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Companies or businesses that make payments to non-resident aliens for U.S source income are required to withhold international withholding tax, or non-resident alien withholding tax as it more commonly referred to. In general, foreign persons are subject to US taxes on their US source income; most types of US source income received by foreign persons are subject to a US tax rate of 30 percent. However, in some circumstances the nonresident alien or foreign person may be entitled to an exemption or a reduced tax rate. Potential exemptions or rate reductions depend upon the nationality of the nonresident alien or foreign person, and if the United States has a tax treaty with that country or not.
Withholding and Reporting Obligations
Businesses that are required to withhold taxes from the pay of nonresident aliens are required to report payments to nonresident aliens on form 1042-S, and then file a tax return on form 1042. All nonresident alien, or foreign person, payees are required to apply for a ITIN, or individual taxpayer identification number, that is to be used in lieu of a Social Security number. Companies employing nonresident aliens or foreign persons should have the employee apply for an ITIN by filling out IRS Form W-7.
Depositing International Withholding Taxes
Companies can deposit taxes withheld from nonresident aliens or foreign persons either electronically or with their local bank. In order to make electronic deposits, businesses must use the Electronic Federal Tax Payment System, or EFTPS, to make deposits of withholding taxes held from nonresident aliens. Some larger companies are actually required to deposit their taxes electronically; businesses that have an annual withholding tax liability of more than $200,000 (from all sources whether U.S citizens, resident aliens or nonresident aliens), are required to file and make deposits electronically
If a business is not required to make electronic deposits of withholding taxes, a business may use federal tax deposit coupons and make their withholding tax deposits at their local bank. Almost all FDIC insured banks are authorized to accept withholding tax deposits for all classes of workers - including nonresident aliens or foreign persons.
In addition, businesses that are required to withhold income taxes from nonresident aliens can forward collected withholding taxes to the Financial Agent of the Internal Revenue Service. Businesses that wish to forward taxes collected by mail can do so by sending a check or money order made payable to Financial Agent to:
Federal agent
Federal tax deposit processing
P.O. Box 970030
St. Louis, MO 63197, USA
The above are the only accepted institutions, and types of institutions, that are allowed to collect international withholding taxes. If you require further information on international withholding taxes, you should contact a tax accountant or visit the IRS website.
Withholding and Reporting Obligations
Businesses that are required to withhold taxes from the pay of nonresident aliens are required to report payments to nonresident aliens on form 1042-S, and then file a tax return on form 1042. All nonresident alien, or foreign person, payees are required to apply for a ITIN, or individual taxpayer identification number, that is to be used in lieu of a Social Security number. Companies employing nonresident aliens or foreign persons should have the employee apply for an ITIN by filling out IRS Form W-7.
Depositing International Withholding Taxes
Companies can deposit taxes withheld from nonresident aliens or foreign persons either electronically or with their local bank. In order to make electronic deposits, businesses must use the Electronic Federal Tax Payment System, or EFTPS, to make deposits of withholding taxes held from nonresident aliens. Some larger companies are actually required to deposit their taxes electronically; businesses that have an annual withholding tax liability of more than $200,000 (from all sources whether U.S citizens, resident aliens or nonresident aliens), are required to file and make deposits electronically
If a business is not required to make electronic deposits of withholding taxes, a business may use federal tax deposit coupons and make their withholding tax deposits at their local bank. Almost all FDIC insured banks are authorized to accept withholding tax deposits for all classes of workers - including nonresident aliens or foreign persons.
In addition, businesses that are required to withhold income taxes from nonresident aliens can forward collected withholding taxes to the Financial Agent of the Internal Revenue Service. Businesses that wish to forward taxes collected by mail can do so by sending a check or money order made payable to Financial Agent to:
Federal agent
Federal tax deposit processing
P.O. Box 970030
St. Louis, MO 63197, USA
The above are the only accepted institutions, and types of institutions, that are allowed to collect international withholding taxes. If you require further information on international withholding taxes, you should contact a tax accountant or visit the IRS website.
