Employers paying wages to nonresident aliens are required to withhold tax at graduated rates as determined by specific tables and procedures, rather than withhold at the 30 percent rate. In general, wages is defined in the Code as all remuneration for services performed by an employee for his employer. This excludes payments to an independent contractor.

Distinguishing an employee from an independent contractor generally depends on the facts and circumstances surrounding the performance of the services. Labels do not determine an individual's classification. For example, status as an employee cannot be avoided merely by labeling an individual "independent contractor," "consultant," or other term designed to belie an employment relationship. In general, an employer-employee relationship exists when the person for whom the services are performed has the right to control and direct the individual performing the services, not only as to the result to be accomplished by the work, but also as to the details and means by which the result is to be accomplished. Arts organizations unclear as to the status of a particular foreign artist should contact legal counsel for assistance with such determination.

In general, if the foreign artist is an employee, he should be treated as any other employee of the organization for tax purposes. It is likely that most foreign artists will not be considered employees, and the organization will not therefore be exempt from the NRA Withholding requirement under this category.