resident alien?

[AlbanyConsultant]

Got this question today:

[New Employee] is a citizen of People's Republic of China but has residency in Washington (state). She receives a US W-2 for her compensation with [plan sponsor].

The plan excludes non-resident aliens... but that's not what she is. So it looks like she is an eligible employee, comes into the plan based on the plan's eligibility requirements, etc. Is there anything I'm overlooking? Thanks.

[mming]

Is she a non-resident? You say she resides in the U.S. but there's a legal definition of residency (I'm not sure if it's dictated by the federal government or it's state-to-state) - one has to actually live in the U.S./state for a certain number of weeks or months every year to be considered a legal resident. Also, I'm guessing that it's not possible to have dual citizenship with China and that she is not a U.S. citizen - if that's not accurate that could also factor into the determination.

[BG5150]

Residency is some like 31 days.

The IRS website has some pages that help distinguish between Non-resident and resident aliens.

[Kevin C]

The statutory exclusion requires more than just nonresident alien status for the person to be excluded. From the OP, this person has US source income and would not be excluded.

410(b)(3)©

employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).

[K2retire]

The definition of non-resident alien for income tax purposes is different from the definition for plan purposes. Kevin C has provided the detail that many plan sponsors overlook -- "who receive no earned income from the employer which constitutes income from sources within the United States."

[imchipbrown]

I have a client with a Safe Harbor 3% 401(k) that hired someone in the US under a J Visa. ,

"She is going to get a W-2 and be on our normal payroll. Linda told us she isn't subject to SS and Medicare taxes but is for state and fed. taxes"

I'm thinking she's a resident alien with US source income, so I'll have to exclude her under the 70% test. Anything squirrely here? We have the numbers (5/6 NHCEs)

[My 2 cents]

To the best of my knowledge, citizenship is not required for plan eligibility purposes, and non-citizenship would not be a reason for exclusion.

"Linda told us she isn't subject to SS and Medicare taxes but is for state and fed. taxes." First, who is Linda? Second, is there anything in the Social Security law exempting non-citizen workers (under a J Visa or otherwise) from SS and Medicare taxes?

I think that instead of "so I'll have to exclude her under the 70% test" you really mean "so if we do exclude her, we will have to pass coverage under the 70% test, since this person is not per se considered excludable under IRC Section 410."

[RatherBeGolfing]

I have a client with a Safe Harbor 3% 401(k) that hired someone in the US under a J Visa. ,

"She is going to get a W-2 and be on our normal payroll. Linda told us she isn't subject to SS and Medicare taxes but is for state and fed. taxes"

I'm thinking she's a resident alien with US source income, so I'll have to exclude her under the 70% test. Anything squirrely here? We have the numbers (5/6 NHCEs)

If it is a recent hire, chances are good that she is a non-resident. However, she gets W-2 comp so she probably has US source of income. The exceptions for US income in §861(a)(3) are very narrow and on a J-Visa I Im very confident that it will not qualify for an exception. She is not excluded.

Remember, the exclusion only applies if:

“an employee who is not a U.S. citizen, and who is a nonresident alien for federal tax purposes and who receives no U.S. source income (as defined in IRC §§861(a)(3) and 911(d)(2)) from the employer.”

(Source: EOB Ch 8, Part B, Section 3, #4)

The non-resident alien exclusion is really only an issue that should come up in a company with foreign operations.

Hope that helps.

J

[RatherBeGolfing]

Second, is there anything in the Social Security law exempting non-citizen workers (under a J Visa or otherwise) from SS and Medicare taxes?

Yes. Certain non citizens working in the US do not have to pay SS and Medicare taxes. You can be a non-resident for immigration purposes but a resident for federal tax purposes though, in that case, you are not exempt from SS and Medicare taxes.

[imchipbrown]

So, clearly the Non-Resident w/ no US source income is not the applicable exclusion. I'm trying to gather opinions about an exclusion by classification (J Visa holders). The employee would rather have current vs retirement comp.

(Oh, Linda is the very nice CPA)

[RatherBeGolfing]

If you have the numbers I don't see why that would be a problem.

[Kevin C]

Before you leap, you might want to google "immigration discrimination". There are a number of federal laws prohibiting discrimination based on immigration status, national origin and other related criteria.

[RatherBeGolfing]

Before you leap, you might want to google "immigration discrimination". There are a number of federal laws prohibiting discrimination based on immigration status, national origin and other related criteria.

Fair point, but as long as the excluded class is reasonable it shouldn't be a problem.

Obviously, you wouldn't define the excluded class as "non-citizens" or "French Canadian", but if you can put them in a class that meets bona fide businnes criteria or job classification it is not an issue.

We don't know the setting here, but using "visiting professor" rather than "J-Visa Employee" should do the trick.

[My 2 cents]

Before you leap, you might want to google "immigration discrimination". There are a number of federal laws prohibiting discrimination based on immigration status, national origin and other related criteria.

Fair point, but as long as the excluded class is reasonable it shouldn't be a problem.

Obviously, you wouldn't define the excluded class as "non-citizens" or "French Canadian", but if you can put them in a class that meets bona fide businnes criteria or job classification it is not an issue.

We don't know the setting here, but using "visiting professor" rather than "J-Visa Employee" should do the trick.

In order to do that, you cannot have a problem with excluding "visiting professors" who are US citizens (assuming that excluding visiting professors would succeed in excluding the entire group of people you wanted to exclude).

[RatherBeGolfing]

Before you leap, you might want to google "immigration discrimination". There are a number of federal laws prohibiting discrimination based on immigration status, national origin and other related criteria.

Fair point, but as long as the excluded class is reasonable it shouldn't be a problem.

Obviously, you wouldn't define the excluded class as "non-citizens" or "French Canadian", but if you can put them in a class that meets bona fide businnes criteria or job classification it is not an issue.

We don't know the setting here, but using "visiting professor" rather than "J-Visa Employee" should do the trick.

In order to do that, you cannot have a problem with excluding "visiting professors" who are US citizens (assuming that excluding visiting professors would succeed in excluding the entire group of people you wanted to exclude).

I agree,it was just an example of non-discriminatory wording.

[imchipbrown]

Thanks all for your help. I think I'm free to go golfing (just my 2 ¢).