Withholding on Specific Income |
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Amounts subject to reporting on Form 1042-S (PDF) are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to withholding, even if no amount is deducted and withheld from the payment. There is a difference between a "withholding requirement" and a "reporting requirement" under NRA withholding. A withholding requirement relates to an amount required to be deducted and withheld from the payment of income paid to a foreign person. A reporting requirement involves the filing of an information return, Form 1042-S, reporting the amounts paid, withheld, and deposited. Amounts subject to reporting on Form 1042-S are amounts paid to foreign persons even if the withholding agent did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the Code, including the exemption for income that is effectively connected with the conduct of a trade or business in the United States.
For additional information, refer to
Effectively Connected Income
Effectively Connected Income is not subject to withholding under this tax regime.
Income Not Effectively Connected (FDAP)
A payment is subject to NRA withholding if it is U.S. source income and it is either FDAP or certain gains. This income is also known as Income Not Effectively Connected. Refer to Fixed, Determinable, Annual, Periodical (FDAP) , for more information.
Specific Types of Income
This section discusses the specific types of income that are subject to NRA withholding. The income codes contained in this section correspond to the income codes used on Form 1042-S.
You must withhold tax at the statutory rates shown below unless a reduced rate or exemption under a tax treaty applies. For U.S. source gross income that is not effectively connected with a U.S. trade or business, the rate is usually 30%. Generally, you must withhold the tax at the time you pay the income to the foreign person.
Withholding Tax Rates
Type of Income
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Rate
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Taxable part of U.S. scholarship or fellowship grant paid to holder of "F," "J," "M," or "Q" visa
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14%
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Taxable part of U.S. scholarship or fellowship grant paid to other nonresident aliens
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30%
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Gross investment income from interest, dividends, rents, and royalties paid to a foreign private foundation
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4%
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Pensions paid to a nonresident alien - part paid for personal services
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Graduated rates in Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide
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Wages paid to a nonresident alien employee
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Graduated rates in Publication 51, Circular A, Agricultural Employer's Tax Guide, or Publication 15, Circular E, Employer's Tax Guide
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Each foreign partner's share of effectively connected income of the partnership
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35%
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Distributions of effectively connected income to foreign partners by publicly traded partnerships
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35%
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Dispositions of U.S. real property interests
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10% (or other amount)
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All other income payments subject to withholding
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30%
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The list below includes some specific types of income, noting withholding requirements and exceptions.
References/Related Topics
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Page Last Reviewed or Updated: October 16, 2008