By Robyn Guilliams
We hold a piano competition where artists, some from abroad, pay their own way to come here to compete. If they win any prize money, do we need to withhold taxes?
For artists who are nonresidents of the U.S., I’m afraid you are required to withhold taxes! The general rule is that any payment of “U.S. income” made to a nonresident of the U.S. is subject to the 30% withholding requirement. In effect, 30% of the gross income paid to the artist must be withheld by the payer and deposited with the U.S. Treasury. This deposit will be credited toward any taxes the artist may owe at the end of the year.
Depending on the artist’s country of residence, however, there may be an exception to the withholding requirement. The U.S. has entered into tax treaties with many countries (68 at last count.) The terms of each treaty control where a particular person’s income is taxed when the person resides in one country, but the income has a connection to another country (the treaties prevent the person from being taxed twice, in two different countries, on the same income.)
Whether or not an exemption from tax in the U.S. exists is very fact-specific. Obviously, the nonresident artist must reside in a country with which the U.S. has entered into a tax treaty. But (just to keep things interesting), the terms of each treaty are different, so the treaty in question must be reviewed to determine if there is a provision that exempts his type of income from U.S. tax, and whether that exemption can be claimed at the withholding stage!
A more detailed explanation of how the tax treaties work is available at the Artists from Abroad website:
You may also want to check out the IRS’s Publication 901, “U.S. Tax Treaties”, (http://www.irs.gov/pub/irs-pdf/p901.pdf), which provides a summary of each treaty currently in force, as well as a few helpful charts to determine what types of income are exempt under each treaty (but be sure to read the footnotes carefully!)
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THIS IS NOT LEGAL ADVICE!
The purpose of this blog is to provide general advice and guidance, not legal advice. Please consult with an attorney familiar with your specific circumstances, facts, challenges, medications, psychiatric disorders, past-lives, karmic debt, and anything else that may impact your situation before drawing any conclusions, deciding upon a course of action, sending a nasty email, filing a lawsuit, or doing anything rash!