IRS Logo
Print - Click this link to Print this page

Who Must Withhold on Partnership Withholding

The partnership, or a withholding agent for the partnership, must pay the withholding tax. A 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.

U.S. Partner

A partner that is a U.S. person should provide Form W-9 to the partnership.

A partnership may rely on a partner's certification of nonforeign status and assume that a partner is not a foreign partner unless the form:

  • Does not give the partner's name, U.S. taxpayer identification number, and address, or
  • Is not signed under penalties of perjury and dated.

The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax.

The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable.

If a partnership does not receive a Form W-9 (or similar documentation) the partnership must presume that the partner is a foreign person.

Foreign Partner

A partner that is a foreign person should provide the appropriate Form W-8 (as shown in the chart below) to the partnership.

Partners who have otherwise provided Form W-8 to a partnership for purposes of IRC sections 1441 or 1442 can use the same form for purposes of IRC section 1446 if they meet the documentation requirements. However, a foreign simple trust that has provided documentation for its beneficiaries for purposes of IRC section 1441 must provide a Form W-8 on its own behalf for purposes of IRC section 1446.

The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable.

The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax.

Amount of Withholding Tax

The amount a partnership must withhold is based on its effectively connected taxable income that is allocable to its foreign partners for the partnership's tax year. However, refer to Publicly Traded Partnerships.

The foreign partner's share of the partnership's gross effectively connected income is reduced by:

  1. The partner's share of partnership deductions connected to that income for the year, and
  2. The partner's tax treaty benefits related to that income.

If a nonresident alien partner's investment in the partnership is the only activity producing effectively connected income and the IRC section 1446 tax is less than $1,000, the partnership is not required to withhold. For information on the certification in this situation, see section 1.1446-6T(c)(1)(iv) of the regulations.

Tax Rate

The withholding tax rate on a partner's share of effectively connected income is 39.6% for noncorporate partners and 35% for corporate partners. However, the partnership may withhold at the highest rate applicable to a particular type of income allocated to a partner, provided the partnership received the appropriate documentation. See section 1.1446-3(a)(2)(ii) of the regulations.

Amount of Installment Payment

A partnership must make installment payments of withholding tax on its foreign partners' share of effectively connected taxable income whether or not distributions are made during the partnership's tax year. The amount of a partnership's installment payment is the sum of the installment payments for each of its foreign partners. The amount of each installment payment can be figured by using Form 8804-W.

Date Payments are Due

Payments of withholding tax must be made during the partnership's tax year in which the effectively connected taxable income is derived. A partnership must pay the IRS a portion of the annual withholding tax for its foreign partners by the 15th day of the 4th, 6th, 9th, and 12th months of its tax year for U.S. income tax purposes. Any additional amounts due are to be paid with Form 8804, the annual partnership withholding tax return.

For additional information on Partnership Withholding on Effectively Connected Income, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

References/Related Topics

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.

Page Last Reviewed or Updated: 09-Sep-2016