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Withholding on nonresident S corporation shareholders


To advise staff that 18,000 letters were mailed to S corporations with nonresident shareholders on December 1, 2006. The letters are notification of our withholding requirements beginning with tax year 2007 and future distributions made on or after January 1, 2007.


S corporation withholding requirements apply to distributions of California source income for tax year 2007 and future years. S corporations making year-end distributions of income properly reportable for the nonresident shareholder’s 2006 tax year are not required to withhold from this distribution, although they may optionally do so in accordance with FTB's existing procedures for partnership withholding. See FTB Publication 1017, questions 54 and 55.

For distributions made on or after January 1, 2007, representing California source income for tax year 2007 or later, an S corporation must withhold on distributions made to nonresident shareholders.

The nonresident shareholder withholding requirements are:

  • Seven percent from all distributions made exceeding $1,500 for a calendar year.
  • Withholding payments are due by January 31 of the following year when the withholding payment is under $2,500.
  • Withholding payments are due by the 20th day of the following month when the withholding payment exceeds $2,500.

CR&TC Section 18662 and the related regulations 18662-1 through 18662-14.


Withholding is reported on the following withholding forms:

  • Form 592, Nonresident Withholding Annual Return
  • Form 592-A, Nonresident Withholding Remittance Statement
  • Form 592-B, Nonresident Withholding Tax Statement

These forms can be found on the FTB Website,


Withholding is not required if one of the following exceptions are met:

  • The shareholder is a California resident.
  • The shareholder has a permanent place of business in California.
  • The total distributions of 2007 and later California source income to the shareholder are less than or equal to $1,500 for the calendar year.
  • The shareholder receives a withholding waiver from FTB.
  • The distribution is exempt income.
  • The shareholder has certified that income was previously reported on the shareholder's California tax return.


If a nonresident shareholder is currently filing California income tax returns, either the shareholder or the S corporation can request a waiver of withholding requirements using Form 588, Nonresident Withholding Waiver Request. Complete Form 588 and attach any supporting documentation to the request.

If sufficient information is not provided, the FTB may request additional information or deny the waiver.


S corporations that fail to withhold, under withhold, or fail to send the amounts withheld to FTB are liable for the greater of:

  • The amount actually withheld.
  • The amount of taxes due from the shareholders or partners.

But, not more than the amount required to be withheld.

In addition, the S corporation is liable for penalties and interest as if the withholding due to the FTB is the S Corporation’s tax liability.

For more information regarding withholding penalties, see FTB Publication 1017, Nonresident Withholding S Corporation and Partnership Guidelines.


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