NRA Withholding

Withholding On Payments of U.S. Source Income to Foreign Persons IRC 1441 to 1443 (Form 1042)

Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if an Internal Revenue Code Section provides for a lower rate, or there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld (NRA withholding) from the payment made to the foreign person. The term NRA withholding is used in this area descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires 30% withholding on a payment of U.S. source income and the filing of Form 1042 and related Form 1042-S. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding

In referring to NRA withholding in this area, it does not include withholding done under section 1445 of the Code (U.S. Real Property Interest) or under section 1446 of the Code (Partnership Withholding on Effectively Connected Income).

• Withholding of Tax
• Withholding Agent
• Withholding and Reporting Obligations
• Persons Subject to NRA Withholding
• Identifying the Payee
• Flow-Through Entities
• Foreign Intermediaries
• Qualified Intermediary
• Withholding Foreign Partnership and Foreign Trust
• Foreign Persons
• Documentation
• Beneficial Owners
• Forms W-8BEN, W-8ECI, and W-8EXP
• Payments Made to Foreign Intermediaries and Foreign Flow-Through Entities
• Form W-8IMY
• Standards of Knowledge
• Presumption Rules
• Income Subject to NRA Withholding
• Source of Income
• Withholding on Specific Income
• Foreign Governments and Certain Other Foreign Organizations
• Taxpayer Identification Number (TIN) Requirement
• Depositing Withheld Taxes, When Deposits Are Required , and Adjustment for Overwithholding in Publication 515
• Returns Required
• Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
• Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding
• Form 1042-T, Annual Summary and Transmittal of Forms 1042-S
• Magnetic Media/Electronic Reporting

Reporting requirements

The regulations effective on January 1, 2001 made significant changes to the method for reporting payments to foreign persons, particularly with respect to payments made to foreign intermediaries, partnerships, and trusts. In addition, Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, was significantly revised to reflect changes in the new regulations.

Address Rule Eliminated

Under regulations in effect prior to January 1, 2001 a payee of U.S. source dividends whose address of record was in a tax treaty country was allowed the reduced withholding rates applicable to residents of that tax treaty country. This was known as the address rule. The address rule for dividends does not apply for any payments of dividends made after December 31, 2000. A reduced rate of withholding applies to dividends only if the withholding agent has received valid documentation.

Old Forms

The following are old forms. These forms will not be valid after December 31, 2000:

Form W-8, Certificate of Foreign Status

Form 1001, Ownership, Exemption, or Reduced Rate Certificate

Form 1078, Certificate of Alien Claiming Residence in the United States

Form 4224, Exemption From Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States

Form 8709, Exemption From Withholding on Investment Income of Foreign Governments and International Organizations

Statement under regulation section 1.1441-5, relating to an individual's claim to be a U.S. citizen or resident, or a partnership's or corporation's claim that it is a domestic entity on it incorrect.

New Forms To Be Used

There are four New Forms in the W-8 series. The form to use depends on the type of certification being made. As used in this discussion of NRA withholding, the term Form W-8 refers to the appropriate document.

• Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.
• Form W-8ECI Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States.
• Form W-8EXP Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding.
• Form W-8IMY Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding

Until further notice, you can rely upon Forms W-8 that contain a P.O. box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U.S. person or that a street address is available. You can rely on Forms W-8 for which there is a U.S. mailing address provided you received the form prior to December 31, 2001.

Refer to Documentation for more information.

References

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15A, Employer's Supplemental Tax Guide
• Publication 15B, Employer's Tax Guide to Fringe Benefits
• Publication 51, Circular A, Agricultural Employer's Tax Guide
• Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
• Publication 519, U.S. Tax Guide for Aliens
• Publication 901, U.S. Tax Treaties
• Form SS-4, Application for Employer Identification Number
• Form W-2, Wage and Tax Statement
• Form W-4, Employee's Withholding Allowance Certificate
• Form W-4P, Withholding Certificate for Pension or Annuity Payments
• Form W-7, Application for IRS Individual Taxpayer Identification Number
• Form 941, Employer's Quarterly Federal Tax Return
• Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
• Form 1042-T Annual Summary and Transmittal of Form 1042-S
• Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY