Withholding Tax From Non-Resident Aliens
Non-resident aliens are subject to tax on US source income that is not effectively connected with a US trade or business.

Gains From US Property Investment
The disposition of a US real property interest by a foreign person (the transferor) is subject to income tax withholding.

Information provided on this site is for general guidance only and is often simplified. Actual IRS procedures are complex, and taxpayers should obtain professional assistance or use IRS sources for complete information.

Withholding Tax From Non-Resident Aliens

Non-resident aliens are subject to tax on US source income that is not effectively connected with a US trade or business. The tax rate is 30%, unless modified by a tax treaty.

Generally, anyone who pays or conveys an item of US source income to an alien individual, or to the individual's foreign or domestic agent, is liable for the tax and must withhold.

A withholding agent is any person required to withhold the tax. This may be an individual, trust, estate, partnership, corporation, government agency, association, or tax-exempt foundation whether foreign or domestic. Withholding agents include US citizens and residents. They also include foreign nominees and fiduciaries that are residents of treaty countries and must withhold additional US tax under tax treaty provisions.

You should withhold any required tax if facts indicate that the individual, or the fiduciary, to whom you are to pay the income is a nonresident alien. However, in some cases, the nonresident alien may be entitled to an exemption from withholding or reduced rate of withholding. Tax need not be withheld if an individual provides a written statement that he or she is a resident or citizen of the United States and there is no reason to believe otherwise.

A US bank that pays income subject to withholding may decide whether to accept an individual's proof of US citizenship or residence given through a foreign bank to which income is paid. If the U.S. bank accepts this proof, it will not be liable for payment of tax if later it is shown that the individual was a non-resident alien. If it accepts the proof, the US bank must file Form 1042-S showing the name, address, identification number, and the particular securities of the actual owner, and indicating that it is relying on proof submitted by the foreign bank as its basis for not withholding.

Generally, all US source income received by a non-US person is subject to withholding. The types of income include but are not limited to the following:

• Interest and dividends;
• Rents and royalties;
• Salaries, wages, and other compensation;
• Premiums, annuities, and pensions;
• Certain scholarships and grants.

Income which is effectively connected with a US trade or business of the recipient is exempt from withholding. The recipient must file Form 4224, exemption From Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States, with the payor to exempt this income from withholding. The recipient of effectively connected income must file a tax return reporting the income.

Income may be subject to reduced withholding under a tax treaty. The foreign person can reduce the amount that must be withheld by providing the withholding agent with Form 1001, Ownership, Exemption, or Reduced Rate Certificate. Upon receipt, the withholding agent may begin withholding at the reduced rate.

Withholding agents must file Form 1042 and Form 1042-S. Form 1042 is the withholding agent's return showing amounts of income paid and taxes withheld. A copy of Form 1042-S is sent to the recipient showing the amount of income received and tax withheld. Withholding agents must file Form 1042 and the associated Forms 1042-S by the March 15th after the close of the calendar year. These forms must be filed on a calendar year basis, regardless of the withholding agent's tax year.

Form 1042 is a summary of all income paid and tax withheld on persons subject to withholding. It must be prepared in duplicate. The original should be filed with the Philadelphia Service Center and the copy retained by the withholding agent. All amounts should be stated in US dollars.

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Withholding Tax From Non-Resident Aliens
Non-resident aliens are subject to tax on US source income that is not effectively connected with a US trade or business.

Gains From US Property Investment
The disposition of a US real property interest by a foreign person (the transferor) is subject to income tax withholding.