The central withholding agreement (CWA) is a mechanism whereby the Internal Revenue Service agrees to accept a withholding amount based upon the foreign artist's net income rather than upon gross receipts. If the Internal Revenue Service and the nonresident alien individual reach a central withholding agreement, compensation for personal services within the U.S. of a nonresident alien individual may be wholly or partially exempt from the NRA Withholding requirement. Thus, the foreign artist may avoid over-withholding.

The central withholding agreement is particularly useful when artists on a U.S tour with multiple venues seek exemption from foreign withholding, or when an artist plans to work in the U.S. for an extended period of time. Note: The process for obtaining a central withholding agreement may be too lengthy to make the CWA a practical option for many foreign guest artists working in the U.S. for a short period of time or on an occasional basis, unless the engagements are planned far in advance. Artists seeking to enter into a CWA should plan to complete the agreement 90 days before the paid performance to ensure the agreement is processed in time.

The CWA provides the Internal Revenue Service sufficient accounting and procedural assurances that the actual tax liability will be collected and paid. Among other assurances, the nonresident alien individual must agree to timely file an income tax return for the current taxable year. If a foreign artist is interested in requesting a CWA, Revenue Procedure 89-47, provides detailed information regarding such a request. The application process for a CWA is a very detailed process and should be pursued with the assistance of a tax professional.