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Should I Withhold on Payments I Make to Others?

California law requires withholding at a rate of 7 percent, on California source income payments and distributions, made to nonresident payees that exceed $1,500 in a calendar year. It is important to comply with the withholding requirement because if you don’t, you may be liable for the amount you should have withheld, plus penalties and interest.

General Rules

Nonresident withholding applies if all of the following are true:

  • You are responsible for the payment or distribution of California source income.
  • The payment or distribution will exceed $1,500 in the calendar year.
  • The payment or distribution is made to, or for the services of, a resident of another state.

Nonresident withholding is not required on any of the following:

  • Wages paid to employees.
  • Payments for goods, supplies, and merchandise.
  • Payments for services performed outside of California.

Complete the self-test to find out if you are required to withhold on an upcoming payment or distribution. To proceed select the appropriate option and continue.

Self Test

Nonresident withholding applies to:

  • Payments for services performed in California.
  • Payments of nonwage income (rent, lease, royalties, etc.) from California sources.
  • Distributions of California source income from a pass-through entity.
Are you responsible for the payment or distribution of California source income?