Knowledge Base – Withholding

Withholding Terms

Overwithholding

Definition: Over-reporting constitutes inaccurate information and requires the IRS to determine the correct information. If you discover that you overwithheld tax under chapter 3 or 4 by March 15 of the following calendar year, you may use the undeposited amount of tax to make any necessary adjustments between you and the recipient of the income. However, if the undeposited amount is not enough to make any adjustments, or if you discover the overwithholding after the entire amount of tax has been deposited, you can use either

Nonresident Alien Withholding

Definition: Nonresident alien (NRA) withholding is a type of tax that applies generally to a non-U.S person that receives U.S. source fixed, determinable annual, or periodical (FDAP) income. More generally, NRA withholding is a term used to describe Chapter 3 withholding. This refers to the withholding required under sections 1441, 1442, and 1442 of the IRC. The person making a payment is generally called a withholding agent and will apply NRA withholding to that payment. The NRA withholding rate is 30 percent; however, certain non-U.S. persons may be eligible for

Employee Withholding

Definition: Salaries, wages, bonuses, or any other pay for personal services (referred to collectively as wages) paid to nonresident alien employees are subject to graduated withholding in the same way as for U.S. citizens and residents if the wages are effectively connected with the conduct of a U.S. trade or business. Also, the 30% withholding does not apply to pay for personal services performed as an employee for an employer if it is effectively connected with the conduct of a U.S. trade or business and is

Withholding Agent

Definition Where the income is subject to withholding tax a withholding agent is the party who is responsible for reporting and paying the tax to the IRS and must also furnish a statement to the recipient of the income. A withholding agent is a U.S. or foreign person that has the control, receipt, custody, disposal, or payment of the income to a foreign person. Generally, withholding agents are required to withhold at the statutory rate of 30% and must deposit any tax withheld and file Form

Withholding Foreign Trust

Definition: A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. A WT may act in that capacity only for payments of amounts subject to nonresident alien (NRA) withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. A WT acting in that capacity must assume NRA withholding responsibility for these amounts. A withholding agent may treat a WT as a payee if it has

Withholding Foreign Partnership

Definition: A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. A WP may act in that capacity only for payments of amounts subject to nonresident alien (NRA) withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. A WP acting in that capacity must assume NRA withholding responsibility for these amounts. A withholding agent may treat a WP as a payee if it has provided a Form

Backup Withholding

Definition: Persons making certain payments to you must under certain conditions withhold and pay to the IRS 28% of such payments. Payments that may be subject to backup withholding include interest, tax-exempt interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, payments made in settlement of payment card and third party network transactions, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding. You will not be subject to backup withholding on payments you receive if you give

Withholding Statements

Definition: A Withholding Statement is an important part of an intermediary withholding certificate (FORM W-8IMY) and provides the withholding agent with all of the information required for Chapter 3, Chapter 4, or Chapter 61 reporting and withholding. When an intermediary, or flow through entity, provides a withholding agent with a Form W-8IMY, generally, it must include a Withholding Statement. As such, the penalties of perjury statement provided on the Form W-IMY also apply to the Withholding Statement. The Withholding Statement may be provided in any manner; however, the withholding