Pay for Personal Services Performed

This section explains the rules for withholding tax from pay for personal services. You must generally withhold tax at the 30% rate on compensation you pay to a nonresident alien individual for labor or personal services performed in the United States, unless that pay is specifically exempted from withholding or subject to graduated withholding. This rule applies regardless of your place of residence, the place where the contract for service was made, or the place of payment.

Payments for personal services are not withholdable payments under chapter 4 when they are nonfinancial payments. See Regulations section 1.1473-1(a)(4)(iii) for a description of these payments and their exclusion as withholdable payments.

Illegal aliens. Foreign workers who are illegal aliens are subject to U.S. taxes in spite of their illegal status. U.S. employers or payers who hire illegal aliens may be subject to various fines, penalties, and sanctions imposed by U.S. Immigration and Customs Enforcement. If such employers or payers choose to hire illegal aliens, the payments made to those aliens are subject to the same tax withholding and reporting obligations that apply to other classes of aliens. Illegal aliens who are nonresident aliens and who receive income from performing independent personal services are subject to 30% withholding unless exempt under some provision of law or a tax treaty. Illegal aliens who are resident aliens and who receive income from performing dependent personal services are subject to the same reporting and withholding obligations that apply to U.S. citizens who receive the same kind of income.

Form 8233. This form is used by a nonresident alien individual to claim a tax treaty exemption from withholding on some or all compensation paid for:

Independent personal services (self-employment),
Dependent personal services, or
Personal services income and noncompensatory scholarship or fellowship income from the same withholding agent.

A withholding agent that receives Form 8233 from a nonresident alien individual claiming a tax treaty exemption must review the form, sign to indicate its acceptance, and forward the form to the IRS within 5 days of its acceptance.

Form W-4. This form is used by a person providing dependent personal services to claim withholding allowances, but not a tax treaty exemption. Nonresident alien individuals are subject to special instructions for completing the Form W-4. See the discussion under Wages Paid to Employees, later.

Compensation for independent personal services (income code 17). “Independent personal services” (a term commonly used in tax treaties) are personal services performed by an independent nonresident alien contractor as contrasted with those performed by an employee. This category of pay includes payments for professional services, such as fees of an attorney, physician, or accountant made directly to the person performing the services. It also includes honoraria paid by colleges and universities to visiting teachers, lecturers, and researchers.

Pay for independent personal services is subject to chapter 3 withholding and reporting as follows.

30% rate. You must withhold at the statutory rate of 30% on all payments unless the alien enters into a withholding agreement or receives a final payment exemption (discussed later).

Withholding agreements. Pay for personal services of a nonresident alien who is engaged during the tax year in the conduct of a U.S. trade or business may be wholly or partially exempted from withholding at the statutory rate if an agreement has been reached between the Commissioner or his delegate and the alien as to the amount of withholding required. This agreement will be effective for payments covered by the agreement that are made after the agreement is executed by all parties. The alien must agree to timely file an income tax return for the current tax year.

Final payment exemption. The final payment of compensation for independent personal services may be wholly or partially exempt from withholding at the statutory rate. This exemption applies to the last payment of compensation, other than wages, for personal services rendered in the United States that the alien expects to receive from any withholding agent during the tax year.

To obtain the final payment exemption, the alien, or the alien’s agent, must file the forms and provide the information required by the Commissioner or his delegate. This information includes, but is not limited to, the following items.

A statement by each withholding agent from whom amounts of gross income effectively connected with the conduct of a U.S. trade or business have been

50 Publication 515 (2026)

received by the alien during the tax year. It must show the amount of income paid and the amount of tax withheld. The withholding agent must sign the statement and include a declaration that it is made under penalties of perjury.

A statement by the withholding agent from whom the final payment of compensation for personal services will be received showing the amount of final payment and the amount that would be withheld if a final payment exemption is not granted. The withholding agent must sign the statement and include a declaration that it is made under penalties of perjury.
A statement by the alien that they do not intend to receive any other amounts of gross income effectively connected with the conduct of a U.S. trade or business during the current tax year.
The amount of tax that has been withheld (or paid) under any other provision of the Internal Revenue Code or regulations for any income effectively connected with the conduct of a U.S. trade or business during the current tax year.
The amount of any outstanding tax liabilities, including any interest and penalties, from the current tax year or prior tax periods.
The provision of any income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of the alien’s residence, and a statement of sufficient facts to justify an exemption under that treaty.

The alien must give a statement, signed and verified by a declaration that it is made under penalties of perjury, that all the information provided is true, and that to their knowledge no relevant information has been omitted.

If satisfied with the information provided, the Commissioner or his delegate will determine the amount of the alien’s tentative income tax for the tax year on gross income effectively connected with the conduct of a U.S. trade or business. Ordinary and necessary business expenses may be taken into account if proved to the satisfaction of the Commissioner or his delegate.

The Commissioner or his delegate will provide the alien with a letter to you, the withholding agent, stating the amount of the final payment of compensation for personal services that is exempt from withholding, and the amount that would otherwise be withheld that may be paid to the alien due to the exemption. The amount of pay exempt from withholding cannot be more than $5,000. The alien must give two copies of the letter to you and must also attach a copy of the letter to their income tax return for the tax year for which the exemption is effective.

Travel expenses. If you pay or reimburse the travel expenses of a nonresident alien, the payments are not reportable to the IRS and are not subject to chapter 3 withholding if the payments are made under an accountable plan, as described in Regulations section 1.62-2. This treatment applies only to that part of a payment that represents the payment of travel and lodging expenses and not

to that part that represents compensation for independent personal services.

Tax treaties. Under some tax treaties, pay for independent personal services performed in the United States is treated as business income and taxed according to the treaty provisions for business profits.

Under other tax treaties, pay for independent personal services performed in the United States is exempt from U.S. income tax only if the independent nonresident alien contractor performs the services during a period of temporary presence in the United States (usually not more than 183 days) and is a resident of the treaty country. Independent nonresident alien contractors use Form 8233 to claim an exemption from withholding under a tax treaty. For more information, see Form 8233 , earlier.

Often, you must withhold under the statutory rules on payments made to a treaty country resident contractor for services performed in the United States. This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. The contractor must then file a U.S. income tax return (Form 1040-NR, U.S. Nonresident Alien Income Tax Return) to recover any overwithheld tax by providing the IRS with proof that they are entitled to a treaty exemption.

Tip: Form 8233 should be used to claim a treaty benefit based on a business profits provision or an independent personal services provision.

Wages Paid to Employees—Graduated Withholding

Salaries, wages, bonuses, or any other pay for personal services (referred to collectively as wages) paid to nonresident alien employees are subject to graduated withholding in the same way as for U.S. citizens and residents if the wages are effectively connected with the conduct of a U.S. trade or business.

Note: Any wages paid to a nonresident alien for personal services performed as an employee for an employer are generally not subject to the 30% withholding if the wages are subject to graduated withholding.

Also, the 30% withholding does not apply to pay for personal services performed as an employee for an employer if it is effectively connected with the conduct of a U.S. trade or business and is specifically exempted from the definition of wages. Chapter 4 withholding does not apply to these payments. See Pay that is not wages, later.

Special rule for certain agricultural workers. The 30% withholding does not apply to pay for personal services performed by a foreign agricultural worker in the United States on an H-2A visa. However, if the total wages are $600 or more and the worker does not give you a TIN, you may need to backup withhold. You may withhold at graduated rates if the employee asks you to by giving you a completed Form W-4.

Pay for personal services that is not subject to withholding is not subject to reporting on Form 1042-S. If the

Publication 515 (2026) 51

compensation is more than $600, report it on Form W-2 (if the employee gave you a TIN) or on Form 1099-NEC, Nonemployee Compensation (if the employee did not give you a TIN). See the Instructions for Form 1099-NEC for more information.

For more information on withholding on foreign agricultural workers, go to IRS.gov and enter “agricultural workers” in the search box.

Employer–employee relationship. For pay for personal services to qualify as wages, there must be an employer– employee relationship.

Under the common law rules, every individual who performs services subject to the will and control of an employer, both as to what shall be done and how it shall be done, is an employee. It does not matter that the employer allows the employee considerable discretion and freedom of action, as long as the employer has the legal right to control both the method and the result of the services.

If an employer–employee relationship exists, it does not matter what the parties call the relationship. It does not matter if the employee is called a partner, coadventurer, agent, or independent contractor. It does not matter how the pay is measured, how the individual is paid, or what the payments are called. Nor does it matter whether the individual works full time or part time.

The existence of the employer–employee relationship under the usual common law rules will be determined, in doubtful cases, by an examination of the facts of each case.

Employee. An employee generally includes any individual who performs services if the relationship between the individual and the person for whom the services are performed is the legal relationship of employer and employee. This includes an individual who receives a supplemental unemployment pay benefit that is treated as wages.

No distinction is made between classes of employ- ees. Superintendents, managers, and other supervisory personnel are employees. In most cases, an officer of a corporation is an employee, but a director acting in this capacity is not. An officer who does not perform any services, or only minor services, and neither receives nor is entitled to receive any pay is not considered an employee.

Employer. An employer is any person or organization for whom an individual performs or has performed any service, of whatever nature, as an employee. The term “employer” includes not only individuals and organizations in a trade or business, but organizations exempt from income tax, such as religious and charitable organizations, educational institutions, clubs, social organizations, and societies. It also includes the governments of the United States, Puerto Rico, and the District of Columbia, as well as their agencies, instrumentalities, and political subdivisions.

Two special definitions of employer that may have considerable application to nonresident aliens are:

An employer includes any person paying wages for a nonresident alien individual, foreign partnership, or

foreign corporation not engaged in trade or business in the United States (including Puerto Rico as if a part of the United States), and

An employer includes any person who has control of the payment of wages for services that are performed for another person who does not have that control.

For example, if a trust pays wages, such as certain types of pensions, supplemental unemployment pay, or retired pay, and the person for whom the services were performed has no legal control over the payment of the wages, the trust is the employer.

These special definitions have no effect upon the relationship between an alien employee and the actual employer when determining whether the pay received is considered to be wages.

If an employer–employee relationship exists, the employer ordinarily must withhold the income tax from wage payments by using the percentage method or wage bracket tables as shown in Pub. 15-T.

Pay that is not wages. Employment for which the pay is not considered wages (for graduated income tax withholding) includes, but is not limited to, the following items.

Agricultural labor if the total cash wages paid to an individual worker during the year is less than $150 and the total paid to all workers during the year is less than $2,500. But even if the total amount paid to all workers is $2,500 or more, wages of less than $150 per year paid to a worker are not subject to income tax withholding if certain conditions are met. For more on these conditions, go to IRS.gov/Pub15 .
Services of a household nature performed in or about the private home of an employer, or in or about the clubrooms or house of a local college club, fraternity, or sorority. A local college club, fraternity, or sorority does not include an alumni club or chapter and may not be operated primarily as a business enterprise. Examples of these services include those performed as a cook, janitor, housekeeper, governess, gardener, or houseparent.
Certain services performed outside the course of the employer’s trade or business for which cash payment is less than $50 for the calendar quarter.
Services performed as an employee of a foreign government, without regard to citizenship, residence, or where services are performed. These include services performed by ambassadors, other diplomatic and consular officers and employees, and nondiplomatic representatives. They do not include services for a U.S. or Puerto Rican corporation owned by a foreign government.
Services performed within or outside the United States by an employee or officer (regardless of citizenship or residence) of an international organization designated under the International Organizations Immunities Act.
Services performed by a duly ordained, commissioned, or licensed minister of a church, but only if

52 Publication 515 (2026)

performed in the exercise of the ministry and not as an employee of the United States, a U.S. territory, or a foreign government, or any of their political subdivisions. These also include services performed by a member of a religious order in carrying out duties required by that order.

Tips paid to an employee if they are paid in any medium other than cash or, if in cash, they amount to less than $20 in any calendar month in the course of employment.

Services performed outside the United States. Compensation paid to a nonresident alien (other than a resident of Puerto Rico, discussed later) for services performed outside the United States is not considered wages and is not subject to withholding.

Special instructions for Form W-4. A nonresident alien subject to wage withholding must give the employer a completed Form W-4 to enable the employer to figure how much income tax to withhold.

In completing Form W-4, nonresident aliens should use the specific instructions in Notice 1392 instead of the instructions on Form W-4.

Nonresident alien employees are not required to request an additional withholding amount, but they can choose to have an additional amount withheld.

Caution: A nonresident alien cannot claim exemption from withholding on Form W-4. Use Form 8233 to claim a tax treaty exemption from withholding. See Form 8233, earlier.

Determining amount to withhold. Employers are required to add an amount to the wages of a nonresident alien employee solely for the purpose of calculating income tax withholding. The specific amounts depend on the payroll period. These amounts can be found in With- holding Adjustment for Nonresident Alien Employees in the Introduction of Pub. 15-T . This adjustment does not apply to students and business apprentices from India.

Caution: Do not include the additional amount on the employee’s Form W-2.

Reporting requirements for wages and withheld taxes paid to nonresident aliens. The employer must report the amount of wages and deposits of withheld income and social security and Medicare taxes by filing Form 941. Household employers should see Pub. 926 , Household Employer’s Tax Guide, for information on reporting and paying employment taxes on wages paid to household employees.

Form W-2. The employer must also report on Form W-2 the wages subject to chapter 3 withholding and the withheld taxes. You must give copies of this form to the employee. If the employee submits Form 8233 to claim exemption from withholding under a tax treaty, the wages are reported on Form 1042-S and not in box 1 of Form W-2. Wages exempt under a tax treaty may still be reported in

the state and local wages boxes of Form W-2 if such wages are subject to state and local taxation. For more information, see the instructions for these forms.

Trust fund recovery penalty. If you are a person responsible for withholding, accounting for, or depositing or paying employment taxes, and willfully fail to do so, you can be held liable for a penalty equal to the full amount of the unpaid trust fund tax, plus interest. A responsible person for this purpose can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. A trustee or agent with authority over the funds of the business can also be held responsible for the penalty.

“Willfully” in this case means voluntarily, consciously, and intentionally. You are acting willfully if you pay other expenses of the business instead of the withholding taxes.

Social security and Medicare taxes. In most cases, the employer must also withhold Federal Insurance Contributions Act (FICA) tax and file Form 941. In certain cases, wages paid to students and railroad and agricultural workers are exempt from FICA tax. Wages paid to nonresident alien students, teachers, researchers, trainees, and other nonresident aliens in “F-1,” “J-1,”“ M-1,” or “Q” nonimmigrant status are not subject to FICA. Go to IRS.gov/ Pub15T for the rules on withholding.

In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay in excess of $200,000 in a calendar year. Go to IRS.gov/Pub15 for more information.

Federal unemployment tax (FUTA). The employer must pay FUTA tax and file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. Only the employer pays this tax; it is not deducted from the employee’s wages. In certain cases, wages paid to students and railroad and agricultural workers are exempt from FUTA tax. For more information, see the Instructions for Form 940 .

Wages paid to nonresident alien students, teachers, researchers, trainees, and other nonresident aliens in “F-1,” “J-1,” “M-1,” or “Q” nonimmigrant status are not subject to FUTA tax.

Compensation for dependent personal services (in- come code 18). Dependent personal services are personal services performed in the United States by a nonresident alien individual as an employee rather than as an independent contractor.

Pay for dependent personal services is subject to chapter 3 withholding and reporting as follows.

Graduated rates. Ordinarily, you must withhold on pay (wages) for dependent personal services using graduated rates. The nonresident alien must complete Form W-4, as discussed earlier under Special instructions for Form W-4, and you must report wages and income tax withheld on Form W-2. However, you do not have to withhold if any of the following four exceptions applies.

Exception 1. Compensation paid for labor or personal services performed in the United States is deemed not to

Publication 515 (2026) 53

be income from sources within the United States and is exempt from U.S. income tax if:

The labor or services are performed by a nonresident alien temporarily present in the United States for a period or periods not exceeding a total of 90 days during the tax year;
The total pay does not exceed $3,000; and
The pay is for labor or services performed as an employee of, or under a contract with:

a. A nonresident alien individual, foreign partnership,

or foreign corporation that is not engaged in a trade or business in the United States; or

b. A U.S. citizen or resident alien individual, a do mestic partnership, or a domestic corporation, if the labor or services are performed for an office or place of business maintained in a foreign country or in a territory of the United States by this individual, partnership, or corporation.

If the total pay is more than $3,000, the entire amount is income from sources in the United States and is subject to U.S. tax.

Also, compensation paid for labor or services performed in the United States by a nonresident alien in connection with the individual’s temporary presence in the United States as a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or a U.S. territory is not income from sources within the United States.

Exception 2. Compensation paid by a foreign employer to a nonresident alien for the period the alien is temporarily present in the United States on an “F,” “J,” or “Q” visa is exempt from U.S. income tax. For this purpose, a foreign employer means:

A nonresident alien individual, foreign partnership, or foreign corporation; or
An office or place of business maintained in a foreign country or in a U.S. territory by a domestic corporation, a domestic partnership, or an individual U.S. citizen or resident.

You can exempt the payment from withholding if you can reliably associate the payment with a Form W-8BEN containing the TIN of the payee.

Exception 3. Compensation paid to certain residents of Canada or Mexico who enter or leave the United States at frequent intervals is not subject to withholding. These aliens must either:

Perform duties in transportation services (such as a railroad, bus, truck, ferry, steamboat, aircraft, or other type) between the United States and Canada or Mexico; or
Perform duties connected with an international project, relating to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the

United States and Canada or the boundary between the United States and Mexico.

To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement with the employee’s name, address, and identification number, and certifying that the resident:

Is not a U.S. citizen or resident;
Is a resident of Canada or Mexico, whichever applies; and
Expects to perform the described duties during the tax year in question.

The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under penalties of perjury.

Canadian and Mexican residents employed en- tirely within the United States. Neither the transportation service exception nor the international projects exception applies to the pay of a resident of Canada or Mexico who is employed entirely within the United States and who commutes from a home in Canada or Mexico to work in the United States. If an individual works at a fixed point or points in the United States (such as a factory, store, office, or designated area or areas), the wages for services performed as an employee for an employer are subject to graduated withholding.

Exception 4. Compensation paid for services performed in Puerto Rico by a nonresident alien who is a resident of Puerto Rico for an employer (other than the United States or one of its agencies) is not subject to withholding.

Compensation paid for either of the following types of services is not subject to withholding if the alien does not expect to be a resident of Puerto Rico during the entire tax year.

Services performed outside the United States but not in Puerto Rico by a nonresident alien who is a resident of Puerto Rico for an employer other than the United States or one of its agencies.
Services performed outside the United States by a nonresident alien who is a resident of Puerto Rico, as an employee of the United States or any of its agencies.

To qualify for the exemption from withholding for any tax year, the employee must give the employer a statement showing the employee’s name and address and certifying that the employee:

Is not a citizen or resident of the United States, and
Is a resident of Puerto Rico who does not expect to be a resident for that entire tax year.

The statement must be signed and dated by the employee and contain a written declaration that it is made under penalties of perjury.

Tax treaties. Pay for dependent personal services under some tax treaties is exempt from U.S. income tax only if both the employer and the employee are treaty country residents and the nonresident alien employee performs

54 Publication 515 (2026)

the services while temporarily living in the United States (usually for not more than 183 days). Other treaties provide for exemption from U.S. tax on pay for dependent personal services if the employer is any foreign resident and the employee is a treaty country resident and the nonresident alien employee performs the services while temporarily in the United States. See Tax Treaties, later, for information about treaty benefits.

Compensation for teaching (income code 19). This category is given a separate income code number because some tax treaties exempt a teacher from tax for a limited number of years. Pay for teaching means payments to a nonresident alien professor, teacher, or researcher by a U.S. university or other accredited educational institution for teaching or research work at the institution.

Graduated rates. Graduated withholding of income tax usually applies to all wages, salaries, and other pay for teaching and research paid by a U.S. educational institution during the period the nonresident alien is teaching or performing research at the institution.

Example. A nonresident alien is issued a visa to teach for a university. While in the United States, they take a part-time job working for a chemical company. The wages earned while teaching at the university are exempt from social security and Medicare taxes. The wages earned at the chemical company are subject to social security and Medicare taxes.

If an alien is considered a resident alien, as discussed earlier, that pay is subject to social security and Medicare taxes even though the alien is still in one of the nonimmigrant statuses mentioned above. This rule also applies to FUTA (unemployment) taxes paid by the employer. Teachers, researchers, and other employees temporarily present in the United States on other nonimmigrant visas or in refugee or asylee immigration statuses are fully liable for social security and Medicare taxes unless an exemption applies from one of the totalization agreements in force between the United States and several other nations.

Note: The Social Security Administration (SSA) publishes the complete texts and explanatory pamphlets of the totalization agreements, which are available by calling 410-965-7306 or by going to SSA.gov/international/ totalization_agreements.html

Tax treaties. Under most tax treaties, pay for teaching or research is exempt from U.S. income tax and from withholding for a specified period of time when paid to a professor, teacher, or researcher who was a resident of the treaty country immediately prior to entry into the United

States and who is not a citizen of the United States. The U.S. educational institution paying the compensation must report the amount of compensation paid each year that is exempt from tax under a tax treaty on Form 1042-S. See Tax Treaties, later, for information about treaty benefits. The employer should also report the compensation in the state and local wages boxes of Form W-2 if the wages are subject to state and local taxes, or in the social security and Medicare wages boxes of Form W-2 if the wages are subject to social security and Medicare taxes.

Claimants must give you either Form W-8BEN or Form 8233, as applicable, to obtain these treaty benefits.

Compensation during studying and training (income code 20). This category refers to pay (as contrasted with remittances, allowances, or other forms of scholarships or fellowship grants—see Scholarships and Fellowship Grants Subject to Chapter 3 Withholding , earlier) for per- sonal services performed while a nonresident alien is tem- porarily in the United States as a student, trainee, or apprentice, or while acquiring technical, professional, or business experience.

Graduated rates. Wages, salaries, or other compensation paid to a nonresident alien student, trainee, or apprentice for labor or personal services performed in the United States are subject to graduated withholding.

Social security and Medicare taxes. A nonresident alien temporarily in the United States on an “F-1,” “J-1,” “M-1,” or “Q-1” visa is not subject to social security and Medicare taxes on pay for services performed to carry out the purpose for which the alien was admitted to the United States. Social security and Medicare taxes should not be withheld or paid on this amount. This exemption from social security and Medicare taxes also applies to employment performed under Curricular Practical Training (CPT) and Optional Practical Training (OPT), on or off campus, by foreign students in “F-1,” “J-1,” “M-1,” or “Q” status as long as the employment is authorized by the U.S. Citizenship and Immigration Services.

Example. A nonresident alien is admitted to the United States to study surveying. As part of the course, they apprentice to a surveyor. The nonresident alien also works part-time at a restaurant to supplement their income. The wages earned as an apprentice are not subject to social security and Medicare taxes. The wages and tips earned at the restaurant are subject to social security and Medicare taxes.

Any student who is enrolled and regularly attending classes at a school may be exempt from social security, Medicare, and FUTA taxes on pay for services performed for that school. For more information on employer’s taxes, go to IRS.gov/Pub15 .

Tax treaties. Certain tax treaties provide a limited exemption from U.S. income tax and from withholding on

Publication 515 (2026) 55

compensation paid to nonresident alien students or trainees during training in the United States for a limited period. In addition, some treaties provide an exemption from tax and withholding for compensation paid by the U.S. Government or its contractor to a nonresident alien student or trainee who is temporarily present in the United States as a participant in a program sponsored by the U.S. Government. See Tax Treaties, later, for information about treaty benefits. However, a withholding agent who is a U.S. resident, a U.S. Government agency, or its contractor must report the amount of pay on Form 1042-S.

Claimants must give you either Form W-8BEN or Form 8233, as applicable, to obtain these treaty benefits.