Tax Withholding Types
For information on withholding and employment taxes on payments to foreign persons located in the U.S. and U.S. persons abroad, refer to the following:
- Pay for Personal Services Performed
- Federal Income Tax Withholding
- Social Security Tax / Medicare Tax and Self-Employment
- Federal Unemployment Tax
Pensions and Annuity Withholding
Generally, pension and annuity payments are subject to federal income tax withholding. The withholding rules apply to the taxable part of payments from an employer pension annuity, profit-sharing, stock bonus, or other deferred compensation plan. The rules also apply to payments from an Individual Retirement Arrangement (IRA), an annuity, endowment, or life insurance contract issued by a life insurance company. There is no withholding on any part of a distribution that is not expected to be includible in the recipient's gross income.
Generally, backup withholding applies only to U.S. citizens, resident aliens and not to nonresident aliens (NRA).
The payer must backup withhold 28% from a reportable payment made to a U.S. person that is subject to Form 1099 reporting if:
- The U.S. person has not provided its TIN in the manner required,
- The IRS notifies you that the TIN furnished by the payee is incorrect,
- There has been a notified payee under-reporting,
- There has been a payee certification failure, or
- If the status of the payee as a foreign person or a U.S. person cannot be determined, under IRC section 1441 regulations – Presumption Rules
The payer who neglects or refuses to do backup withholding when required will himself be held liable for the amount of the backup withholding which should have been withheld from any payments.
Withholding of Tax on Nonresident Aliens and Foreign Corporations
(Chapter 3 of the Internal Revenue Code)
This area is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Specifically, it describes the persons responsible for withholding (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. It discusses the rules that apply generally to payments of U.S. source income to foreign persons.
Other areas related to IRC Chapter 3 withholding are dispositions of U.S. real property interests and the withholding by partnerships on income effectively connected with the active conduct of a U.S. trade or business. They are discussed in separate areas as shown below.
- NRA Withholding -Withholding on payments of U.S. source income to foreign persons.IRC section 1441 to 1443 (Form 1042)
- Withholding of Tax on Dispositions of United States Real Property Interests - FIRPTA. IRC section 1445
- Partnership Withholding - Withholding Tax on Foreign Partners' Share of Effectively Connected Income. IRC section 1446
- Tax Withholding on Foreign Persons
- Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
- Publication 1281, Backup Withholding For Missing And Incorrect Name/TIN(S) (PDF)
- Publication 505, Tax Withholding and Estimated Tax
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.