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Individual Tax

IRS Releases new Simplified Application for Central Withholding Agreements

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has released a new simplified “central withholding agreement” application. The new form—Form 13930-A, Application for Central Withholding Agreement Less than $10,000—is for use by nonresident alien athletes and entertainers who have less than $10,000 of U.S. gross income.

Background

Generally, Code Sec. 1441(a) requires taxes to be withheld at a rate of 30% from a nonresident alien individual’s (NRA) gross U.S. source income from interest, dividends, rent, salaries, wages, compensation, remuneration and emoluments.

However, an NRA’s compensation for personal services from the conduct of a trade or business within the U.S. may be wholly or partially exempt from withholding if the NRA enters into a central withholding agreement (CWA) with the IRS regarding the amount of withholding required. (Reg §1.1441-4(b)(3))

Under a CWA, tax withholding is computed on estimated net income, rather than on gross income, and at the graduated tax rates afforded to U.S. resident aliens and U.S. citizens rather than at the 30% rate. (Instructions, Form 13930-A)

Individual NRA athletes and entertainers (NRAAEs) who perform or participate in events in the U.S. can request a CWA. The IRS will consider entering into a CWA with an NRAAE if all the requirements in Rev Proc 89-47, 1989-2 CB 598, are met.

Withholding agents are U.S. or foreign persons that have control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. (https://www.irs.gov/individuals/international-taxpayers/withholding-agent)

Beginning October 1, 2018, IRS required NRAAEs to have at least $10,000 of U.S. gross income to apply for a CWA using Form 13930, Application for Central Withholding Agreement. (Instructions, Form 13930)

New simplified CWA application

NRAAEs with gross income of less than $10,000 may now apply for a CWA using new Form 13930-A.

To apply for a CWA on Form 13930-A, an NRAAE must:

  1. Provide a social security number (SSN) or apply for an SSN while in the U.S.;
  2. File any required tax returns for prior years (these returns must have posted to the NRAAE’s account as of the CWA submission date to be considered filed for CWA purposes);
  3. Pay or arrange to pay taxes due for all years;
  4. Agree to timely file, and pay the taxes shown on, Form 1040R or Form 1040NR(EZ) for the year of the CWA.

In addition, designated withholding agents must: (1) sign the CWA and agree to comply with its the terms; (2) be independent third parties unrelated to the NRAAE or entities owned by the NRAAE; (3) withhold the tax as required by the CWA; and (4) have a U.S. bank account and make any required payments through Pay.gov.

Observation

A designated withholding agent is a person who is designated as a withholding agent by an NRAAE.

When to apply

Form 13930-A must be submitted at least 45 days before the first event covered by the CWA, or it will be denied.

How to apply

The NRAAE must complete Form 13930-A, the declaration page and provide any other information and attachments listed in the Form 13930-A instructions. All the required documents should be included in a single PDF.

The designated withholding agent must submit the completed Form 13930-A and accompanying documents electronically with the advance withholding payment via Pay.gov (search for Form 13930-A). Form 13930-A cannot be filed on paper.

An authorized representative may apply for the NRAAE

If an authorized representative applies for the CWA on behalf of the NRAAE, the IRS requires a Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, that authorizes the IRS to discuss tax matters with the NRAAE’s representative. The disclosure authorization (Form 2848 or Form 8821) must be signed by the NRAAE.

To continue your research on withholding on income of nonresident alien employees, see FTC 2d/FIN ¶H-4436; United States Tax Reporter ¶14,414.

 

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