Another Taxing Question

By Robyn Guilliams, Esq.

Dear Law and Disorder:

There seems to be some clarification needed regarding income earned by non-US artists we represent who perform in Canada. We act as the agent for the artists, so payment is always made to us.  If an artist will be performing in Canada, but payment comes to us in the US before it is sent to the artist, is it still subject to US withholding (potentially 30%)? If an artist earns money in Canada and the payment comes to us as agent for the artist does that income get recorded in the 1042S that we provide the artist at the end of the calendar year? I am hoping you can provide me with an answer that I can forward on to my colleagues. Thanks, you guys are great!

The 30% withholding rule is applicable only to payments of “US source income”.  For compensation of personal services (e.g., fees earned by artists for performances, master classes, etc.), the test of whether or not the fees are “US income” is the location where the services are performed. Fortunately, this makes it easy to determine when the 30% withholding rule applies! IRS Publication 519 states that:

If the income is for personal services performed in the United States, it is from U.S. sources. The place where the services are performed determines the source of the income, regardless of where the contract was made, the place of payment, or the residence of the payer.

So, your nonresident artists who perform in Canada (or any other country outside the US) are NOT subject to 30% withholding. They are subject to tax and withholding in the country in which the services are performed. Even if payment for a Canadian engagement comes to you in the US, that payment will be considered non-US income, it is not subject to 30% US tax withholding, and it is not reportable on a 1042-S. However, while your artist won’t have any US tax obligations for the Canadian engagement, he or she may be subject to Canadian withholding and tax.


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