For information on real estate withholding, refer to the Franchise Tax Board (FTB) Publication 1016, Real Estate Withholding Guidelines.
For information on employee wage withholding, contact the California Employment Development Department (EDD) at edd.ca.gov
California Revenue and Taxation Code (R&TC) Section 18662 and the related regulations require withholding of California income or franchise taxes from payments and distributions made to nonresidents on California source income.
With certain limited exceptions, R&TC Section 18664 applies backup withholding to reportable payments made on or after January 1, 2010.
R&TC Section 18664 applies backup withholding (Section 3406 of the Internal Revenue Code (IRC)) to reportable payments made on or after January 1, 2010.
R&TC Section 18668 makes the withholding agent liable to remit the tax withholding required.
R&TC Section 17951 contains the provision requiring nonresidents to be taxed on all income from California sources. California source income includes payments for personal services performed in California. Where the nonresident lives, the location where the contract for services is entered into, or the place of payment does not determine the source of income from personal services. The location where the personal services are performed determines the source of income. Nonresidents must include in California gross income the gross payments for all services performed in California.
R&TC Section 18662 and the related regulations require S corporations and partnerships to withhold income taxes when distributing current or prior year income to domestic S corporation shareholders and partners. Withholding is not required if distributions to an S corporation shareholder or partner are $1,500 or less during the calendar year.
R&TC Section 18666 requires withholding on income from California sources, which is allocated to foreign partners. R&TC Section 18666 generally conforms to federal IRC Section 1446 to the extent that the income is from California sources.
For withholding purposes, both LLCs, classified as partnerships, and LLPs are treated like partnerships. For purposes of this publication, LLCs and LLPs are generally included in the term “partnership” and members are generally included in the term “partner.” LLC and LLP information returns are included in the term “partnership information returns.” Form 568, Limited Liability Company Return of Income, is included in Form 565, Partnership Return of Income. However, LLCs should specifically see questions 29 and 30 relating to consenting and nonconsenting members.
Beginning on January 1, 2020, we have a new Form 592-PTE, Pass-Through Entity Annual Withholding Return. Form 592-PTE is an annual form for pass through entities (PTEs) to allocate withholding credit to its payees. Withholding payments associated to Form 592-PTE are still due each payment period, and submitted with the new Form 592-Q, Payment Voucher for Pass-Through Entity Withholding.
If you are required to withhold and remit backup withholding to the Internal Revenue Service (IRS) you are also required to withhold and remit to FTB, except for instances specifically excluded for California purposes.
Under circumstances where both backup withholding and other types of withholding apply, backup withholding replaces all other types of withholding.
Remit backup withholding to us using Form 592-V, Payment Voucher for Resident and Nonresident Withholding.
The due dates for California backup withholding are different than federal backup withholding due dates. California backup withholding due dates are the same as the due dates for individual estimated tax payments. The period due dates are described in the Form 592, Resident and Nonresident Withholding Statement, instructions and question 121 of this publication.
When an entity is a PTE (LLC, S Corp, Partnership, Estate, or Trust), use Form 592-PTE and Form 592-Q. When an entity has foreign partners or members, use Form 592-F and Form 592-A.
Withholding is a prepayment of California state income or franchise tax (similar to wage withholding).
A withholding agent is any person or entity with the control, receipt, custody, disposal, or payment of California source income. We also refer to withholding agents as “payers.”
Generally, the payee is the person or entity that receives items of income from a payer. It also includes partners, beneficiaries, shareholders, or members that receive payments or distributions from a PTE, estate, or trust. A payee may also include vendors that provide services to the payer.
Generally, the payer is the person or entity that pays an item of income or makes a distribution to a payee.
The term partnership has the same meaning as defined in R&TC Section 17008. For purposes of withholding, both LLCs and LLPs classified as partnerships are treated as partnerships.
The term partner has the same meaning as defined in R&TC Section 17008. For purposes of withholding, members of both LLCs and LLPs classified as partnerships are generally included in the term partner.
A withholding agent is required to withhold from all payments or distributions of California source income made to a nonresident payee unless the withholding agent receives a certified Form 590, Withholding Exemption Certificate, or authorization from us for a waiver, or an approved reduced withholding amount. The withholding agent is required to withhold once the total payments exceed $1,500 in a calendar year.
Withholding is at the discretion of the withholding agent until payments exceed $1,500 during a calendar year. Once the total payments exceeds $1,500, the withholding agent is required to withhold.
No. Withholding must begin as soon as the total payments of California source income for the calendar year exceed $1,500.
The withholding rate is 7 percent of the following:
The withholding rate is California’s highest tax rate for each partner’s entity type. The current withholding rates are:
Yes. Withholding is not required if one of the following exceptions is met:
The exemption for motor carriers does not apply to all transportation providers. Similar exemptions for payments made to air, water, and rail carriers apply only to nonresident employees and not to independent contractors.
No. Withholding agents are not required to notify nonresidents of the withholding requirements. However, we recommend that they explain California’s withholding requirements to avoid confusion.
The following California source income is subject to withholding:
For withholding purposes, California source income does not include return of capital, income sourced in another state, or other distributions not taxable by California.
The following types of payments are not subject to withholding:
No. California does not conform to federal law relating to income protected by U.S. tax treaties. California income is taxable and subject to withholding. Nonresident aliens are required to report income from California sources on Form 540NR, California Nonresident or Part‑Year Resident Income Tax Return.
If the reimbursement is separately accounted for and is not subject to IRS Form 1099 reporting, withholding is not required on payments to reimburse nonresidents for expenses related to services performed in California (corporate payees, for purposes of this exception, should be treated as individual persons). When the reimbursed expenses do not meet these requirements, withholding agents should withhold on the total payment.
For withholding purposes, use any reasonable method to approximate the ratio of California income to worldwide income. Reasonable methods include using the prior year’s ratio or apportionment factors, annualizing current year data, and using actual year-to-date figures. (See California Schedule R, Apportionment and Allocation of Income, for more information on apportionment.) We do not expect exactness in meeting this requirement. Making a good faith effort to comply with the withholding requirements will satisfy this requirement.
Nonresident entities subject to withholding include:
Yes. Withholding is required on the portion of the sale that relates to services provided in California. Form 587, Nonresident Withholding Allocation Worksheet, may be used to distinguish the portion of payments made for goods from the portion for services.
Yes. Withholding is required on distributions to nongrantor trusts unless at least one trustee is a California resident. Withholding agents may rely on an exemption certification using Form 590, Withholding Exemption Certificate.
Yes. A grantor trust is when the grantor retains substantial control and is deemed to remain the owner. As a result, a grantor trust is disregarded for tax purposes. The determination to withhold depends on the residency of the grantor. If the grantor is a California resident, the grantor may certify to the residency exemption on Form 590, noting that the grantor is signing as the grantor of a grantor trust.
Yes. Withholding is required on distributions to estates unless the decedent was a California resident at the date of death. Withholding agents may rely on a certificate by the estate that the decedent was a California resident at the date of death. Use Form 590, Withholding Exemption Certificate, for this purpose.
No. Withholding is not required on entities exempt from tax under either California or federal law. The withholding agent may rely on a completed Form 590.
Yes. Regardless of your tax or organizational status, when a payment is made to a nonresident for a service performed in California, withholding may be required.
Yes. The LLCs must withhold on nonresident members who have signed FTB 3832.
Yes. Payment of nonconsenting nonresident tax does not relieve LLCs of the requirement to withhold on nonresident members. However, LLCs who can show they pay the nonconsenting nonresident tax on all nonconsenting members may request a waiver from us for withholding on their nonconsenting members.
S corporations and partnerships must withhold on distributions of California source income to nonresident S corporation shareholders and partners. This includes, but is not limited to, distributions of current year income and distributions of prior year income that were not previously reported as income from California sources on the S corporation shareholder’s or partner’s California tax return. Withholding is optional, at the discretion of the withholding agent, on the first $1,500 in payments made during the calendar year, or if the S corporation shareholder or partner has received a waiver of withholding from us.
Yes. Payments to S corporations that do not have a permanent place of business in California and are not qualified through SOS to do business in California are subject to withholding.
California conforms to the federal definition of foreign partners. Thus, foreign partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign estates, or foreign trusts are subject to foreign partner withholding.
The following individuals and entities are exempt from withholding:
Payees must complete FTB Form 590, Withholding Exemption Certificate, to certify their status.
Exemptions apply to the actual payee and not to their agent or representative.
The term resident includes every individual who is in California for other than a temporary or transitory purpose and every individual domiciled in California who is absent for a temporary or transitory purpose. Generally, an individual who comes to California for a purpose extending over a long or indefinite period will be considered a resident. However, an individual who comes to perform a particular contract of short duration will be considered a nonresident. For more information on residency, see FTB Publication 1031, Guidelines for Determining Resident Status.
The following are examples of accepted reasonable methods:
Example 1:
Withholding agents may send their payees a Form 590. Payees may use this form to certify their residency status.
For Form 590 to be valid, payees must include their taxpayer identification number.
Example 2:
Withholding agents can rely on a California street address as an indication of a payee’s residency status. If the payee has a California street address, no withholding is required and Form 590, is not needed to verify residency status unless the withholding agent has reason to believe such address is merely a forwarding address. A valid California street address does not include a California post office box, or an in care of address. If a change of address occurs, the withholding agent must reevaluate the payee’s residency status. For assistance in this area, call us at 916-845-4900.
A corporation has a permanent place of business in this state when it is organized and exists under the laws of this state or it has qualified through SOS to transact intrastate business. A corporation not qualified to transact intrastate business (such as a corporation engaged exclusively in interstate commerce) will be considered as having a permanent place of business in this state only if it maintains an office in this state that is permanently staffed by its employees.
The following are examples of accepted reasonable methods:
Withholding agents may rely on a completed Form 590, stating the corporation has a permanent place of business in California. This protects the withholding agent from penalties for failure to withhold (unless the withholding agent has actual knowledge that the statement is false).
For Form 590 to be valid, a corporate payee must include its taxpayer identification number.
If a corporation has a permanent place of business in California, it is required to qualify with SOS. Withholding agents may determine if a corporate payee is qualified to do business in this state by contacting:
Certification and Records Secretary of State
PO Box 944260
Sacramento, CA 94244-2600
To request confirmation of a corporation’s qualification, send a self-addressed, stamped envelope with a check or money order for the $5 fee for each corporation status report you requested.
Corporations that incorporate in California are automatically qualified to do business in California as long as they file all tax returns and pay all taxes due. Corporations not incorporated in California, but incorporated under the laws of other states or countries, can still qualify to do business in California. SOS administers the California Corporations Code as it applies to incorporation and qualification to do business in California. Corporation payees incorporated in California or qualified to do business in California are exempt from the withholding requirements.
California taxes the income derived from business activity within the state. If a nonresident payee is doing business in California and is earning California source income, withholding is required unless the payee meets an exemption.
No. But the payee may request a waiver from us using Form 588, Nonresident Withholding Waiver Request.
Form 590 must include the:
Before accepting Form 590 from a payee, the withholding agent should check the form is complete. Refer to question 42 for details.
An incomplete Form 590 is invalid and the withholding agent should not accept it. The withholding agent is required to withhold tax on payments made to the payee until a valid Form 590 is received. The withholding agent should also verify the information on the form pertains to the payee and not to the payee’s representative or agent.
No. The certification does not need to be renewed annually. The certification remains valid until the payee’s status changes. The withholding agent should evaluate the need for securing a new Form 590 when any indication of a change in residency status occurs, such as a change of address, etc.
The withholding agent should not accept the Form 590 and should inform the payee that the form was not accepted. The withholding agent and the payee can contact us if they have any questions.
Yes. A withholding agent who knowingly accepts a false Form 590 is subject to the liabilities and penalties related to failure to withhold.
The following are examples of accepted reasonable methods:
Method 1:
Withholding agent asks the payee to complete Form 587, Nonresident Withholding Allocation Worksheet. This form is used to determine the amount of California source income subject to withholding. The payee completes and returns Form 587 to the withholding agent. This information determines if withholding is required, and, if required, what portion of the payment is subject to withholding.
Example:
A withholding agent sends Form 587 to an out‑of‑state independent contractor (vendor) before making a payment for services. The total contract amount is $100,000. The vendor returns Form 587 certifying that $60,000 is for services performed in California and $40,000 is for work performed in another state. The amount of withholding would be:
California source income | $60,000 |
---|---|
Withholding rate | × 7% |
Withhold this amount | $4,200 |
If the amount subject to withholding ($60,000 in the example above) is equal to or less than $1,500, then no withholding is required.
Method 2:
The withholding agent relies on the nature of the work to indicate where the services are performed. For example, a construction company building a shopping center is most likely performing services where the shopping center is located. We do not expect exactness in determining what portion, or ratio, of the services is performed in California. A good faith effort by the withholding agent to comply with the withholding rules will satisfy this requirement. Withholding agents may use other reasonable methods approved by us. For assistance in this area, call us at 916-845-4900.
Withholding agents may rely on allocations provided by payees on a properly completed and signed Form 587. No additional verification efforts are needed. If the withholding agent has actual knowledge that the Nonresident Income Allocation Worksheet is incorrect, then they should not rely on it and should withhold at 7 percent. The withholding agent should not rely upon an incomplete, unsigned, or fraudulent worksheet.
Retain the form for a minimum of five years.
Compensation for personal services performed by nonresident independent contractors will normally be allocated to California based on working days in California to total working days in and out of California. The denominator is the total number of days actually worked on the particular job. The number of days covered by the vendor’s contract can only be used when the vendor is:
Days spent acquiring knowledge, skills, or experiences necessary as a condition of employment are not considered work days (Marc Wilson v. Franchise Tax Board (1993) 20 Cal. App. 4th 1441). Professionals and others who bill by the hour allocate compensation based on the number of billable hours worked in California to the total number of billable hours related to the particular service.
We accept any reasonable method. One method is to use the same allocation of goods and services that is used for sales and use tax purposes in the sales contract. The portion of the payment not subject to sales or use tax would be considered payment for services and subject to withholding. If a payment is not subject to California sales or use tax, but is subject to another state’s sales or use tax, withholding agents may use the allocation for the other state to determine the portion relating to services and subject to withholding. Generally, under sales and use tax laws, charges for labor or services for installation are not subject to sales or use tax. Payments for installation would be subject to withholding. Charges for designing, consulting, performing feasibility studies, evaluating bids, and providing training services are also considered service activities if they are separately stated and not part of the sale of tangible personal property.
Payments for repairs would be subject to withholding except for parts that are separately stated on the invoice. Payments for mandatory maintenance contracts or warranties subject to sales tax are not subject to withholding. However, payments for optional maintenance contracts or warranties that are not subject to sales tax are subject to withholding. One exception is transportation charges. Even if the payment for transportation charges is not subject to sales or use tax, withholding is not required. In unique situations, withholding agents should call us at 916-845-4900.
We may authorize a reduced withholding amount when the 7 percent withholding on the gross California source payment results in significant overwithholding. Beginning January 1, 2020, the total amount of expenses cannot exceed 50 percent of the gross California source payment.
Yes. A foreign (non-U.S.) partner or member may file Form 589 to reduce or eliminate a partner’s withholding tax obligation.
The nonresident payee must complete Form 589, Nonresident Reduced Withholding Request, and submit it before receiving payment for services from the withholding agent. The payee must provide the gross California source payment, any expenses relevant to the services being performed, and calculate a proposed reduced withholding amount.
Upon receipt of Form 589 we review the information on the form. We may request to review all relevant documentation including, but not limited to, expense documentation such as receipts and contracts.
The payee must complete and file Form 589 with FTB before receiving payment for services.
Refer to Form 589 for detailed instructions.
We generally respond within one week if the FTB Form 589 is complete and signed. However, the processing time may vary if we ask for supporting documentation.
Yes. Withholding agents must honor authorized reduced amounts.
No. If the distribution is a return of capital or does not represent California source income, withholding is not required and a reduction is not necessary.
Yes. The withholding agent must withhold 7 percent of the gross California source payment if they did not receive FTB 3952 approving a reduction in withholding before the nonresident is paid for their services.
We may authorize a waiver of withholding if the payee has California tax returns on file for the two most recent taxable years in which the payee has a filing requirement and is considered current on any outstanding tax obligations. If the payee does not have a current filing history, but is making estimated tax payments for the current tax year and is current on any outstanding tax obligations, we may issue a waiver that is good for a two-year period ending on December 31 of the same calendar year. Waivers of the withholding requirements are available to domestic nonresident payees only. For more information about who qualifies for a waiver, refer to Form 588, Nonresident Withholding Waiver Request.
A foreign (non-U.S.) partner or member may file Form 589 to reduce or eliminate a partner’s withholding tax obligation; however, a foreign (non-U.S.) partner or member may not request a withholding waiver.
Yes. Withholding is optional and at the discretion of the withholding agent on the first $1,500 in payments made during the calendar year. However, if the payment exceeds $1,500, the payee must meet one of the criteria on Form 588 to receive a waiver from withholding.
Nonresident payees or withholding agents should complete FTB Form 588, Nonresident Withholding Waiver Request, and attach any pertinent facts to support the request. If sufficient information is not provided, we may request additional information or deny the request. Mail the completed FTB Form 588 to:
Withholding Services and Compliance MS F182 Franchise Tax Board
PO Box 942867
Sacramento, CA 94267-0651 or Fax 916-845-9512
We generally respond within 21 working days. We will contact the requester if additional information is required.
No. Waivers are generally granted for fixed periods with a maximum expiration date of two years.
Yes. Withholding agents must honor authorized waivers.
No. If the distribution is a return of capital or does not represent California source income, withholding is not required and a waiver is not necessary.
The requirements to qualify for a waiver include, but are not limited to:
See Form 588, Nonresident Withholding Waiver Request, for details.
The withholding agent must return any amounts withheld.
This portion provides guidance for those making payments to nonresident independent contractors, payments of rents or royalties to nonresidents, and distributions to nonresident beneficiaries of estates or trusts.
An independent contractor is engaged in a bona fide business that is separate and apart from the business paying him. A bona fide business is subject to profit and loss. An independent contractor is usually contracted to perform specific tasks and has the right to control the way the work is to be accomplished. An independent contractor has a substantial investment in the business and contracts to perform services with more than one business. An employee is subject to the wage withholding provisions administered by EDD. If the nonresident vendor is an independent contractor, withholding is sent to us. A particular withholding agent could have some payees who are employees and others who are independent contractors. Please contact EDD to learn more about the definition of an employee.
The withholding agent is required to withhold when making payments directly to nonresident subcontractors for services performed in California. To decide if withholding is required when payments to more than one contractor are made, the withholding agent should provide each contractor with:
If the withholding agent knows of only one contractor, use the information provided by the contractor-of-record. If the contractor is a resident, no withholding is required. However, if the contractor-of-record is a nonresident, withholding is required. Withholding is not required on payments to general contractors who are California residents. However, general contractors must withhold on payments made to nonresident subcontractors for services performed in California.
Withholding on rent or lease payments to nonresidents is required when all of the following criteria are met:
Although withholding is not required on rent payments made by tenants directly to owners of residential property, income derived from real property as well as tangible personal property located in California is California source income and is subject to California tax. This includes rents, lease payments, and the gain on the sale of such property.
Yes. The property manager may deduct the management fees and then calculate the 7 percent withholding based on the amount to be sent to the property owner.
Example:
Property manager receives $4,000 per quarter from tenant and the property owner is a resident of Nevada. The property manager charges $250 per quarter to manage the property.
$4,000 | California source income |
– 250 | Property management fee |
$3,750 | California income subject to withholding |
× 7% | Withholding rate |
$262 |
If the amount subject to withholding is equal to or less than $1,500, then no withholding is required.
California requires withholding agents to withhold on royalties paid for the right to use natural resources located in California, including, but not limited to, oil, gas, other minerals, geothermal, and timber. Withholding is also required on royalty or residual payments made to nonresidents for services originally performed in California.
No. R&TC Section 18662 was amended to eliminate withholding requirements on wages, salaries, fees, or other compensation paid by a corporation for services performed in California by nonresident corporate directors. This includes attendance at a board of directors meeting.
Yes. An entity paying wages, salaries, fees, or other compensation to a nonresident director must file an information return with FTB and provide the payee with a payee statement. To meet this requirement, the paying entity must file IRS Form 1099-MISC and provide a copy of the form to the payee.
Yes. Withholding is required on payments that are compensation for services performed in California by a nonresident.
Yes. Withholding is required on payments that are compensation for services performed in California by a nonresident.
For withholding purposes, a trust is considered a California trust if at least one trustee is a California resident. Withholding is not required on payments to California trusts.
An estate is considered a California estate for withholding purposes when the decedent was a California resident on the date of death.
Yes. If the trustee does not know the amount of California source income included in a distribution, the trustee may use the previous year’s ratio of California source income to total income to allocate the distribution.
Yes. California taxes nonresidents on their income earnings in California, including endorsement income.
Yes. Withholding is required on income earned in California by a nonresident. If an athlete or entertainer performs services on contract in California on behalf of a sponsor, the payments received on the contract are generally considered to be California source income. For example, where a contract requires an athlete to wear the sponsor’s clothing bearing its logo, or use the sponsor’s equipment, and the athlete appears at a California event, that athlete has performed a service on behalf of the sponsor at that California event.
California source income to nonresident athletes and entertainers at a California event may include, but are not limited to payments for:
The withholding agent should make a reasonable allocation of the payment based on the facts and circumstances of each contract. The following is an example of an accepted, reasonable method:
Example:
Golfer is a resident of Nevada, receives endorsement income under a contract that requires him to wear the sponsor’s logo at tournaments, and plays in tournaments in both Nevada and California. In 2010, the golfer played in a total of 20 tournaments and earned $100,000 in endorsement income. Of those 20 tournaments, ten were in California. Golfer’s California source income is $50,000 ($100,000 X 10/20):
$50,000 | California source income |
× 7% | Withholding rate |
$3,500 |
If the amount subject to withholding ($50,000 in the example above) is equal to or less than $1,500, no withholding is required. Refer to Question 47 for other examples of reasonable calculation methods.
Yes. Withholding is required even if the agent or promoter meets one of the exemptions listed in FTB Pub. 1017, Resident and Nonresident Withholding Guidelines, PAGE 8, question 34. Since the athlete or entertainer performed the service, the athlete or entertainer is required to report their compensation for the performance and is solely entitled to the entire withholding credit.
This portion explains the requirements for those making payments to nonresident entertainers.
No. Withholding is optional at the discretion of the withholding agent on the first $1,500 in payments made during the year. Withholding must begin as soon as the total payments of California source income for the calendar year exceed $1,500.
Regardless of performance deposits or guarantees, venues and promoters are responsible for withholding on the entire contract amount, including any bonuses, assuming total payments exceed $1,500 in a calendar year. For example, a venue signs a $10,000 contract with a performer for a performance scheduled for the upcoming year, plus a $1,000 bonus. The venue is required to place a $5,000 deposit in an escrow account held by the performer’s agent. Calculation: The total contract amount was $10,000, plus a $1,000 bonus. The deposit was $5,000. The venue’s or promoter’s withholding liability is $770 (7 percent of $11,000).
Yes. California law requires the withholding agent to withhold, and the withholding agent can be held liable for the withholding.
Yes. Withholding is required on payments made for sound and light services if payable to a nonresident.
The withholding agent should write canceled on the letter and return a copy to us with an explanation that withholding was not done because the performance was canceled and no payment was made. We may request additional information to validate the canceled performance.
This portion explains the withholding requirements for domestic (nonforeign) nonresident pass-through entities (PTEs).
PTEs include partnerships, LLCs, S corporations, estates, trusts, etc. A PTE may pass through income or losses to its partners, members, S corporation shareholders, or beneficiaries instead of paying the related tax at the entity level. Partners, members, S corporation shareholders, or beneficiaries must include the pass-through items on their tax returns.
The answer depends on the type of pass-through entity as follows:
The withholding must be allocated to all partners, members, S corporation shareholders, or beneficiaries, whether they are residents or nonresidents of California, in proportion to their ownership or beneficial interest. Refer to Form 592-PTE, Pass-Through Entity Annual Withholding Return, for detailed instructions.
No. Form 592-PTE is due annually on January 31 following the year of withholding. Payments are due each payment period with Form 592-Q. Question 121 contains the Payment Period Timeframe chart with specific due dates. The PTE must identify the income and withholding distribution for each partner on Form 592-PTE. If PTEs were withheld upon, then they should contact the withholding agent and request to receive the withholding information early so the PTEs can file their forms by the period due date. If the PTEs still do not get the information in time to file, then they should file as soon as they get the information. The PTEs should attach a letter to Form 592 stating the reason for filing late and documenting their attempts to get their withholding agents to furnish the information early.
When a PTE is withheld upon, it receives a withholding document (Form 592 B or similar form) from the withholding agent showing how much was withheld. To allocate the amount withheld to its payees, it must complete Form 592-PTE, showing each payee’s share of the withholding. The tax withheld must be allocated to all payees, whether residents or nonresidents of California, based on the payee’s interest in the PTE.
No. Refunds of withholding credits are not allowed for PTEs. Although PTEs may use the withholding to offset their outstanding tax liability, any excess withholding must be allocated to the payees. General partnerships must allocate the entire amount to its partners. A partnership has no tax liability, except for the minimum tax paid by a limited partnership. Form 565, Partnership Return of Income, is an information return. The income or loss reported on Form 565 flows through to the partners and is reported on their tax returns. The withholding must follow the income and flow through to the partners. The partners can claim the withholding credit against their individual tax liabilities.
Yes. The LLCs must withhold on nonresident members who have signed form FTB 3832.
Yes. Payment of nonconsenting nonresident tax does not relieve LLCs of the requirement to withhold on nonresident members. However, LLCs who can show they pay the nonconsenting nonresident tax for all nonconsenting members may request a waiver of withholding on their nonconsenting members.
We annually mail notices to S corporations and partnerships that are first-time filers. Additionally, we provide notice annually in the S corporation and partnership information return instructions. S corporations and partnerships that do not file California S corporation or partnership information returns when required to file are still considered to have received constructive notice of the withholding requirements. Constructive notification is considered to have been given on the due date of the S corporation and partnership information return (without regard to any extensions of time to file).
No. According to R&TC Sections 17955 and 23040.1, income earned by partners in “investment partnerships” from the buying, selling, or holding of “qualified investment securities” is not derived from California sources. Therefore, this income is not subject to withholding. Income of nonresident partners, including banks or corporations, derived from qualified investment securities of investment partnerships is considered income from the partner’s state of residence, except as noted in the next paragraph. Therefore, nonresident partners generally will not be taxed by California on this income. Partnerships should inform their nonresident partners if all or part of their distributive share of income is from qualified investment securities of an investment partnership. Nonresident partners are taxed by California on their distributive share of income from investment partnerships if:
The partnership must make a good faith effort to estimate the total amount of California source income for the current year. Where it is impractical or impossible to estimate, use the amount of California source income recognized as of the date of the distribution.
Yes. If the guaranteed payments represent income from California sources and are not subject to wage withholding through EDD, the payments are subject to withholding.
Yes. If the property distribution represents California source income, withholding is required and is based on the fair market value of the property being distributed.
No. Insurance companies pay a gross premium tax to the California Department of Insurance instead of California corporation income or franchise tax. Withholding only applies to income or franchise tax.
Yes. Unless the partnership receives a waiver (Form 588, Nonresident Withholding waiver request), the partnership is required to withhold on all California source income distributions made to these domestic nonresident partners. Waivers are generally approved on distributions by publicly traded partnerships and on distributions to brokerage firms upon written request.
No. The distributions would be a return of capital if the partnerships have incurred losses every year.
Distributions are deemed first from distributable income and second as return of capital.
Yes. We require withholding on distributions of California source income even though NOLs are generated in prior years. NOL carryovers and deductions are determined at the S corporation shareholder or partner level, not at the S corporation or partnership level.
No. An S corporation or partnership that distributes California source income is required to withhold even though the S corporation shareholder or partner has losses from other California S corporations and partnerships.
Withholding is not required on distributions of prior year California source income if the S corporation shareholder or partner provides the S corporation or partnership with a signed Form 590-P, Nonresident Withholding Exemption Certificate for Previously Reported Income, certifying that the S corporation shareholder or partner previously reported the income on the S corporation shareholder’s or partner’s California tax return. The S corporation or partnership may rely on this certification to waive the withholding obligation on that prior year income for that S corporation shareholder or partner.
A foreign (non-U.S.) partner’s allocable share of California source income is subject to withholding. This is different than domestic nonresident partners where the income subject to withholding is limited to the amount of income being distributed.
California generally conforms to IRC Section 1446. R&TC Section 18666 requires partnerships to withhold on amounts subject to IRC Section 1446 withholding which represent California source income effectively connected to a California trade or business.
No. There is no minimum threshold. Partnerships must withhold on all allocable California source income.
California conforms to the federal definition of foreign partners. Thus, foreign partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign estates, or foreign trusts are subject to foreign partner withholding.
Partnerships should withhold on partners with a foreign address under the foreign partner withholding requirements, unless the partner has documentation to show nonforeign status. Partnerships may rely on a partner’s federal certification of nonforeign status. Refer to federal Publication 515, Withholding Tax on Nonresident Aliens and Foreign Entities, for acceptable documentation. However, unless the partner is a California resident, the partnership would be required to withhold under the domestic nonresident partner withholding requirements.
In conformity with Treasury Regulation section 1.1446-6, a foreign (non U.S.) partner or member may file a Form 589 to reduce or eliminate a partner’s withholding of California tax on Effectively Connected Taxable Income (ECTI) from California sources. Refer to Form 589 for more information.
Use the following forms to report and remit withholding:
The withholding amounts due have specific payment due dates.
Form 592, Form 592-V, and the payment of tax withheld have specific payment due dates. Refer to the Payment Timeframe chart for specific due dates.
Form 592-PTE is an annual form due no later than January 31 following the year withholding was required. Form 592-Q has the same payment due dates as Form 592-V. Refer to the Payment Timeframe chart for specific due dates.
If any additional amounts are determined to be due at the year end, the additional amounts are required to be paid with the Supplemental Payment Voucher from 592-Q when filing Form 592-PTE.
Payment Timeframe | Due Date |
---|---|
January 1 through March 31 | April 15 |
April 1 through May 31 | June 15 |
June 1 through August 31 | September 15 |
September 1 through December 31 | January 15 |
If the due date falls on a Saturday, Sunday, or legal holiday, the due date will be the next business day. These due dates are the same as the due dates for individual estimated tax payments.
Withholding payments for foreign partners are due in four payments during the taxable year in which the California source income is derived and should be submitted with each Form 592 A. Payments with Form 592-A are due to the FTB on the 15th day of the 4th, 6th, 9th, and 12th month of the partnership’s or LLC’s taxable year. These due dates are the same as the federal due dates. If any additional amounts are determined to be due at the year end, the additional amounts are required to be paid with the Supplemental Payment Voucher from Form 592-A when filing Form 592-F.
Caution: If the partnership withholds on both domestic nonresident partners and foreign partners, a separate Form 592 and/or Form 592-PTE, should be filed for the domestic partners since the two groups have different due dates.
Remit payments with Forms 592-V, 592-A, or 592-Q Withholding Services and Compliance MS F182
Franchise Tax Board
PO Box 942867
Sacramento, CA 94267-0651
The information is reported using a completed copy of Form 592, Form 592-F, or Form 592-PTE, including the schedule of payees.
Withholding agents may develop withholding forms, making them suitable for computer preparation. However, substitute withholding forms must be in the same format and include all the same information as our forms. Withholding agents who wish to use substitute withholding forms must follow the procedures in FTB Publication 1098, Guidelines for the Development and Use of Substitute, Scannable, and Reproduced Tax Forms.
The information may be reported to the payee using the following:
No. The IRS Form 1099 reporting is a federal program. It is separate from California’s nonresident withholding program.
If tax is withheld in error, call us at 916-845-4900 for instruction. Generally, the withholding agent will be instructed to file an amended Form 592, Form 592-F, or Form 592-PTE correcting the erroneous withholding.
Mail your request to: Withholding Services and Compliance MS F182
Franchise Tax Board
PO Box 942867
Sacramento, CA 94267-0651 Phone 916-845-4900
Withholding information is reported on Form 592, Form 592-F, or Form 592-PTE, and submitted to FTB. When the number of payees entered on Form 592, Form 592-F, or Form 592-PTE is 250 or more, this information must be filed electronically. Refer to FTB Publication 1023S, Resident and Nonresident Withholding Electronic Submission Requirements, for more information on the required file format and record layout.
Withholding agents must provide each payee who was withheld upon with a copy of Form 592 B.
No. Although withholding is included on Schedule K 1, the withholding must be reported using Form 592.
Yes. We will grant an extension to file Forms 592-F for foreign partners if the partnership has received an extension from IRS to file IRS Form 8804, Annual Return for Partnership Withholding Tax (Section 1446). IRS approval or denial should be attached to Form 592-F when Form 592-F is filed.
Caution: If a partnership has both domestic nonresident and foreign partners, the extension is only effective for the filing of the forms for foreign partners. In addition, the extension only extends the due date for filing the forms. It does not extend the due date for any final payment of withholding.
No. Partnerships must have received an approval to extend the due date to file IRS Form 8804 (Section 1446), on IRS Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns.
When the partnership files Form 592-F, it can either request that the excess credits be applied to the next year’s withholding liability or be refunded.
Yes. The law requires the assessment of interest on late payments of withholding. Interest is computed from the due date of the withholding payment to the date paid. The imposition of interest is not a penalty. It is compensation to the state for the loss of the use of funds.
We assess a liability for failure to remit withholding. Any person, including the withholding agent, who fails to remit or under remits withholding is liable for the greater of:
(R&TC Sections 18662 and 18668)
The penalty for the withholding agent is calculated per payee. For information returns filed before 01/01/2016 to 12/31/2019, the penalty is:
For information returns filed on or after 01/01/2020, the penalty amount is:
(R&TC Section 19183)
For information returns filed before 01/01/2016 to 12/31/2019, the penalty is:
For information returns filed on or after 01/01/2020, the penalty amount is:
(R&TC section 19183)
All required information must be filled out completely and accurately on Form 592-B. (IRS Form 1099 is not acceptable.) Forms 592-B must be provided to payees.
If the withholding agent has not returned the excess withholding to the payee, the agent is liable for the amount actually withheld from the payee, plus interest and applicable penalties.
Penalties are not imposed on withholding agents who make a good faith effort to comply with the law.
All of the policies and penalties are the same except for the due dates for Forms 592- F.
Yes. If the withholding agent shows that the failure to withhold was due to reasonable cause, the penalties may be withdrawn.
“Reasonable cause” is a standard exception to most penalties imposed under the R&TC and the IRC. Generally, reasonable cause exists where the failure to comply occurs despite the exercise of ordinary business care and prudence.
No. Nonresident individuals or business entities must file a California tax return if they meet the filing requirements. If withholding is more than the actual tax liability, we will refund the overpayment. If withholding is less than the actual tax liability, additional tax will be due.
In most cases, all nonresidents who receive California source income will have a California filing requirement.
Call us for more information on the California filing requirements, as follows:
Phone 800-852-5711 from within the United States
916-845-6500 from outside the United States TY/TDD: 800-822-6268 for persons with hearing or speech impairments
No. A nonresident must file a California tax return if the nonresident meets the filing requirements even if a waiver was granted or the nonresident was exempt from withholding.
Go to ftb.ca.gov to view, download, and print withholding forms, publications (including additional copies of FTB Publication 1017) and California tax forms.
To get withholding forms and publications, or to speak to a representative, call us at 888-792-4900 or 916-845-4900.
Our automated telephone service allows you to access important information seven days a week, 24 hours a day. If the service does not completely answer your questions, you may choose to speak with a representative 8 a.m. to 5 p.m. weekdays, except state holidays.
No. This is the only California publication with information about withholding on foreign partners.
However, California conforms to IRC Section 1446, and the following federal publications will provide information on the withholding requirements related to foreign partners:
To obtain these or other IRS publications, visit their website, or call 800-Tax-Form (800-829-3676).
To learn about your privacy rights, how we may use your information, and consequences if you do not provide information we request, go to ftb.ca.gov/Forms and search for 1131. To request this notice by mail, call 800-338-0505 and enter form code 948 when instructed.
Web Go to ftb.ca.gov and search for withholding Phone 888-792-4900 TTY/TDD: 800-822-6268 for persons with hearing or speech impairments Fax 916-845-9512 Mail Withholding Services and Compliance MS F182
PO Box 942867
Sacramento, CA 94267-0651 Express Mail/Overnight Delivery Withholding Services and Compliance MS F182
Franchise Tax Board
Sacramento, CA 95827
Web: ftb.ca.gov Phone: 800-852-5711 from 8 a.m. to 5 p.m. weekdays, except state holidays/8 a.m. a 5 p.m. de lunes a viernes, excepto días feriados 916-845-6500 from outside the United States/fuera de los Estados Unidos TTY/TDD: 800-822-6268 for persons with hearing or speech impairments/para personas con discapacidades auditivas o del habla
Subject | Question(s) |
---|---|
$1,500 threshold for withholding | 10, 11, 31, 47, 63 |
Athletes | 84, 85, 86, 87 |
Agents | 90, 91 |
Apportionment factors | 21 |
Allocations | 17, 21, 23, 47-51, 72, 83 |
Backup withholding | 1, 2, 3 |
Bonds | 18, 103 |
Bonuses | 17 |
Brokerage firms | 108 |
Business situs, defined | 15, 18 |
California resident | 34, 35, 72 |
Cancelled performances | 93 |
Catch-up withholding | 12 |
Churches as partners | 27 |
Claiming withholding | 95 |
Combined report | 41 |
Constructive notice | 102 |
Corporate directors | 15, 77, 78 |
Corporations, permanent place of business | 22, 32, 34, 37, 38, 41 |
Covenant not to compete | 17 |
Current year income | 21, 31, 95, 104, 111 |
Distributions of property | 106 |
Doing business standard | 40 |
Due dates | 97, 121, 133, 134 |
Employee, defined | 71 |
Endorsements | 84, 85, 86, 87 |
Entertainers | 17, 84, 85, 86, 88, 89, 90, 92, 93 |
Entities subject to withholding | 22, 27, 28, 33, 84, 117 |
Error resolution | 126 |
Estates | 13, 22, 26, 33, 34, 82, 94, 95, 117 |
Exceptions to withholding | 15 |
Exemptions | 15, 34 |
Exemption certificate | 15, 24-27, 34, 36, 38, 41-46, 72, 113 |
Expenses, payments to reimburse | 20 |
Expert witnesses | 80 |
Extensions | 135, 136 |
Failure to remit | 139 |
Failure to file | 140 |
Failure to withhold | 38, 46, 139, 147 |
Fax number of Withholding Services and Compliance | 56, 64 |
Federal Form W-8, Certificate of Foreign Status | 19 |
Filing requirements | 61, 69, 149-152 |
Flow-through | 96, 99 |
Foreign partners, defined | 33, 117, 118 |
Forms | |
FTB Form 588, Nonresident Withholding Request | 40, 61, 63, 64, 69 |
FTB Form 589, Nonresident Reduced Withholding Request | 54-57 |
FTB Form 590, Withholding Exemption Certificate | 15, 24-27, 34, 36, 38, 41-46, 72, 113 |
FTB Form 590-P, Nonresident Withholding Exemption Certificate for Previously Reported Income | 113 |
FTB Form 592, Resident and Nonresident Withholding Statement | 95, 96, 97, 98, 120-123, 126, 128-130, 132, 140, 142 |
FTB Form 592-A, Payment Voucher for ForeignPartner or Member Withholding | 120, 122, 133 |
FTB Form 592-B, Resident and Nonresident Withholding Tax Statement | 95, 98, 120, 124, 128, 131, 140-142 |
FTB Form 592-F, Foreign Partner or Member Annual Return | 120, 133-137, 145, 146 |
Goods and services | 51 |
Independent contractor, defined | 71 |
Income allocation | 47-51 |
Income subject to withholding | 17-21, 40, 47, 104, 114 |
Information, more | 152, 153 |
Insurance companies | 34, 107 |
Intangible personal property | 15, 18 |
Interest | |
On failure to withhold | 138 |
On late payments of withholding | 139 |
Internet | 152 |
Investment partnerships | 103 |
K-1, schedule | 132 |
Limited Liability Companies (LLCs) | 8, 9, 22, 29, 30, 34, 94, 95, 98, 99-101 |
Limited Liability Partnerships (LLPs) | 8, 9 |
Losses | 94, 109, 111 |
Motor carriers | 15 |
Net operating losses | 111 |
Non-foreign partners | 118 |
Nonresidents, how to identify | 22 |
Nonresident withholding, defined | 4 |
Notification requirements | 16 |
Ordering forms | 152 |
Over-withholding | 52, 137 |
Partnerships | 5-9, 22, 31, 32, 34, 59, 68, 94, 95, 98-101, 129-137 |
Pass-through entities | 94-113 |
Payee | 6, 7, 10, 28, 34, 36, 40, 41, 43, 44, 47,54, 56, 61, 63, 69, 71, 120-124 |
Payment(s) subject to withholding | 11, 17-21, 32, 47, 51, 86, 105 |
Payment transcripts | 127 |
Payer | 6, 7 |
Penalties | |
Failure to file FTB Form 592 | 140 |
Failure to furnish FTB Form 592-B to partners | 141-146 |
Failure to file FTB Form 592-F | 146 |
Late payment | 138 |
Reasonable cause | 147-148 |
Under-withholding | 139 |
Pension plans, as partners | 27, 34 |
Permanent place of business | 22, 32, 34, 37, 38, 41, 91 |
Personal services | 17, 50 |
Prior year income | 31, 113 |
Promoters | 86, 87 |
Property, distributions of | 103 |
Publications, federal, related to foreign partners | 150 |
Publicly traded partnerships | 105 |
Qualified to do business in California | 38, 39 |
Rate of withholding | |
Domestic (non-foreign) | 13 |
Foreign (non-U.S.) partners | 14 |
Reasonable cause | 147, 148 |
Reduced withholding | 52-60 |
Refunds | 95, 99, 137, 149 |
Reimbursed expenses | 20 |
Rent or lease payments | 73 |
Rental or leased property | 74 |
Repairs | 51 |
Reporting and remitting withholding Domestic (non- foreign) | 120-132 |
Foreign (non-U.S.) partners | 120-128, 133-137 |
Residency status | |
Determining | 35 |
Permanent place of business, defined | 37 |
Resident, defined | 35 |
Resident payees | 36 |
Return of capital | 17, 59, 68, 109, 110 |
Royalties | 13, 17, 76 |
Sale of goods | 23 |
S corporation shareholders and partners | 13, 15, 31, 32, 59, 68, 94-96, 102,111-113, 129-132 |
Seminars | 79 |
Sound and lights | 92 |
Stocks | 18 |
Subcontractors | 72 |
Tax-exempt organizations | 27, 28, 34 |
Tax treaties | 19 |
Threshold | 116 |
Tiered partnerships | 108 |
Transcripts | 127 |
Trusts | 13, 22, 24, 25, 33, 34, 81, 94, 95, 117 |
Waivers of withholding | 41, 61-70, 101, 119, 151 |
Witholding | |
Defined | 4 |
Deposits | 90 |
due dates | 121 |
Guarantees | 90 |
Rates | 13, 14 |
Requirements | 152 |
Remitting | 120, 122, 129 |
Reporting | 120 |
Withholding Exemption Certificate | 15, 24-27, 34, 36, 38, 41-46, 72, 113 |
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