Page 43 - Withholding Taxes for Foreign Entities

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
instructions for the applicable Form W-8. If an 1. If at the end of a calendar year the total can arrange for your tax professional, financial
account holder provides an explanation other amount of undeposited taxes is less than institution, or other trusted third party to make
than the one described in the instructions for $200, you may either pay the taxes with deposits on your behalf. Also, you may arrange
the applicable Form W-8, you must determine your Form 1042 or deposit the entire for your financial institution to initiate a
whether the explanation is reasonable. See amount by March 15 of the following cal- same-day wire payment on your behalf. EFTPS
Regulations section 1.1441-1(e)(2((ii)(B) for endar year. is a free service provided by the Department of
transitional rules for withholding agents to ob- 2. If at the end of any month the total amount Treasury. Services provided by your tax profes-
tain foreign TINs for accounts documented with of undeposited taxes is $200 or more but sional, financial institution, or other third party
otherwise valid Forms W-8 that were signed be- less than $2,000, you must deposit the may have a fee. For more information about
fore January 1, 2018. EFTPS or to enroll in EFTPS, visit EFTPS.gov
taxes within 15 days after the end of the or call 800-555-4477. Additional information
Global Intermediary month. If the 15th day is a Saturday, Sun- about EFTPS also is available in Pub. 966.
day, or legal holiday in the District of Co-
Identification Numbers lumbia, you must deposit the taxes by the Qualified business taxpayers that re-
(GIINs) next day that is not a Saturday, Sunday, or TIP quest an EIN will automatically be en-
rolled in EFTPS. They will receive infor-
legal holiday in the District of Columbia. If
If you make a withholdable payment to an entity you made a deposit of $2,000 or more dur- mation on how to activate their account.
ing the month (except December) under
claiming certain Chapter 4 statuses, you may rule 3 below, carry over any end-of-
be required to obtain and verify the entity’s GIIN the-month balance of less than $2,000 to Note. All payments should be stated in
against the published IRS FFI list within 90 days the next month. If you made a deposit of U.S. dollars and should be made in U.S. dol-
to rely on such a claim. See GIIN Verification $2,000 or more during December, any lars.
under Standards of Knowledge for Purposes of end-of-December balance of less than
Chapter 4, earlier, for which Chapter 4 statuses $2,000 should be remitted with your Form Penalty for failure to make deposits on
require a GIIN. time. If you fail to make a required deposit
1042 by March 15 of the following year. within the time prescribed, a penalty is imposed
Depositing 3. If at the end of any quarter-monthly period on the underpayment (the excess of the re-
quired deposit over any actual timely deposit for
the total amount of undeposited taxes is
Withheld Taxes $2,000 or more, you must deposit the a period). You can avoid the penalty if you can
show that the failure to deposit was for reasona-
taxes within 3 business days after the end
of the quarter-monthly period. (A quar- ble cause and not because of willful neglect.
This section discusses the rules for depositing ter-monthly period ends on the 7th, 15th, Also, the IRS may waive the penalty if certain
income tax withheld on FDAP income, including 22nd, and last day of the month.) A busi- requirements are met.
tax withheld pursuant to Chapter 4. The deposit ness day is any day other than a Saturday, Depositing on time. For deposits made by
rules discussed here do not apply to the follow- Sunday, or legal holiday in the District of
ing items. Columbia. EFTPS to be on time, you must initiate the de-
posit by 8 p.m. Eastern time the day before the
• Taxes on pay subject to graduated with-
holding as discussed earlier. (See Form Escrow in lieu of deposit. Under certain cir- date the deposit is due. If you use a third party
to make deposits on your behalf, they may have
941 for the deposit rules.) cumstances, a withholding agent may be per-
• Tax withheld on pensions and annuities mitted to set aside a withheld amount in escrow different cutoff times.
subject to graduated withholding or the rather than depositing the tax. A participating Penalty rate. If the deposit is:
10% tax on nonperiodic distributions. (See FFI that withholds tax on a withholdable pay- • 1 to 5 days late, the penalty is 2% of the
Form 945 for the deposit rules.) ment not otherwise subject to Chapter 3 with- underpayment;
• Tax withheld on a foreign partner's share holding or backup withholding under section • 6 to 15 days late, the penalty is 5%; or
of effectively connected income of a part- 3406 made to a recalcitrant account holder of a • 16 or more days late, the penalty is 10%.
nership, other than a publicly traded part- dormant account may, in lieu of depositing the
nership. See Partnership Withholding on tax withheld, set aside the amount withheld in However, if the deposit is not made within
Effectively Connected Income, later. escrow until the date that the account ceases to 10 days after the IRS issues the first notice de-
• Tax withheld on dispositions of U.S. real be a dormant account. In such case, the tax manding payment, the penalty is 15%.
property interests by foreign persons. See withheld becomes due 90 days following the If you owe a penalty for failing to deposit tax
U.S. Real Property Interest, later. date that the account ceases to be a dormant for more than one deposit period, and you
• Taxes on household employees. See account if the account holder does not provide make a deposit, your deposit is applied to the
Schedule H (Form 1040 or 1040-SR) to re- the required documentation, or becomes re- most recent period to which the deposit relates
port social security and Medicare taxes, fundable to the account holder if the account unless you designate the deposit period or peri-
and any income tax withheld, on wages holder provides documentation establishing ods to which your deposit is to be applied. You
paid to a nonresident alien household em- that withholding does not apply. can make this designation only during a 90-day
ployee. A withholding agent that withholds tax under period that begins on the date of the penalty no-
Chapter 3 on certain payments that include an tice. The notice contains instructions on how to
When Deposits undetermined amount of income may retain make this designation.
Are Required 30% of the payment to hold in escrow in ac-
cordance with Regulations section 1.1441-3(d).
Similarly, if a withholding agent is unable to de- Adjustment for
A deposit required for any period occurring in 1 termine whether the payment is a withholdable Overwithholding
calendar year must be made separately from a payment because the source or character of the
deposit for any period occurring in another cal- payment is unknown, the withholding agent
endar year. A deposit of this tax must be made may retain 30% of the payment to hold in es- What to do if you overwithheld tax depends on
separately from a deposit of any other type of crow for Chapter 4 purposes in accordance with when you discover the overwithholding.
tax, but you need not identify whether the de- Regulations section 1.1471-2(a)(5).
posit is of tax withheld under Chapter 3 or 4. Overwithholding discovered by March 15 of
following calendar year. If you discover that
The amount of tax you are required to with- Electronic deposit requirement. You must you overwithheld tax under Chapter 3 or 4 by
hold determines the frequency of your deposits. deposit all withheld taxes under Chapter 3 or 4 March 15 of the following calendar year, you
The following rules show how often deposits by electronic funds transfer. In most cases, may use the undeposited amount of tax to
must be made. electronic funds transfers are made using the make any necessary adjustments between you
Electronic Federal Tax Payment System and the recipient of the income. However, if the
(EFTPS). If you do not want to use EFTPS, you undeposited amount is not enough to make any

Publication 515 (2020) Page 41