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State of California Franchise Tax Board

Nonwage Withholding Basics

What’s new?

  • Beginning January 4, 2016, view available nonwage withholding credits and electronically submit Form 588, Nonresident Withholding Waiver Request, through MyFTB.
  • FTB 1016 – Real Estate Withholding Guidelines
  • FTB 4035 – California Real Estate Withholding Trusts
  • FTB 4065 – Quick Reference Guide – California Real Estate Withholding Forms

Nonwage Withholding

Nonwage withholding is a prepayment of the income (or franchise) tax due on the payments or distributions of California source income, similar to an estimated tax payment or wage withholding.

Nonwage Withholding Programs

We administer the following nonwage withholding programs under the California Revenue and Taxation Code (R&TC) Section 18662, 18664, and 18666:

  • Sales of California Real Estate
  • Trusts and Estates Distributions
  • Partnerships and LLC Distributions or allocable share
  • Payments to Nonresidents
  • Backup Withholding
  • Tribal Withholding

FTB’s nonwage withholding programs do NOT apply to:

  • Wages paid to employees (Employment Development Department)
  • Payments for goods and materials
  • Sales of real estate located outside of California
  • We administer the following nonwage withholding compliance programs under the California Revenue and Taxation Code (R&TC) sections 18668 and 19504:

    • We assess withholding liabilities, penalties, and interest on withholding agents who fail to comply with California's nonwage withholding requirements.
    • We conduct audits of withholding agents to determine if they are in compliance with California’s nonwage withholding requirements. (These audits do not involve the determination of additional tax owed on an income tax return.)

    In addition, Withholding Voluntary Compliance Program (WVCP) is a voluntary program for eligible withholding agents to remit past-due, nonwage withholding for the previous two calendar years (look-back period), plus interest.

Are you paying California source income to a nonresident but are unsure if you need to withhold? Use the Nonresident Self Test to help you determine if you have a withholding requirement.

Have withholding credits not been properly applied to your account? There may have been an issue with the form your withholding agent provided. Here are some reasons why withholding credits may have not been applied correctly:

  • Incorrect taxable year on the form
  • Form is incomplete or inaccurate
  • No information sent with your payment to properly allocate the funds

Give us a call or log on through MyFTB and we can assist you with resolving these types of issues.

Buyer – Refers to the buyer or any other transferee of real property.

Entertainment industry independent contractors – Can be individuals, corporations, limited liability companies (LLCs), or partnerships. They include, but are not limited to: actors, bands, boxers, dance teams, orchestras, plays, singers, speakers, sports entertainers, wrestlers, stage help, lighting crews, promoters, talent agents.

Estate – The net worth of a person at any point in time alive or dead.

Financial institution – A depository institution (i.e., any bank or savings association), an institution-affiliated party (i.e., any director, officer, employee, or controlling shareholder), or a federal or state credit union.

Independent contractor – An independent contractor is an individual or entity that contracts to perform services. Employees are not independent contractors.

Nonresident – A person not living in California.

Nonwage compensation – Nonsalary compensation in addition to regular salary. Examples include, but are not limited to: real estate transactions, interest and dividends, rents and royalties, prizes and winnings, premiums and annuities, compensation for personal services, and other fixed or determinable annual or periodic gains, profits, and income

Payee – For purposes of our withholding tax forms, we use the term “payee” to describe any person or entity that receives payment from a payer (see more at "Withholding agent" below). We may also refer to the payee as the “vendor.” Payees may be residents or nonresidents of California.

Payer – A payer is an individual, a business, or a government entity that makes payments to a payee. Payers are also known as withholding agents.

Real Estate Escrow Person (REEP) – A REEP is any attorney, escrow company, or title company responsible for closing the transaction, or any other person who receives and disburses the consideration or value for the interest or property conveyed.

Seller – Refers to the seller or any other transferor of real property.

Transferor – The side which initiated the transfer for a land title, security ownership, etc.

Trust – Confidence placed in a person by making that person the nominal owner of property to be held or used for the benefit of one or more others.

Withholding agent – A withholding agent is any person or entity having the control, receipt, custody, disposal, or payment of California source income. We also refer to withholding agents as “payers.”

 

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