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Video Transcript – You Could Be a Withholding Agent

Attention small businesses!
Do you pay more than $1,500 for out-of-state services?
Then you could be a Withholding Agent!

Let’s talk about Withholding Agents. It sounds like a pretty fancy title, maybe something you probably have to take a test for, get a license, sign up for classes. Pretty official sounding right?

Well, the fact is, anyone can be a Withholding Agent. Generally speaking, if you live in California and hire someone from out-of-state for services, then you are required to withhold 7 percent of the payment for taxes to California.

Let’s take a look at an example of a Withholding Agent:

Eric Smith owns Giggles, a comedy club in Santa Monica. He enters into a contract with comedian Roger Dillard from Nevada for 3 performances for $11,000.

Since Giggles pays a California nonresident for more than $1,500, it becomes a Withholding Agent under California withholding law.

Therefore, Giggles is required to withhold 7 percent of the $11,000 and pay $770 to the Franchise Tax Board.

Roger Dillard receives the remaining $10,230 for his services. 

Basically the responsibility lies on you, the person paying for the services, to keep track of the taxes owed to California for out-of-state workers.

Of course there are some exceptions and details that need to be understood, like the payment must exceed $1,500 per calendar year before you’re required to withhold the 7 percent withholding tax. And there are ways to qualify for a waiver or reduction of this withholding tax. Just head over to our website at ftb.ca.gov.

But to simplify it, a Withholding Agent is a California resident or business who hires someone from another state. It’s your responsibility to keep track of the taxes owed to California.

For more information or any other tax questions, go to ftb.ca.gov.


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