, etc to whom they can discuss the issue.

Anonymous
(Agent) |

Thank you for your answers.

Topic Expert
Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

I guess my view of this is, assuming "strict personal" data exists, what work did HR perform to determine the tax deduction amount? In terms of US laws, are dependents accurate, did employee request an additional amount to be deducted?
I am not sure visa status is relevant to tax liability (unless IRS have issued some waiver on tax deductions that you can verify). I say that as an immigrant now a citizen:)
In the event of an audit, who in your company is accountable to ensure payroll deductions are in compliance? Sounds like Payroll to me.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Len -

Having dealt with Non-Resident Aliens for years, if they are employees, then they have a proper work VISA (there are many) and payroll and FICA/Med is deducted.

If, on the other hand they are 1099's (actually 1042-S) individuals, then there is a Tax Treaty which decides whether the Agent (Payor) can or must withhold 30% for Fed taxes. The individual needs to file a W8(BEN) and it's up to the company whether they accept the form with supporting documentation (the Alien Country's equivalent to a 6166) or not.

I only reject 2 forms in many years.

BTW, the 1042 individuals are required to file a 1040-NR and State tax returns.

Wayne

Anonymous
(Consultant) |

NRA Tax Compliance 101.....

Green Card holders are residents for tax and immigration purposes by law. If the employee has a Green Card, the process is simple. The employee is an immigrant and taxed as a U.S. Citizen.

If the employee is a foreign national with a nonimmigrant visa, his/her tax residency must be determined by test. Visa status is a major determinant in tax status. It is combined with The Substantial Presence Test to determine tax status: Nonresident Alien vs. Resident Alien. Resident Aliens for Tax Purposes are nonimmigrants who are taxed as U.S. Citizens.

The difference between Resident Alien and Nonresident Alien tax status is significant in terms of W-4 withholding, tax filing requirements, available deductions, treaty exemption, FICA, and other related issues.

This is a specialty area of practice that overlaps HR, Payroll, Tax, Legal, and possibly other functions. The notion that Payroll has no "right" to the immigration information is absolute idiocy.

To do this correctly, you must have a cross-functional process in place with a high level of competency, otherwise you will have immigration compliance failures, tax compliance failures, or both.

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