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The "How-To" on Two Withholding Issues:
Pass-Through Withholding and Withholding on Group Returns
Under California law, there are various reasons why pass-through entities such as S corporations partnerships, and limited liability companies (LLCs) classified as partnerships, may have taxes withheld from payments made to them.
If a pass-through entity had money withheld and remitted to us by another entity, it can:
- Allocate the entire withholding credit to all its shareholders, partners, or members.
- Claim a portion (not to exceed the total tax and fee due) of the withholding credit on the line of its tax return.
- Use a combination of both of the above.
As a result, pass-through entities may themselves be required to file Form 592, Resident and Nonresident Withholding Statement, with us to report pass-through withholding credits.
The Group Nonresident Return
Certain nonresident individual owners of S corporations, partnerships, or LLCs may elect to file a group nonresident return using Long Form 540NR, California Nonresident or Part-Year Resident Income Tax Return, in which case the business entity would file a group nonresident return for their qualified nonresident pass-through entity owners.
Much like estimate payments, in order for withholding to be credited to a nonresident group return, the proper Form 592 showing the allocation of these withholding credits, needs to be filed. If Form 592 is not filed, withholding may not be properly credited to the group nonresident return.
If the withholding credit was not allocated to the nonresident group return, you will need to use Schedule 1067A, Nonresident Group Return Schedule, to allow us to move withholding credits to the group. It will take us six to eight weeks to move the withholding credits and make them available to be claimed on the group return.
FTB Pub. 1067, Guidelines for Filing a Group Form 540NR, contains information regarding the Group Nonresident Returns. You can get FTB Pub. 1067, along with other California tax forms and publications at ftb.ca.gov. You may also call 916.845.3465 for more information.
Our Withholding Services and Compliance Section offers free webinars that cover a variety of withholding topics to help our customers understand California withholding requirements. To view our pre-recorded webinars, go to ftb.ca.gov, and search for withholding webinars.
Steve Sims, EA
Taxpayers’ Rights Advocate
Follow me on Twitter at twitter.com/FTBAdvocate.
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