Guidance for Central Withholding Agreements Affected by COVID-19
The IRS recently provided guidance for nonresident alien (NRA) taxpayers with central withholding agreements (CWAs) impacted by events canceled because of coronavirus (COVID-19). Here’s a quick overview.
How the Agreements Work
Generally, Internal Revenue Code Section 1441(a) requires taxes to be withheld at a rate of 30% from a nonresident alien (NRA) individual’s gross U.S. source income from interest, dividends, rent, salaries, wages, compensation, remuneration and emoluments.
Compensation for personal services of an NRA who’s engaged during the tax year in the conduct of a trade or business within the United States may be wholly or partially exempted from the withholding required if a CWA is reached between the IRS and the alien individual with respect to the amount of withholding required. Such agreements are available in the circumstances and in the manner set forth by the IRS and are effective for payments covered by the agreement that are made after the agreement is executed by all parties. The alien individual must agree to timely file an income tax return for the current taxable year.
Under a CWA, tax withholding is calculated on estimated net income, rather than on gross income, and at the graduated tax rates afforded to U.S. resident aliens and U.S. citizens rather than at the 30% rate.
Generally, it’s individual NRA athletes and entertainers who perform or participate in events in the United States that can request a CWA. The IRS will consider entering into a CWA with such individuals if all regulatory requirements are met. Withholding agents are U.S. citizens or foreign persons that have control, receipt, custody, disposal or payment of any item of income of a foreign person who’s subject to withholding.
As mentioned, the CWA program has issued guidance to taxpayers and their representatives who have CWAs impacted by events canceled because of the COVID-19. Taxpayers who have CWA program employees assigned to their CWA applications should contact those employees for further assistance.
A taxpayer whose CWA application hasn’t yet been assigned to a CWA program employee should send a letter containing the applicant’s name, date of application, a brief description of the issue, and name and phone number of their authorized representative via fax to 866-715-1507. If you believe you’re affected, contact your Brady Ware tax advisor for further details.