H-1B employers who engage in financial shenanigans with their employees’ wages have more potential problems than just DOL or USCIS investigations. They are now under heightened scrutiny by the IRS.

The Large and Mid-Size Business Division of the IRS recently announced it is prioritizing audits of tax withholding agents related to payment of wages to non-resident foreign nationals, a group that includes H-1B employees.

Employers who pay certain types of income to non-resident aliens generally must withhold tax at a rate of 30% on such payments, unless there are applicable treaty provisions allowing for a reduced rate. These payments and withholdings generally must be reported to the IRS. The person or company making and reporting these payments is called a “withholding agent.”

In addition to the IRS regulations, labor and immigration laws also require the H-1B employer to properly report income earned and withholdings made to the H-1B employees. 20 CFR 655.731(c).

The IRS’ recent decision to target withholding agents is due to a high incidence of non-compliance and abuse. The IRS has designated this problem a Tier I compliance issue, the highest priority for compliance enforcement.

The IRS said its audits will focus on the compliance and quality of the overall reporting and withholding systems and procedures of the withholding agents to ensure proper classification of payments, sourcing, and the validity of documentation of foreign persons.

Under IRS regulations, the employer can be held personally liable for failure to withhold. Under labor and immigration laws, the employer may also be sanctioned for failing to properly report income.

For additional information about other employer DOL and immigration-related compliance requirements, please see our other articles here:

For information about H-1B Rights & Immigration Rights Attorneys Michael F. Brown and Vonda K. Vandaveer, please visit here.

This blog is authored by Employee and H-1B Rights Attorney Michael Brown of the law firm of Peterson, Berk & Cross, and Immigration Attorney Vonda K. Vandaveer of the law firm V.K. Vandaveer, P.L.L.C.

DISCLAIMER: The information in this article is NOT legal advice, nor does it establish an attorney-client relationship between you and the attorneys or law firms above. Legal advice often varies among situations. If you want legal advice for your specific circumstances, you must consult with an attorney.