26 U.S.C. §7701(a)(16)
TITLE 26 > Subtitle F > CHAPTER 79 > Sec. 7701.
Sec. 7701. - Definitions(a)(16) Withholding agent
The term ''withholding agent'' means any person required to deduct and withhold any tax under the provisions of section 1441, 1442, 1443, or 1461. [See Title 26, Subtitle A, Chapter 3, Subchapter A: Nonresident Aliens and Foreign Corporations]
IRS Form 2678 is the only way that a person can be designated as an "employer"
agent authorized to withhold taxes. If this form has not been
submitted to the IRS, you are not an "employee" and all federal taxes
taken from your pay are illegally withheld, even if you begged to have
them deducted.
IRS Website: Withholding Agent
Withholding Agent
You are a withholding agent if you are a U.S. or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. A withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies. You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment.
Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Generally, the U.S. person who pays an amount subject to NRA withholding is the person responsible for withholding. However, other persons may be required to withhold. For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. In addition, withholding must be done by any qualified intermediary in accordance with the terms of its qualified intermediary withholding agreement.
Withholding Agent Liability
As a withholding agent, you are personally liable for any tax required to be withheld. This liability is independent of the tax liability of the foreign person to whom the payment is made. If you fail to withhold and the foreign payee fails to satisfy its U.S. tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. The applicable tax will be collected only once. If the foreign person satisfies its U.S. tax liability, you may still be held liable for interest and penalties for your failure to withhold.
Determination of Amount to Withhold
You must withhold on the gross amount subject to NRA withholding. You cannot reduce the gross amount by any deductions. However, refer to Withholding Federal Income Tax on Scholarships, Fellowships, and Grants Paid to Aliens and Pay for Personal Services Performed for when a deduction for a personal exemption may be allowed.
If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30 percent of the amount subsequently determined to be subject to withholding is withheld. In no case, however, should you withhold more than 30 percent of the total amount paid.
When to Withhold
Withholding is required at the time you make a payment of an amount subject to withholding. A payment is made to a person if that person realizes income whether or not there is an actual transfer of cash or other property. A payment is considered made to a person if it is paid for that person's benefit. For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. A payment is also considered made to a person if it is made to that person's agent. For treatment of a payment made to the U.S. agent of a foreign person, refer to Identifying the Payee, U.S. Agent of Foreign Person.
A U.S. partnership should withhold when any distributions that include amounts subject to withholding are made. However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U.S. partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. If the distributable amount consists of effectively connected income, refer to Partnership Withholding on Effectively Connected Income.
A U.S. trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. To the extent a U.S. trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S.
For questions related to Qualified Intermediaries refer to Qualified Intermediary.Information Reporting for Forms 1042-S and 1042-T
Withholding agents should pay attention to details on Forms 1042-S and 1042-T for successful processing. For additional information, refer to Information Reporting on Forms 1042-S and 1042-T.
References/Related Topics
Page Last Reviewed or Updated: 10-Nov-2015
IRS Website: Persons Subject to NRA Withholding
Persons Subject to NRA Withholding
NRA withholding applies only to payments made to a payee that is a foreign person. It does not apply to payments made to U.S. persons.Usually, you determine the payee's status as a U.S. or foreign person based on the documentation that person provides. However, if you have received no documentation or you cannot reliably associate all or a portion of a payment with documentation, then you must apply certain presumption rules.
- Identifying the Payee
- Flow-Through Entities
- Foreign Intermediaries
- Qualified Intermediaries
- Withholding Foreign Partnership and Foreign Trust
- Foreign Persons
References/Related Topics
Page Last Reviewed or Updated: 11-Dec-2015
31 C.F.R. §215.11
[Code of Federal Regulations]
[Title 31, Volume 2]
[Revised as of July 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE 31CFR215.11]
TITLE 31--MONEY AND FINANCE: TREASURY
CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
PART 215--WITHHOLDING OF DISTRICT OF COLUMBIA, STATE, CITY AND COUNTY
INCOME OR EMPLOYMENT TAXES BY FEDERAL AGENCIES--Table of Contents
Subpart C--Standard AgreementSec. 215.11 Agency withholding procedures.
(a) State income tax shall be withheld only on the entire compensation of Federal employees and members of the Armed Forces. Nonresident employees, who under the State income tax law are required to allocate at least three-fourths of their compensation to the State, shall be subject to withholding on their entire compensation. Nonresident employees, who under the State income tax law are required to allocate less than three-fourths of their compensation to the State, may elect to:(1) Have State income tax withheld on their entire compensation, or
(2) Have no income tax withheld on their compensation.(b) In calculating the amount to be withheld from an employee's or a member's compensation, each agency shall use the method prescribed by the State income tax statute or city or county ordinance or a method which produces approximately the tax required to be withheld:
(1) By the State income tax statute from the compensation of each employee or member of the Armed Forces subject to such income tax, or
(2) By the city or county ordinance from the compensation of each employee subject to such income or employment tax.
(c) Where it is the practice of a Federal agency under Federal tax withholding procedure to make returns and payment of the tax on an estimated basis, subject to later adjustment based on audited figures, this practice may be applied with respect to the State, city of county income or employment tax where the agency has made appropriate arrangements with the State, city or county income tax authorities.
(d) Copies of Federal Form W-2, ``Wage and Tax Statement'', may be used for reporting withheld taxes to the State, city or county.
(e) Withholding shall not be required on wages earned but unpaid at the date of an employee's or member's death.
(f) Withholding of District of Columbia income tax shall not apply to pay of employees who are not residents of the District of Columbia as defined in 47 District of Columbia Code, chapter 15, subchapter II.