I was in USA for 3 months in 2005 (july to Sep) as a Non resident Alien. At that time I claimed Allowances/Exemptions - 2 in my payroll. I have again come to USA in January, 2007. Now my employer is telling me to submit the W4 Form with Allowances/Exemptions -1. On both the occasions, I had a L1 visa and I am single. Can you please tell me how come there are changes in the taxation for a Non Resident Alien? Also, is there any tax benefit if a NRA gets married? What are the eligibility criteria for a NRA to become a resident alien?

The W-4 just provides guidance to the employer on how much to withhold from your paycheck for federal income taxes. It denotes NO policy change for taxation on non-resident aliens.

You become a resident alien when you spend ALL of the year as an L-1 visaholder.

Does it mean that I can still claim Exemtions/Allowances - 2 in the current year?

My employer is saying that -- "As per the new IRS rule a Non-Resident Alien can claim maximum withholding allowance of ‘1’ and the martial status as single ‘S’ even if he/she is married. If you have mentioned NRA or Non-Resident Alien in the W4 form then you can only claim ‘S’ in the martial status column and ‘1’ in the point # 5 of the Employee’s Withholding Allowance Certificate."... is this true? I really cannot figure it out...

I am unaware of the policy you cite, but it makes sense from an IRS point of view.

They want to make sure that enough taxes are withheld from your salary to force you to file a tax return at the end of the year.