Withholding on Pass-Through Entity Owners
Pass-through entity owners are S corporation shareholders, partners, or members.
Domestic nonresident pass-through entity owners
S corporations, partnerships, and limited liability companies (LLCs) must withhold 7 percent on distributions of California source income made to domestic nonresident pass-through entity owners when distributions to a particular pass-through entity owner exceed $1,500 for the calendar year.
S corporations, partnerships, and LLCs that withhold on domestic nonresident pass-through entity owners must:
- Send us the withheld amounts using Form 592, Resident and Nonresident Withholding Statement, and Form 592-V, Payment Voucher for Resident and Nonresident Withholding.
- Provide pass-through entity owners with either an electronic Form 592-B or a paper Form 592-B, Resident and Nonresident Withholding Tax Statement, at the end of the calendar year to show the total amount distributed to each owner and the total amount withheld.
Nonresident pass-through entity owners can request a withholding reduction or waiver using one of the following:
- Electronic Form 589, Nonresident Reduced Withholding Request
- Paper Form 589, Nonresident Reduced Withholding Request
- Form 588, Nonresident Withholding Waiver Request
If we approve or deny the request, we will provide a letter stating the reduced withholding amount or a letter of denial. See the form instructions for more details.
Foreign pass-through entity owners
Partnerships and LLCs must withhold on allocations of California source income to foreign partners and members. Withhold at the maximum California tax rate applicable. For details on tax rates, see instructions on Form 592-A, Payment Voucher for Foreign Partner or Member Withholding.
Partnerships and LLCs that withhold on foreign partners or members must:
- Send us the withheld amounts using Form 592-A.
- Complete Form 592-F, Foreign Partner or Member Annual Return, and send it to us at the close of the taxable year. Form 592-F allows reporting of total withholding for the year and allocates the income or gain and related withholding to foreign partners or members.
- Provide foreign partners and members with Form 592-B, Resident and Nonresident Withholding Tax Statement, at the end of the calendar year to show total amount distributed and the total amount withheld.
Foreign partners and members can request reduced withholding using either electronic Form 589 or paper Form 589, Nonresident Reduced Withholding Request. Foreign partners and members cannot request waived withholding.
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