Page 36 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Prizes and awards. Prizes and awards are Form 8233. This form is used by a nonresident includes, but is not limited to, the following
amounts received primarily in recognition of reli- alien individual to claim a tax treaty exemption items.
gious, charitable, scientific, educational, artistic, from withholding on some or all compensation • A statement by each withholding agent
literary, or civic achievement, or are received as paid for: from whom amounts of gross income ef-
the result of entering a contest. A prize or award • Independent personal services (self-em- fectively connected with the conduct of a
is taxable to the recipient unless all of the fol- ployment), U.S. trade or business have been received
lowing conditions are met. • Dependent personal services, or by the alien during the tax year. It must
• The recipient was selected without any ac- • Personal services income and noncom- show the amount of income paid and the
tion on his or her part to enter the contest pensatory scholarship or fellowship in- amount of tax withheld. The withholding
or proceeding. come from the same withholding agent. agent must sign the statement and include
• The recipient is not required to render sub- A withholding agent that receives Form a declaration that it is made under penal-
stantial future services as a condition to re- 8233 from a nonresident alien individual claim- ties of perjury.
ceive the prize or award. ing a tax treaty exemption must review the form, • A statement by the withholding agent from
• The prize or award is transferred by the sign to indicate its acceptance, and forward the whom the final payment of compensation
payer to a governmental unit or tax-exempt form to the IRS within 5 days of its acceptance. for personal services will be received
charitable organization as designated by showing the amount of final payment and
the recipient. Form W-4. This form is used by a person pro- the amount that would be withheld if a final
withholding agent must sign the statement
Targeted grants and achievement awards. viding dependent personal services to claim payment exemption is not granted. The
withholding allowances, but not a tax treaty ex-
Targeted grants and achievement awards re- emption. Nonresident alien individuals are sub- and include a declaration that it is made
ceived by nonresident aliens for activities con- ject to special instructions for completing the under penalties of perjury.
ducted outside the United States are treated as Form W-4. See the discussion under Wages • A statement by the alien that he or she
income from foreign sources. Targeted grants Paid to Employees—Graduated Withholding, does not intend to receive any other
and achievement awards are issued by exempt later. amounts of gross income effectively con-
organizations or by the United States (or one of nected with the conduct of a U.S. trade or
its instruments or agencies), a state (or a politi- Pay for independent personal services (In- business during the current tax year.
cal subdivision of a state), or the District of Co- come Code 17). Independent personal serv- • The amount of tax that has been withheld
lumbia for an activity (or past activity in the case ices (a term commonly used in tax treaties) are (or paid) under any other provision of the
of an achievement award) undertaken in the personal services performed by an independent Code or regulations for any income effec-
public interest. nonresident alien contractor as contrasted with tively connected with the conduct of a U.S.
trade or business during the current tax
Pay for Personal those performed by an employee. This category year.
of pay includes payments for professional serv-
Services Performed ices, such as fees of an attorney, physician, or • The amount of any outstanding tax liabili-
accountant made directly to the person per- ties, including any interest and penalties,
forming the services. It also includes honoraria from the current tax year or prior tax peri-
This section explains the rules for withholding paid by colleges and universities to visiting ods.
tax from pay for personal services. You gener- teachers, lecturers, and researchers. • The provision of any income tax treaty un-
ally must withhold tax at the 30% rate on com- Pay for independent personal services is der which a partial or complete exemption
pensation you pay to a nonresident alien indi- subject to Chapter 3 withholding and reporting from withholding may be claimed, the
vidual for labor or personal services performed as follows. country of the alien's residence, and a
in the United States, unless that pay is specifi- statement of sufficient facts to justify an ex-
cally exempted from withholding or subject to 30% rate. You must withhold at the statu- emption under that treaty.
graduated withholding. This rule applies regard- tory rate of 30% on all payments unless the The alien must give a statement, signed and
less of your place of residence, the place where alien enters into a withholding agreement or re- verified by a declaration that it is made under
the contract for service was made, or the place ceives a final payment exemption (discussed penalties of perjury, that all the information pro-
of payment. later). vided is true, and that to his or her knowledge
Payments for personal services are not with- Withholding agreements. Pay for per- no relevant information has been omitted.
If satisfied with the information provided, the
holdable payments under Chapter 4 when they sonal services of a nonresident alien who is en- Commissioner or his delegate will determine
are nonfinancial payments. See Regulations gaged during the tax year in the conduct of a the amount of the alien's tentative income tax
section 1.1473-1(a)(4)(iii) for a description of U.S. trade or business may be wholly or parti- for the tax year on gross income effectively con-
these payments and their exclusion as with- ally exempted from withholding at the statutory nected with the conduct of a U.S. trade or busi-
holdable payments. rate if an agreement has been reached between
the Commissioner or his delegate and the alien ness. Ordinary and necessary business expen-
Illegal aliens. Foreign workers who are illegal as to the amount of withholding required. This ses may be taken into account if proved to the
aliens are subject to U.S. taxes in spite of their agreement will be effective for payments cov- satisfaction of the Commissioner or his dele-
gate.
illegal status. U.S. employers or payers who ered by the agreement that are made after the
The Commissioner or his delegate will pro-
hire illegal aliens may be subject to various agreement is executed by all parties. The alien vide the alien with a letter to you, the withhold-
fines, penalties, and sanctions imposed by U.S. must agree to timely file an income tax return for
Immigration and Customs Enforcement. If such the current tax year. ing agent, stating the amount of the final pay-
ment of compensation for personal services
employers or payers choose to hire illegal ali- Final payment exemption. The final pay-
ens, the payments made to those aliens are ment of compensation for independent per- that is exempt from withholding, and the
amount that would otherwise be withheld that
subject to the same tax withholding and report- sonal services may be wholly or partially ex-
ing obligations that apply to other classes of ali- empt from withholding at the statutory rate. This may be paid to the alien due to the exemption.
The amount of pay exempt from withholding
ens. Illegal aliens who are nonresident aliens exemption applies to the last payment of com-
and who receive income from performing inde- pensation, other than wages, for personal serv- cannot be more than $5,000. The alien must
give two copies of the letter to you and also
pendent personal services are subject to 30% ices rendered in the United States that the alien
withholding unless exempt under some provi- expects to receive from any withholding agent must attach a copy of the letter to his or her in-
come tax return for the tax year for which the
sion of law or a tax treaty. Illegal aliens who are during the tax year.
resident aliens and who receive income from To obtain the final payment exemption, the exemption is effective.
performing dependent personal services are alien, or the alien's agent, must file the forms Travel expenses. If you pay or reimburse
subject to the same reporting and withholding and provide the information required by the the travel expenses of a nonresident alien, the
obligations that apply to U.S. citizens who re- Commissioner or his delegate. This information payments are not reportable to the IRS and are
ceive the same kind of income. not subject to Chapter 3 withholding if the
Page 34 Publication 515 (2020)