What is a U.S. Withholding Agent?
A U.S. withholding agent is any person, whether U.S. or foreign, who has control, receipt, custody, disposal, or payment of income of a foreign person that is subject to U.S. withholding tax.
In simple terms, if a foreign individual has received a payment with withheld taxes, the person or business who paid them would be considered as the withholding agent.
It’s important to note that a withholding agent is not limited to U.S. citizens. Foreign individuals can also be designated as withholding agents.
Who is considered a Withholding Agent?
A U.S. Withholding Agent is any-
- Businesses working with foreign vendors, freelancers, or investors
- Banks & financial institutions processing international payments
- Partnerships, trusts & corporations with foreign beneficiaries
- Universities & non-profits paying foreign scholars or contractors
Responsibilities of a Withholding Agent
The core responsibility of a withholding agent is to make sure that the correct amount of U.S. tax is withheld from payments made to foreign individuals.
The withholding agent is personally liable for any taxes that must be withheld. They will be held responsible even if the foreign individual fails to pay their tax obligation. They will also be responsible for any interest or penalties owed even if the foreign individual pays their taxes.
A withholding agent must establish and assess the applicable rate and determine whether or not the payment is subject to U.S. withholding tax. They also need to report payments subject to withholding by filing form 1042-S and obtaining valid tax forms, such as W-8BEN (individuals), W-8BEN-E (entities) or W-8IMY (intermediaries).