Foreign Engineers at a US Data Center: Wages and Company Tax

Do foreign employees pay US tax for a few weeks of work?

US-work wages generally are taxable from the first workday, even on short visits. Commercial-traveler relief requires every condition below, including pay no more than $3,000; treaty and other statutory exemptions are separate. Social Security and Medicare generally apply separately, and the parent's installation work can create US business tax obligations (IRS Publication 519).

A B-1 business-visitor visa does not itself exempt US-work wages; the tax exceptions below still control (IRS foreign-employer rules).

Allocate ordinary salary by US and foreign workdays. Count presence days separately for exemption tests.

Does the 90-day commercial-traveler exception cover engineers?

Nonresidents must meet all three conditions: US presence no more than 90 days in the tax year, compensation no more than $3,000, and a qualifying foreign employer not engaged in US business. Pay over the cap fails regardless of trip length (section 861(a)(3)).

Exceeding the cap makes all US-service pay US-source. Accounted business-travel reimbursements do not count; excess reimbursements do (Publication 519).

For this exception's employer test, only the visiting individual's own services are disregarded. Other crew members' services and any other US business during the tax year still count, so a crew performing the parent's installation generally fails (26 CFR 1.864-2(b)(2)(ii)).

Qualifying nonresident visitors in F, J, M or Q status can separately exclude foreign-employer wages (Publication 519).

Which treaties exempt short work visits?

There is no universal 183-day wage exemption. For wages, use the engineer's treaty residence, not citizenship or the employer's country, and meet every employment condition (Form 8233 instructions). Company protection depends on the parent's treaty eligibility; social security coverage is separate. The columns need not follow the same country row.

A permanent establishment is the US business presence a treaty recognizes for taxing company profits. “Bearing pay” means carrying its economic cost (Japan treaty explanation). A detachment is a temporary assignment under a social security agreement (Japan agreement).

For Taiwan relief and structure, see Foreign company entering the US; proposed relief is not an exemption in force.

Who withholds: the company abroad or its US subsidiary?

The foreign employer handles taxable US-work wages paid abroad. The subsidiary handles payroll when it becomes the employer (IRS). If the service employer lacks control of wage payments, the person controlling payment is the income-tax withholding employer (section 3401(d)(1)).

An employer with US payroll obligations generally needs an EIN, applicable nonresident Form W-4 procedures, payroll-tax deposits and Form 941 filed by the last day of the first month after each quarter (Publication 15). Furnish and file W-2s by February 1, 2027; an ITIN cannot replace an SSN on a W-2 (W-2 instructions).

For treaty relief, the engineer signs Form 8233, Part III, annually; the payer signs Part IV. Part I, line 2, needs an SSN or ITIN. If ineligible for an SSN, apply with Form W-7 and documentation; attach Form SS-5 or W-7 if the number is pending. The payer forwards an accepted form within 5 days of acceptance and waits at least 10 days after properly mailing it before applying exemption retroactively to the first covered payment. Withholding is required if eligibility cannot readily be determined; later doubt or an IRS objection requires withholding to begin or resume (instructions).

Treaty-exempt wages require Form 1042-S and the annual Form 1042 even when no income tax was withheld. Both are generally due by March 15 after the payment year, adjusted for weekends and holidays. W-2 reporting may still apply for Social Security, Medicare or state wages (Publication 515; Form 1042 instructions).

The employer owes income tax it should have withheld (section 3403). Responsible officers or employees who willfully fail to collect or remit trust fund taxes can personally owe 100% of the unpaid trust fund amount under section 6672 (Publication 15). Assessment generally has 3 years from the succeeding April 15 or actual later return filing; unfiled or fraudulent returns can leave it open (IRS assessment rules).

For setup, see Setting up payroll.

Do nonresident engineers pay Social Security and Medicare?

Generally yes, even with income tax exemption. A social security, or totalization, agreement can keep eligible staff in their home system; a home-country coverage certificate documents that exemption and belongs in payroll records. Without an agreement, home-country contributions do not remove US Social Security or Medicare. Certain F, J, M and Q situations have separate exceptions (Publication 519; SSA agreement list).

Each side pays 6.2% up to $184,500 and 1.45% without a wage cap; additional employee Medicare withholding can apply. Review federal and state unemployment taxes separately (Publication 15).

Can the site's state tax treaty-exempt wages?

Yes. California generally adds federally treaty-exempt income back unless specifically exempt for state purposes (Schedule CA instructions). Virginia requires withholding registration and returns when an employer is liable (Virginia Tax).

Texas has no individual income tax (constitution), but liable employers must register for unemployment tax within 10 days (TWC). Ohio's municipal withholding relief generally covers no more than 20 days of employee work in a calendar year, subject to exceptions. One exception is a temporary site where the employer reasonably expects more than 20 days of actual services in that calendar year; rotating engineers does not restart that employer-level count (section 718.011).

For multiple sites, see Employees in another state.

Does each engineer need to file Form 1040-NR?

Nonresident engineers engaged in US business generally file even with treaty-exempt wages. Meeting every commercial-traveler condition may remove filing if there is no other trigger (26 CFR 1.864-2). That differs from the abolished filing exception for wages below the personal exemption amount (Publication 519).

Calendar-year employees with wages subject to income tax withholding generally file by April 15 after year-end; otherwise, June 15, adjusted for weekends and holidays (1040-NR instructions). Employment-income treaty claims generally need no Form 8833. If ineligible for an SSN, apply for an ITIN with Form W-7 for the return; W-2 identification remains separate.

Repeat trips can meet substantial presence: 31 days this year and 183 days using the three-year weighting. With fewer than 183 days this year, a foreign tax home throughout the year and a closer connection abroad, Form 8840 filed by the 1040-NR deadline may preserve nonresidence; seeking permanent residence can bar it. Dual residents may claim a treaty tie-breaker with Form 8833 attached to 1040-NR (Publication 519). See First year as a US tax resident.

Does installation or commissioning make the parent owe US tax?

A parent performing its installation contract through a US crew generally conducts US business. Without treaty protection, there is no installation-duration safe harbor; review obligations from the first site day (section 864(b)).

Treaty clocks measure project duration, not each engineer's stay. Other permanent-establishment routes can apply. A parent conducting US business generally files Form 1120-F, with Form 8833 when claiming treaty protection; see Foreign company US tax return for treaty-based or protective filing and branch profits tax (IRS filing rules).

Split bundled equipment and installation charges: US installation is US-source; equipment-profit sourcing is covered in When foreign owners owe US tax. Before receiving the installation fee, give the customer a signed Form W-8ECI with the parent’s EIN to document business-connected income; otherwise, the customer generally withholds 30%, unless valid treaty documentation applies. The customer is liable under section 1461 for tax it fails to withhold (W-8ECI instructions; Publication 515). State company returns can also apply: Virginia requires a foreign corporation receiving Virginia-source income to file (Virginia Tax). Invoice tax is separate: see Sales tax on servers, installation and maintenance.

Should the US subsidiary employ the installation crew?

A subsidiary directing and paying employees for its own installation contract may keep the work within its business. Moving payments alone does not remove the parent's activity: employee control matters (Publication 15).

A Taiwanese crew has no treaty wage exemption to lose. For a qualifying treaty crew, subsidiary employment or identifiable salary reimbursement can end wage relief (Japan treaty explanation). A parent service invoice may leave the parent performing US business; IRS filing guidance gives no automatic protection for staff transfers. For pricing and Form 5472, see US subsidiary of a foreign company.

Are housing and relocation payments taxable on a longer transfer?

Cash housing and relocation reimbursements generally are wages. For nonresidents, housing fringe benefits follow the principal work location; relocation generally follows the new work location, rather than salary’s workday split (Publication 519). An assignment expected to exceed 1 year is indefinite, making living allowances taxable even if accounted for (Publication 463). The moving-expense exclusion is permanently removed for ordinary private-sector employees (Publication 15-B).

Personal home-leave flights generally count as compensation unless excluded (Publication 525); employer-paid employee income taxes are additional income (26 CFR 1.61-14).

Hotel and meals can stay outside wages when the engineer travels away from their tax home—their usual work area—on an assignment realistically expected to last, and actually lasting, no more than 1 year. An extension making it indefinite makes living-expense reimbursements wages from that change (Publication 463). An accountable plan also requires a business purpose, timely expense records and return of excess payments (Publication 15).

Which day and pay records should we keep?

Track physical presence, work locations and project duration separately. Arrival, departure and nonworking days can count; apply the treaty's counting rule (Publication 519).

Keep employment-tax records for at least four years (Publication 15). Gather travel dates, prior trips, daily site logs, assignment letters, contracts, project start and acceptance dates, warranty visits, pay allocations, allowances, receipts, salary recharges, coverage certificates and Forms 8233, W-2 and 1042-S.

Visas and work authorization, including the H-1B payment, immigration, export controls and deemed exports, and customs are outside this page; we do not advise on them.

Example

Illustrative US-dollar amounts; assume ordinary payroll rules.

Six weeks in Loudoun County

Three Taiwanese field service engineers commission coolant distribution units (CDUs) and AI server racks. Each earns $9,000 for US work: $27,000 total. All wages are taxable because the pay exceeds $3,000.

The US subsidiary contracts for installation, employs the crew and issues W-2s with Virginia withholding. For the whole crew, Social Security and Medicare total about $2,070 per side, assuming wages below the Social Security cap. Assume their usual work area remains abroad; accountable-plan hotel and meal reimbursements remain outside wages. Each nonresident engineer files Form 1040-NR by April 15, 2027, absent an extension, and reconciles Virginia withholding on a nonresident return, claiming any overpayment (Virginia filing rules).

The parent signs the installation contract

The same crew performs the parent's $3,000,000 equipment order with a separate $150,000 installation fee; the crew stays on the Taipei payroll. The parent has US employer obligations and generally obtains an EIN, files Forms 941 and 940 and issues W-2s. Its installation business requires Form 1120-F; the $150,000 fee is US-source revenue before expenses. Without valid Form W-8ECI or other relief, the customer withholds $45,000 of the $150,000 fee, leaving $105,000 paid to the parent. Equipment-profit sourcing needs review.

Two years in Fort Worth

A Taiwanese AI server maker's Texas subsidiary employs a plant manager and four process engineers. Each receives $3,000 monthly housing ($36,000 annually) and $10,000 for relocation: ordinary W-2 wages. Assuming 12 housing payments in each of two tax years and relocation paid once in the first, these extras total $46,000 per person in the first year and $36,000 in the second: $410,000 for all five across both years. Social Security and Medicare apply from the first payday. Texas has no wage income tax. Arrival dates and prior trips determine tax residence.

Different for you?

• Canadian employer: use Sending employees to work in the US.
• Engineer lives in the US but remains on foreign payroll: see Working in the US for an employer abroad.
• Texas site: review the parent's separate Texas franchise tax exposure.
• Longer transfer: review foreign accounts, a spouse abroad and the return when leaving the US.
• Two countries, pay recharges or uncertain employer identity: plan payroll and each engineer's returns before the first site day through cross-border tax; bring the records listed above.