Glossary
Withholding Agent
Definition
A withholding agent is any person with control, receipt, custody, disposal or payment of certain U.S.-source income of a foreign person. The agent must withhold the required U.S. tax, deposit it and report it to the IRS.
Who can be one
Withholding agents can be U.S. companies, banks, brokers, property buyers, partnerships, and even individuals who pay U.S.-source income to a foreign person. Being a withholding agent does not depend on size; the duty arises from making the payment.
What the agent does
- Determines whether the payee is a foreign person, often using Form W-8.
- Withholds tax, generally 30% on FDAP income unless a treaty or exemption applies.
- Deposits the tax and reports it on Forms 1042 and 1042-S.
Liability and credit
A withholding agent can be liable for tax that should have been withheld, so documentation matters. The foreign person receives Form 1042-S and may claim credit for tax withheld, or a refund, by filing a U.S. return.
Practical example
For example, suppose a U.S. company pays a royalty to Anders, who lives in Sweden. The company acts as the withholding agent: it checks his Form W-8BEN, withholds at the applicable rate and reports the payment on Form 1042-S.
General information, not tax advice
This page provides general educational information about U.S. federal tax rules. It is not individualized tax, legal or accounting advice, and it does not create a client relationship. Results depend on each taxpayer's specific facts.
Written by Roger I. Chirino, founder of Chirino USA Accountants & Advisors P.A.
Supported by licensed CPAs, IRS Enrolled Agents (EAs), and experienced U.S. tax professionals focused on cross-border compliance and planning.
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