Withholding of Taxes on Payments to Foreign Persons and Entities

Learn to navigate the myriad of W-8s available for documenting a payee as a foreign person.

Most organizations have procedures in place to correctly and efficiently report certain payments to U.S. persons on Form 1099. However, far fewer organizations are as familiar with the process of reporting certain payments to foreign persons on Form 1042-S. The complexity involved in reporting payments to foreign persons is far greater. While a U.S. person would provide the same W-9 regardless of entity or payment type, a foreign person could provide one of several W-8s (e.g., W-8BEN, W-8BEN-E, W-8ECI) or even a Form 8233. In addition, the type of payments reportable may depend upon sourcing (foreign or U.S.), and the determination to withhold may depend upon an income tax treaty. Lack of adequate documentation and analysis can result in the payer of income being held liable for the 30% withholding tax in addition to penalties and interest. This course will help those responsible for payments to foreign persons navigate the myriad of W-8s available for documenting a payee as a foreign person. In addition, the material will help identify the types of payments reportable on Form 1042-S, including a broad overview of the sourcing rules which determine if a payment is a U.S. or foreign source. This course will also provide guidance on determining if the payee should withhold the payment and, if so, what is the proper withholding rate. This includes the role of income tax treaties. Finally, the material will discuss filing deadlines related to Form 1042-S, withholding tax deposit requirements, and any penalties and interest related to lack of compliance.