The IRS has posted a 2011 version of Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, on its website. The publication may be helpful to withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Publication 515 includes information on the persons responsible for withholding, the type of income subject to withholding, and the information return and tax return filing obligations of withholding agents.
Generally, a foreign person is subject to U.S. tax on his or her U.S. source income. Most types of U.S. source income received by a foreign person are subject to tax at a 30% rate, but a reduced rate or exemption may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax, if any, is generally withheld from the payment made to the foreign person.
A withholding agent is a U.S. or foreign person who has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. A person may be considered a withholding agent even if there is no requirement to withhold from a payment, or even if another person has withheld the required amount from the payment. A withholding agent is personally liable for any tax required to be withheld. This liability is independent of the tax liability of the foreign person to whom the payment is made. The applicable tax will be collected only once. If the foreign person satisfies his or her U.S. tax liability, the withholding agent will not be liable for the tax, but will remain liable for any interest and penalties for failure to withhold.
There are three tables in IRS Publication 515. Table 1 contains withholding tax rates on income other than personal service income. Table 2 is a country-by-country listing of personal service income performed in the U.S. that is exempt from withholding and federal income tax under an income tax treaty. Table 3 is a listing of tax treaties in effect through Dec. 31, 2011.
Taxpayers who downloaded IRS Publication 515 before March 18, 2011, should be aware of the following changes that have been made to the publication: (a) The New Zealand withholding tax rate in columns (1), (2), and (3) of Table 1 has been changed to 10%. Footnote “nn” (interest received by a financial institution is exempt) has been added to all three columns. (b) In Table 2 for New Zealand, the text in column (4), Maximum Presence in U.S., should read “No limit.”