Withholding Tax on Foreign Partners' Share of Effectively Connected Income – IRC Section 1446 A partnership (foreign or domestic) that has income effectively connected with a U.S. trade or business (or income treated as effectively connected) must pay a withholding tax on the effectively connected taxable income that is allocable to its foreign partners. The tax rate for such withholding varies depending on whether the foreign partner is a corporation, in which case the rate is the highest rate of tax specified in IRC 11(b). In case of foreign partners that are not corporations, the rate is the highest rate of tax specified in IRC 1. Note: The withholding tax rate for effectively connected income allocable to non-corporate foreign partners is 37%, and 21% for corporate foreign partners. A publicly traded partnership must withhold tax on actual distributions of effectively connected income. Chapter 4 withholding does not apply to this income. This withholding tax regime under IRC section 1446 does not apply to income that is not effectively connected with the partnership's U.S. trade or business (i.e., it does not apply to FDAP income). FDAP income is subject to the NRA withholding tax regime, Forms 1042/1042-S, under which withholding is required under Internal Revenue Code Chapter 3 sections 1441, 1442, and 1443. This withholding tax regime requires 30% withholding on a payment of U.S. source income to a foreign person. The partnership, or a withholding agent for the partnership, must pay the withholding tax. The partnership that must pay the withholding tax but fails to do so may be liable for the payment of the tax and any penalties and interest. See Who Must Withhold on Partnership Withholding for further information. The partnership must use Form 8813, Partnership Withholding Tax Payment Voucher (Section 1446), to make payments of withheld tax to the U.S. Treasury. The withholding tax liability of the partnership for its tax year is reported on Form 8804, Annual Return for Partnership Withholding Tax (Section 1446). Form 8804 must have attached Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, that has been completed for each foreign partner and mush include the payment of any additional tax owed under IRC 1446. The partnership must provide the foreign partners with a copy of Form 8805 even if no IRC 1446 tax is paid by the partnership. See Reporting and Paying Tax on Partnership Withholding for further information. References/Related Topics Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities Helpful Hints for Partnerships With Foreign Partners Who Must Withhold on Partnership Withholding Reporting and Paying the Tax on Partnership Withholding Publicly Traded Partnerships Effectively Connected Income (ECI) U.S. Tax Withholding on Effectively Connected Income Allocable to Foreign Partners Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.