Withholding of Tax

Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income paid to a foreign person are subject to a U.S. withholding tax of 30 percent. A reduced rate, including exemption from tax, may apply by virtue of an Internal Revenue Code section or a provision of a tax treaty between the foreign person's country of residence and the United States. The NRA withholding tax is generally withheld from the payment made to the foreign person.

The term "NRA withholding" is used in this area descriptively to refer to withholding required under IRC sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires 30 percent withholding on a payment of U.S. source income. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding.

In referring to NRA withholding in this area, it does not include withholding done under section 1445 of the Internal Revenue Code dealing with Withholding of Tax on Dispositions of U.S. Real Property Interests (FIRPTA) or under section 1446 of the Internal Revenue Code dealing with Withholding Tax on Foreign Partners’ Share of Effectively Connected Income (Partnership Withholding).

A withholding agent must withhold 30 percent of any payment subject to NRA withholding, made to a payee that is a foreign person. A withholding agent that can reliably associate the payment with documentation that establishes that the payee is a U.S. person is not required to withhold under NRA withholding. However, the payment may be subject to the withholding rules of another withholding regime, such as Backup Withholding. In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if the withholding agent can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding under a provision of the Internal Revenue Code or a provision of a tax treaty.

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.