Central Withholding Agreement

A Central Withholding Agreement permits a withholding agent to collect a smaller amount of withholding tax with regard to gross income paid to a non-resident alien athlete or entertainer (after taking into account deductible expenses) in exchange for personal services. Thus, the benefit of a CWA is a lower rate of withholding tax on the estimated net amount of income and a greater cash flow. Conversely, without a CWA in place, the withholding agent must collect a flat withholding tax of 30% on the entire gross income earned from U.S. activities by the nonresident alien athlete or entertainer.

Usually nonresident aliens who do not have an employee-employer relationship with the University of Richmond are subject to the 30% rate of withholding of U.S. federal income tax.

However, an NRA (or foreign artistic group) who is engaged in a trade or business in the US during the tax year may have the compensation for personal services as an independent contractor (independent personal services) entirely or partly exempt from withholding by reaching an agreement with the IRS on the amount of withholding required.

Resident aliens do not qualify for CWAs.

A CWA becomes effective for payments covered by the agreement after it is agreed to by all parties. A CWA will not take into account any treaty exemptions.

With a CWA, a W8-BEN is not required. All that is required to be on file at UR is a copy of the first and last pages of the CWA.

When a CWA has been signed, the designated withholding agent agrees to assume the responsibility for withholding and reporting tax on the entire tour or event, relieving all other withholding agents involved in the tour/event from the potential withholding liability that exists.

A designated withholding agent is assigned by the artist (or group) and must agree to:  

• Withhold income tax from payments made to the nonresident alien(s)
• Pay over the withheld tax to the IRS on the dates and in the amounts specified
• Submit Form 1042 and Form 1042-S to the IRS for each tax year in which income is paid to an NRA(s) covered by the CWA
• Issues 1042s to the NRA(s) covered by the CWA

To request a CWA an NRA must submit the following at least 90 days before event:

• A request for a CWA should be sent to the following: Internal Revenue Service, Chief, Special Programs (International), SB/SE, Stakeholder Liaison, SE:S:CLD: SLHQ:SP, 1111 Constitution Ave., NCFB C2-233, Washington, DC 20224
• A list of the names and addresses of the NRAs to be covered by the agreement
• Copies of all contracts that the aliens or their agents and representatives have entered into regarding the time period and performances or events to be covered by the agreement including, but not limited to, contracts with:
  • Employers, agents, and promoters
  • Exhibition halls
  • Persons providing lodging, transportation, and advertising
  • Accompanying personnel, such as band members or trainers
• An itinerary of dates and locations of all events or performances scheduled during the period to be covered by the agreement.
• A proposed budget containing itemized estimates of all gross income and expenses for the period covered by the agreement, including any documents to support these estimates.
• The name, address, and telephone number of the person the IRS should contact if additional information or documentation is needed.The name, address, and Employer Identification Number (EIN) of the agent or agents who will be the central withholding agents for the aliens and who will enter into a contract with the IRS. A central withholding agent ordinarily receives contract payments, keeps books of account for the aliens covered by the agreement, and pays expenses (including tax liabilities) for the aliens during the period covered by the agreement.
• When the IRS approves the estimated budget and the designated central withholding agents, the Associate Chief Counsel (International), or another designated IRS office, will prepare a withholding agreement. The agreement must be signed by each withholding agent, each nonresident alien covered by the agreement, and the Commissioner of the Internal Revenue Service or his delegate.

Interested persons should go to the IRS website to learn more about how to apply for a CWA.