Withholdable payment
The IRS instructions for Form W-9 describe a withholdable payment as a payment covered by chapter 4 withholding rules. Those rules explain when a withholding agent may need to withhold based on a foreign recipient's status and documentation.
Meaning in the Form W-9 instructions
The IRS instructions for Form W-9 use "withholdable payment" for a payment governed by the chapter 4 withholding provisions in sections 1471 through 1474. The instructions describe withholding by a withholding agent when a foreign financial institution or non-financial foreign entity does not provide required documentation, or does not certify that it has no substantial U.S. owners.[6]
A reportable payment is an amount subject to withholding under sections 1441 through 1443 (chapter 3), while a withholdable payment falls under chapter 4, sections 1471 through 1474.[6]
A withholding agent can be a U.S. or foreign person that controls, receives, holds, disposes of, or pays a withholdable payment or foreign pass-through payment.[6]
When withholding is described
The instructions state a 30 percent withholding rule for a payment to an FFI or NFFE that fails to provide documentation the agent can rely on to treat the payment as exempt, or fails to certify that it has no substantial U.S. owners. Certain exceptions apply to this rule.[6]
Separately, backup withholding at 24 percent can apply when a payee fails to furnish its taxpayer identification number on Form W-9.[6]
FATCA rules generally require FFIs to identify U.S. accounts and report certain information to the IRS. They describe 30 percent withholding on certain payments to nonparticipating FFIs and certain NFFEs that do not provide specified information about their substantial U.S. owners.[6]
They describe reliable association with valid documentation as requiring appropriate chapter 4 status documents before payment, an ability to determine the amount associated with them, and no knowledge or reason to know that the information is unreliable or incorrect.[6]
For U.S. citizens, the term appears in rules primarily addressed to withholding agents and foreign account holders. The same instructions identify a U.S. citizen as a U.S. person for federal tax purposes, and explain that a signed Form W-9 may establish non-foreign status in contexts where withholding rules apply.[6]
Questions and answers
How does a withholdable payment differ from a reportable payment?
The Form W-9 instructions associate reportable payments with amounts subject to withholding under sections 1441 through 1443. They associate withholdable payments with chapter 4, sections 1471 through 1474.[6]
Who is a withholding agent?
The instructions define a withholding agent as a U.S. or foreign person with control, receipt, custody, disposal, or payment of a withholdable payment or foreign pass-through payment. This role can be held in any capacity described by the rule.[6]
What documentation issue can lead to withholding?
The instructions describe withholding where an FFI or NFFE does not supply documentation on which the agent can rely to treat a payment as exempt. They also describe a failure to certify that the entity has no substantial U.S. owners.[6]
What does the term mean for a U.S. citizen account holder?
The instructions classify an individual U.S. citizen as a U.S. person for federal tax purposes. They say a participating FFI requests Form W-9 from U.S. person account holders, including each such holder on a joint account.[6]
Related terms
- Participating foreign financial institution: The IRS describes a participating foreign financial institution as an FFI that reports U.S. account holders who are specified U.S. persons under FATCA.
- Foreign entity: Form 8938 instructions treat interests in foreign corporations and partnerships, and in trusts and estates, as specified foreign financial assets in some cases.
- FATCA: FATCA requires certain U.S. taxpayers to report foreign assets and financial institutions to report accounts to the IRS. Form 8938 may apply at thresholds.
- Financial interest in an account: FBAR rules define financial interest through account ownership or relationships to the legal title holder. A U.S. person named on an account has an interest.
Related guides and articles
- FATCA and the structure of U.S. reporting rules: FATCA terms, institutional reporting, withholding rules and links to U.S. tax forms, including Form 8938, for U.S. citizens learning about the regime.
- FATCA and foreign financial institutions: FATCA gives foreign financial institutions duties to report account information about U.S. taxpayers and entities with substantial U.S. ownership abroad.
Related pages
Sources and data notes
- Internal Revenue Service, Instructions for Form 8938. https://www.irs.gov/instructions/i8938. Retrieved .
- FinCEN, Report foreign bank and financial accounts. https://www.fincen.gov/report-foreign-bank-and-financial-accounts. Retrieved .
- U.S. Government, 31 CFR 1010.350. https://ecfr.io/Title-31/Section-1010.350. Retrieved .
- Internal Revenue Service, FATCA summary. https://www.irs.gov/businesses/corporations/summary-of-key-fatca-provisions. Retrieved .
- U.S. Department of the Treasury, FATCA: agreements by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
- Internal Revenue Service, 26 CFR 1.1471-4. https://www.irs.gov/instructions/iw9. Retrieved .
Dates in this block record when each source was read for this page.