Income Subject to NRA Withholding
Amounts subject to reporting on Form 1042-S (PDF) are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to withholding, even if no amount is deducted and withheld from the payment. There is a difference between a "withholding requirement" and a "reporting requirement" under NRA withholding. A withholding requirement relates to an amount required to be deducted and withheld from the payment of income paid to a foreign person. A reporting requirement involves the filing of an information return, Form 1042-S, reporting the amounts paid, withheld and deposited. Amounts subject to reporting on Form 1042-S are amounts paid to foreign persons even if the withholding agent did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the IRC, including the exemption for income that is effectively connected with the conduct of a trade or business in the United States.
For additional information, refer to
- Who Must File
- Amounts Subject to Reporting on Form 1042-S
- Amounts That Are Not Subject to Reporting on Form 1042-S
Income Subject to Withholding
A payment is subject to NRA withholding if it is from sources within the United States, and it is either:
- Fixed or determinable, annual or periodical (FDAP) income, or
- Certain gains from the disposition of timber, coal, and iron ore, or from the sale or exchange of patents, copyrights, and similar intangible property.
In addition, a payment is subject to NRA withholding if withholding is specifically required, even though it may not constitute U.S. source income or FDAP income. For example, corporate distributions may be subject to NRA withholding even though a portion of the distribution may be a return of capital or capital gain not otherwise subject to NRA withholding.
Amounts Not Subject to NRA Withholding
Amounts not subject to NRA withholding are in some cases still subject to NRA reporting on form 1042-S. Even though these payments fit the broad definition of FDAP, the following amounts are not subject to NRA withholding. Each of these subjects is discussed in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities under the heading of Withholding on Specific Income.
- Portfolio interest on certain bearer obligations issued before March 19, 2012 or foreign-targeted registered obligations if those obligations meet certain requirements.
- Interest on deposits - bank deposit interest that is not effectively connected with the conduct of a U.S. trade or business.
(However, beginning in 2013, information reporting has been extended to interest earned by residents of foreign countries other than Canada. Deposit interest of $10 or more paid to any nonresident alien individual who is a resident of a foreign country with which the United States has agreed to exchange tax information pursuant to an income tax treaty or other convention or bilateral agreement, must be reported on Form 1042-S. See Rev. Proc. 2012-24, Implementation of Nonresident Alien Deposit Interest Regulations.)
- Original issue discount on obligations payable 183 days or less from the date of original issue (Refer to Short Term Original Issue Discount (OID) Interest).
- Original issue discount paid on the sale of an obligation other than a redemption (Refer to Original Issue Discount (OID) Interest).
- Amounts paid as part of the purchase price of an obligation sold between interest payment dates (Refer to Sales of Bonds Between Interest Dates).
- Nonbusiness gambling income of a nonresident alien playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States (Refer to Gambling winnings).
- Insurance premiums paid on a contract issued by a foreign insurer.
Source of Income
Generally only U.S. source income is subject to NRA withholding and if an item of income is foreign source, it is not subject to NRA withholding. Refer to Source of Income for an explanation of U.S. source income.
Fixed or Determinable, Annual or Periodical Income (FDAP)
With a few exceptions for specified gains, generally, NRA withholding applies to fixed or determinable annual or periodical income (FDAP). Refer to Fixed or Determinable, Annual or Periodical Income (FDAP) for a description.
Withholding on Specific Income
For withholding requirement on common types of income, refer to Withholding on Specific Income.