If you are a non-resident alien entertainer or athlete (“Performer”) performing personal services or participating in sporting events in the United States, your U.S. income tax will generally be withheld at a rate of 30% of your gross income. However, you may be able to enter into an agreement with the U.S. government, through the Internal Revenue Service (IRS) to significantly reduce your withholding, under certain conditions.
What is A Central Withholding Agreement?
A Central Withholding Agreement (CWA) is a tool that can help performers who don’t live in the US, but plan on working here. A CWA is an agreement to have U.S. income tax withheld based on the non-resident’s income. A CWA is a contract between the IRS, the performer, and a designated “withholding agent” that covers a specific tour, or series of events within a given tax year. The agreement is not effective until all three parties have signed it.CWAs are available only to individuals, not businesses; and do not apply to resident aliens.
If the nonresident performer obtains a CWA, the IRS will estimate the actual tax owed by the artist or performer for the event(s) or tour, and this amount will be withheld from his/her/they income – as opposed to withholding 30% of the gross income.
The withholding agent may be the performer’s agent, manager, promoter, accountant, attorney or anyone independent of the artist and acceptable to the performer and the IRS. A withholding agent may be an individual, corporation, partnership, trust, association, including a foreign intermediary, foreign partnership, or other identified entities. A withholding agent is the person responsible for withholding on payments made to a foreign person. The agent is required to withhold and forward to the IRS withholding tax according to the terms of the CWA and provide a final accounting of the artist’s income and expenses.
When a CWA has been fully executed and signed by all parties, the designated withholding agent assumes responsibility for withholding and reporting tax on the entire tour or event(s), relieving all other agents from withholding. The withholding agent is personally liable for any tax required to be withheld. This liability is independent of the tax liability of the foreign person on behalf of whom the payment is made. If the agent fails to withhold, and the foreign person fails to satisfy its U.S. tax liability, then both parties are liable for tax, as well as interest and penalties.
What Are The Benefits In Obtaining A CWA?
While there is no requirement that a performer obtain a CWA; it is certainly an attractive option for performers who wish to reduce their withholding rate. In short a CWA achieves the following:
- Designates a single withholding agent to withhold and deposit an agreed upon amount;
- Allows the IRS to evaluate the income and expense budget, to determine a potential net taxable income of the personal services provided,
- Determines withholding based on the graduated tax rates used on the tax return
The IRS estimates the performer’s actual tax liability for the U.S. income earned. For nonresident performers making less than $10,000 in a calendar year, they can apply for a Simplified CWA. Anyone exceeding $10,000 must apply for the traditional CWA.
Salaries, wages, or any other pay for employee services (referred to collectively as wages) paid to the performer are subject to graduated withholding in the same way as for U.S. citizens and resident aliens. However, a performer may deduct certain business expenses from his or her taxable income. For example, training expenses a combat athlete incurs in preparation for a specific bout are allowed as deductible while estimating tax liability for the purposes of a CWA, if it is determined that they are associated with the income earned in the U.S.
What Do I Need To Obtain A CWA?
In order for a CWA application to be accepted for processing, it must include the following minimum information:
- Application Form to include at least:
- Name of the performer to be covered
- SSN or ITIN of NRA, if known
- Tour event or event to be covered
- Penalty of perjury statement signed by either a valid Form 2848 holder or by the Non Resident Alien (NRA).
- Form 2848 or Form 8821
- Preliminary Itinerary for the Events
- Preliminary budget for income and expense
As to the performer, the IRS requires that the performing artists be listed on the CWA application itself, while the non-performing personnel should be listed on an attached information sheet. As to the budget, it should include the following information:
- All U.S. Income:
- Hotel/Accommodations: how many rooms, cost per room, for which dates);
- Travel Expenses: each flight, the number of tickets to be purchased and the departure and destination city.
- Per Diems: The IRS will allow an artist to claim only 50% of his per diem as a deduction – the other 50% is considered income to the artist; allowable per diem is limited by the current government per diem rate, which varies from city to city,
- Instrument Rental/Backline:
You must also submit a cover letter which must be signed directly by each artist requesting a CWA. In order to apply for a CWA, the performer’s previous US income tax returns must be filed and US taxes must be paid. If the performer has performed in the U.S. in previous years, he/she/they must have filed U.S. tax returns for those years of reporting income. If not, the performer must do so before being eligible for a CWA. The performer must agree to timely file a U.S. tax return for the current tax year.
A nonresident alien athlete or entertainer must file a U.S. tax return (Form 1040-NR) for any tax year the performer was engaged in trade or business in the U.S or has other income subject to taxation regardless as to profit or loss. CWA applications must be faxed to 866-715-1507 or mailed to the following address:
Central Withholding Agreement Program
850 Trafalgar Court, Ste 200
Maitland, FL 32751-4153
Requests for a CWA must be received by the IRS at least 45 days prior to the first event to take place in the US.