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Nonresident Alien Withholding


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 a reduced rate of withholding or exemption from withholding may apply.  One way to reduce the withholding rate is if there is a tax treaty between the country of residence of the non-U.S. person and the United States.  This is called an Income Tax Treaty.

Another way for an exemption to apply is if an Internal Revenue Code (IRC) section allows for a lower rate of withholding. A withholding requirement relates to an amount required to be deducted and withheld from the payment of income paid to a non-U.S. person. If NRA withholding applies to any payment, regardless of whether a lower treaty rate or IRC exemption applies, the person making that payment must file a Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons and related Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. See NRA Reporting.