A withholding agent is required to withhold tax at 30% rate on payments ranging from rents, dividends, interest, to other fixed or determinable annual or periodic income from sources within the US to a foreign (nonresident) individual, partnership, or corporation. However, if you are receiving payments from foreign businesses and have negotiated a trade, you can claim exemption from withholding by filing a statement with the withholding agent.
If you are suddenly in a situation where your reportable payment is being withheld, it can be for a number of reasons:
- Either the US person has not provided the taxpayer identification number (TIN) in the correct manner,
- The IRS notified the payer that the TIN furnished by the payee is incorrect,
- There has been a notified payee underreporting, OR
- There has been a payee certification failure.
Nevertheless, some payments may be subject to backup withholding such as interest payments, dividends, patronage dividends if at least half of the payment is in money, rents, profits, commissions, fees, or other payments to independent contractors.