Page 37 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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Fileid: … tions/P515/2020/A/XML/Cycle10/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
payments are made under an accountable plan ployee asks you to by giving you a completed foreign partnership, or foreign corporation
as described in section 1.62-2 of the regula- Form W-4. not engaged in trade or business in the
tions. This treatment applies only to that part of Pay for personal services that is not subject United States (including Puerto Rico as if a
a payment that represents the payment of travel to withholding is not subject to reporting on part of the United States), and
and lodging expenses and not to that part that Form 1042-S. If the compensation is more than • An employer includes any person who has
represents compensation for independent per- $600, report it on Form W-2 (if the employee control of the payment of wages for serv-
sonal services. gave you a TIN) or on Form 1099-MISC (if the ices that are performed for another person
Tax treaties. Under some tax treaties, pay employee did not give you a TIN). who does not have that control.
for independent personal services performed in For more information on withholding on for- For example, if a trust pays wages, such as
the United States is treated as business income eign agricultural workers, go to IRS.gov and en- certain types of pensions, supplemental unem-
and taxed according to the treaty provisions for ter “agricultural workers” in the search box. ployment pay, or retired pay, and the person for
business profits. Employer–employee relationship. For pay whom the services were performed has no legal
Under other tax treaties, pay for independ- control over the payment of the wages, the trust
ent personal services performed in the United for personal services to qualify as wages, there is the employer.
must be an employer–employee relationship.
States is exempt from U.S. income tax only if These special definitions have no effect
the independent nonresident alien contractor Under the common law rules, every individ- upon the relationship between an alien em-
performs the services during a period of tempo- ual who performs services subject to the will ployee and the actual employer when determin-
rary presence in the United States (usually not and control of an employer, both as to what ing whether the pay received is considered to
more than 183 days) and is a resident of the shall be done and how it shall be done, is an be wages.
treaty country. employee. It does not matter that the employer
Independent nonresident alien contractors allows the employee considerable discretion If an employer–employee relationship exists,
use Form 8233 to claim an exemption from and freedom of action, as long as the employer the employer ordinarily must withhold the in-
withholding under a tax treaty. For more infor- has the legal right to control both the method come tax from wage payments by using the
mation, see Form 8233, earlier. and the result of the services. percentage method or wage bracket tables as
If an employer–employee relationship exists,
Form 8233 should be used to claim a it does not matter what the parties call the rela- shown in Pub. 15-T.
TIP treaty benefit based on a business tionship. It does not matter if the employee is Pay that is not wages. Employment for which
profits provision or an independent per- called a partner, coadventurer, agent, or inde- the pay is not considered wages (for graduated
sonal services provision. pendent contractor. It does not matter how the income tax withholding) includes, but is not limi-
Often, you must withhold under the statutory pay is measured, how the individual is paid, or ted to, the following items.
rules on payments made to a treaty country res- what the payments are called. Nor does it mat- • Agricultural labor if the total cash wages
ident contractor for services performed in the ter whether the individual works full time or part paid to an individual worker during the year
United States. This is because the factors on time. is less than $150 and the total paid to all
which the treaty exemption is based may not be The existence of the employer–employee workers during the year is less than
determinable until after the close of the tax relationship under the usual common law rules $2,500. But even if the total amount paid to
year. The contractor must then file a U.S. in- will be determined, in doubtful cases, by an ex- all workers is $2,500 or more, wages of
come tax return (Form 1040NR) to recover any amination of the facts of each case. less than $150 per year paid to a worker
overwithheld tax by providing the IRS with proof are not subject to income tax withholding if
that he or she is entitled to a treaty exemption. Employee. An employee generally in- certain conditions are met. For these con-
cludes any individual who performs services if ditions, see Pub. 51 (Circular A).
Wages Paid to Employees— the relationship between the individual and the • Services of a household nature performed
person for whom the services are performed is
in or about the private home of an em-
Graduated Withholding the legal relationship of employer and em- ployer, or in or about the clubrooms or
ployee. This includes an individual who re- house of a local college club, fraternity, or
Salaries, wages, bonuses, or any other pay for ceives a supplemental unemployment pay ben-
personal services (referred to collectively as efit that is treated as wages. sorority. A local college club, fraternity, or
sorority does not include an alumni club or
wages) paid to nonresident alien employees are
subject to graduated withholding in the same No distinction is made between classes chapter and may not be operated primarily
as a business enterprise. Examples of
way as for U.S. citizens and residents if the wa- of employees. Superintendents, managers,
ges are effectively connected with the conduct and other supervisory personnel are employ- these services include those performed as
a cook, janitor, housekeeper, governess,
of a U.S. trade or business. ees. In most cases, an officer of a corporation is gardener, or houseparent.
Note. Any wages paid to a nonresident an employee, but a director acting in this ca- • Certain services performed outside the
pacity is not. An officer who does not perform
alien for personal services performed as an em- any services, or only minor services, and nei- course of the employer's trade or business
ployee for an employer are generally not sub- ther receives nor is entitled to receive any pay is for which cash payment is less than $50 for
ject to the 30% withholding if the wages are not considered an employee. the calendar quarter.
subject to graduated withholding. • Services performed as an employee of a
Employer. An employer is any person or foreign government, without regard to citi-
Also, the 30% withholding does not apply to organization for whom an individual performs or zenship, residence, or where services are
pay for personal services performed as an em- has performed any service, of whatever nature, performed. These include services per-
ployee for an employer if it is effectively connec- as an employee. The term “employer” includes formed by ambassadors, other diplomatic
ted with the conduct of a U.S. trade or business not only individuals and organizations in a trade and consular officers and employees, and
and is specifically exempted from the definition or business, but organizations exempt from in- nondiplomatic representatives. They do
of wages. Chapter 4 withholding does not apply come tax, such as religious and charitable or- not include services for a U.S. or Puerto
to these payments. See Pay that is not wages, ganizations, educational institutions, clubs, so- Rican corporation owned by a foreign gov-
later. cial organizations, and societies. It also ernment.
includes the governments of the United States, • Services performed within or outside the
Special rule for certain agricultural work- the States, Puerto Rico, and the District of Co- United States by an employee or officer
ers. The 30% withholding does not apply to lumbia, as well as their agencies, instrumentali- (regardless of citizenship or residence) of
pay for personal services performed by a for- ties, and political subdivisions. an international organization designated
eign agricultural worker in the United States on Two special definitions of employer that may under the International Organizations Im-
an H-2A visa. However, if the total wages are have considerable application to nonresident munities Act.
$600 or more and the worker does not give you aliens are: • Services performed by a duly ordained,
a TIN, you may need to backup withhold. You • An employer includes any person paying commissioned, or licensed minister of a
may withhold at graduated rates if the em- wages for a nonresident alien individual, church, but only if performed in the
Publication 515 (2020) Page 35