If you are a nonresident alien (non US citizen) entertainer performing in the US, you are subject to 30% tax withholding from gross income. There are situations in which the withholding requirement does not apply (certain corporations, nonprofit organizations, and certain treaty provisions), but generally most artists should take advantage of central withholding agreements (CWA) with the US Internal Revenue Service (IRS) to reduce this withholding amount.
A CWA is an agreement entered into by the entertainer, a designated withholding agent, and an authorized representative of the IRS. The agreement can cover one event or a tour and the withholding percentage required will be based on an income/expense budget provided by the artist, indicating net profit/loss. In order to access a CWA, your previous US income tax returns must be filed and US taxes paid (or you have arrangements to pay). You also must file a US tax return for the year in which the CWA is granted.
A designated withholding agent must be a completely independent third party (often, it is a venue, agent, manager, accountant, attorney, etc.). The agent is required to withhold and forward to the IRS withholding tax according to the terms of the CWA and provide a final accounting of the artist’s income and expenses.
The advantages of a CWA is that it allows for one withholding agent (rather than several, as on a tour) and the withholding percentage is based on the estimated ultimate tax liability, rather than the blanket 30% withholding required by law. Only individuals may apply for a CWA and for groups of artists in a band or other ensemble, each artist must apply separately.
Filing a CWA application should include:
- Application form 13930
- Itinerary of events to be covered by the CWA
- Income/expense budget with contracts, deal memos, projected merchandise sales, etc.
- Power of Attorney or Appointment of Representative form
The regulations for applying are extremely strict in regard to the application date. If the application is received less than 45 days prior to the first event on the CWA application, it will be rejected. The optimum time to apply for a CWA is 90 days before the first event. If you cannot meet these deadlines and the 30% is withheld, you can always apply for a refund (if one is applicable) by filing a US tax return for the year in which you had monies withheld.
When a CWA has been fully executed and signed by the entertainer, the designated withholding agent, and the representative of the IRS, the designated withholding agent assumes responsibility for withholding and reporting tax on the entire tour or event, relieving all other withholding agents from withholding, and eliminating the chances of over-withholding.
Sometimes a foreign entertainer will try to rely on the submission of W-9 or W-8BEN forms or assume that they can rely on a tax treaty provision that allows a certain level of tax-free income. Strictly speaking, the W-9 or W-8BEN form does not negate the withholding because the income is treated as flowing directly to the artist (unless an arm’s-length corporation is involved). Any treaty provisions cannot be considered since the amount of income earned will not be determined until the year’s end. There are, however, certain countries (Armenia, Azerbaijan, Belarus, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Moldova, Poland, Russia, Tajikistan, Turkmenistan, and Uzbekistan) with a treaty-based provision that exempts all US earned income from taxation.
A CWA is a something every foreign artist coming to perform in the US should consider.
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