Withholding on payments to nonresidents Nonresident withholding

What’s New?

The governing withholding laws (California Code of Regulations, Title 18, Sections 18662-0 through 18662-6, and Section 18662-8) were revised and are effective as of November 2019. For taxable years beginning January 1, 2020, a pass-through entity that has paid withholding on behalf of a nonresident owner or has been withheld upon must use Form 592-PTE, Pass-Through Entity Annual Withholding Return. This form will allow FTB to allocate the withholding payments to the payee upon receipt of the completed form. Form 592-PTE is due annually, however, payments are still due quarterly. Form 592-Q, Payment voucher for Pass-Through Entity Withholding is for any PTE withholding payment sent to FTB.

You may need to withhold tax if you make nonwage payments. This is called nonresident withholding.

Payers who withhold tax on nonresidents are called withholding agents. Examples of withholding agents:

  • Promoter
  • Rental property manager
  • Partnership or LLC
  • Estate or trust
  • Venue

When you do not have to withhold

You may not have to withhold if:

  • Total payments or distributions are $1,500 or less
  • Paying for goods
  • Paying for services performed outside of California
  • See Publication 1017 for full list of exceptions

Otherwise you must withhold 7% of the nonwage payment that exceeds $1,500 in a calendar year.

When you have to withhold

Payments to nonresidents for services performed in California, like:

  • Construction (independent contractors)
  • Installation of software
  • Public speaking

Payments made to nonresident entertainers for performing in California, like:

  • Actors
  • Athletes
  • Singers

How to avoid penalties

If you do not withhold, you may have to pay the amount you should have withheld, plus penalties and interest.

Check to see if you must withhold

If you have a withholding requirement

Every pay period you make nonwage payments you must:

  • Calculate withholding 7% of nonwage payment above $1500
  • Make payments for specific pay periods by each due date:
    • January 1 through March 21, 2020……..April 15, 2020
    • April 1 through May 31, 2020………………June 15, 2020
    • June 1 through August 31, 2020………….September 15, 2020
    • September 1 through December……..January 15, 2021
  • Per pay period if applicable:
  • If you made nonwage payments to your PTE owners or a foreign nonresident:
  • Submit the applicable form to the payee(s):
    • Nonresident Withholding Tax Statement (Form 592-B)

You’ll be notified if a waiver or reduction is approved.

If you qualify, you can send us your completed statement using our secure web internet file transfer, and pay through electronic funds transfer. If not, you need to:

  • Send us the applicable statement by mail

If applicable, include payment and the correct payment voucher, Form 592-V, Form 592-A or Form 592-Q.