Central Withholding Agreements
The Central Withholding Agreement (CWA) is a contract between the IRS, the foreign artist, and a designated “withholding agent.” The withholding agent may be the artist’s agent or manager, a presenter, an accountant, or anyone else who is independent of the artist and is acceptable both to the artist and the IRS. If the artist obtains a CWA, the IRS will estimate the actual tax that the artist will owe on the tour or series of events, and this is the amount withheld from the artist’s income – as opposed to withholding 30% of the artist’s gross income. As noted above, because an artist may deduct certain business expenses from his or her taxable income, and because the artist will be taxed at graduated rates (which are often less than 30%), the CWA will likely reduce substantially the amount to be withheld from the artist’s payments.
Note that CWAs are available only to individuals, not to businesses.
As of January 1, 2013, CWA requests must be received at least 45 days prior to the first event to be covered by the CWA. The IRS will not process any request it receives less than 45 days before the event, and therefore such event(s) will be subject to 30% withholding of the gross income. Foreign artists who wish to obtain a CWA must submit specific information and documents concerning their U.S. performances to the IRS, including contracts for all engagements and a detailed budget for the U.S. performances. Using the information provided, the IRS estimates the artist’s actual tax liability for the U.S. income earned. There is one requirement that should be noted – if the foreign artist requesting a CWA has performed in the U.S. in previous years, the artist must have filed U.S. tax returns for those years reporting that income, regardless as to profit or loss. If the artist has not filed the required returns, he or she must do so before being eligible to receive a CWA. Also, the artist must agree to timely file a U.S. tax return for the current tax year.
Effective October 1, 2012, all requests for Central Withholding Agreements (CWAs) must be sent to the following address/fax number:
Central Withholding Agreement Program
Mail Stop: 1441
2001 Butterfield Road
Downers Grove, IL 60515-1050
Fax: (603) 493-5906
In 2011, the IRS imposed stricter requirements for obtaining a CWA. The IRS now requires the following information from artists requesting CWAs:
- Name, and countries of residence and citizenship for each individual (performers and non-performers) receiving compensation (including per diem) on the U.S. tour (note that the performing artists should be listed on the CWA application itself, and the non-performing personnel should be listed on an attached information sheet.) If any of the non-performing personnel are non-U.S. residents, 30% withholding will be required on the payments to these individuals UNLESS the individual a) resides in a country with which the U.S. has a tax treaty; and b) submits a valid IRS Form 8233 to the IRS to claim an exemption from withholding. NOTE: For the Form 8233 to be valid, it must include the individual's U.S. tax identification number. If the individual does not have a U.S. tax identification number (e.g., this is his or her first time working in the U.S.), there can be no exemption from withholding. If you are the withholding agent, the IRS will require you to show proof that taxes were withheld when you submit your final accounting;
- If there is a loss on the tour, a letter to the IRS signed by the artists themselves, stating who is absorbing the loss; and
- For artists who have performed in the U.S. earlier in the calendar year, the artist must provide each date and venue for the earlier performances, the gross revenues for each date, and any taxes that were withheld. The IRS will add the gross income from the earlier performances to the income on the upcoming U.S. tour - and also take into consideration any withholding from the earlier performances - to calculate the amount of withholding necessary to cover the artist's taxes.
The budget should include the following information:
- All U.S. Income: In addition to guaranteed performance fees, if any of the performance contracts provides for an overage (i.e., a bonus or percentage of the gross ticket sales after a certain number of tickets is sold), the IRS will expect some part of the overage to be included in the budget. Also, be sure to include figures for merchandising (e.g., t-shirt sales, CD/DVD sales, etc.) and also for sponsorship or tour support, if any;
- Hotel/Accommodations: In addition to including the budgeted number for accommodations, be sure to indicate how these costs are calculated (i.e., how many rooms, cost per room, for which dates);
- Travel Expenses: Provide as much detail as possible, including for each flight, the number of tickets to be purchased and the departure and destination city. If a tour bus is included in the budget, indicate on what legs of the tour the bus will be used, and how the cost is calculated (i.e., by the mile or by the day);
- Per Diems: The IRS will allow an artist to claim only 50% of his per diem as a deduction - the other 50% is considered income to the artist. Note that, for CWA purposes, the amount of allowable per diem is limited by the current government per diem rate, which varies from city to city, and may be found here: http://www.gsa.gov/portal/category/21287. For instance, the current meal per diem rate for Manhattan is $71. Therefore, the most that you can deduct as a per diem expense per individual for performances in Manhattan is $35.50. Anything above that amount will be considered income to the person receiving the per diem.
- Instrument Rental/Backline: Indicate specifically what rentals the cost will cover.
- Finally, note that if a performance contract provides that "house sound and lights will be provided," the IRS will not allow the artist to deduct any additional costs for sound and lights provided by the artist. If an artist is not going to use house sound and/or lights, be sure to strike this provision from the contract.
Note that in the past, third parties (such as agents, managers, promoters, and producers) could request a CWA on behalf of an artist, and submit an IRS Form 8821 authorizing the third party to communicate with the IRS on behalf of the artist. While this is still the case, the third party is no longer permitted to sign the cover letter accompanying the CWA request. The cover letter must be signed directly by each artist requesting a CWA. Note that the cover letter must include the language certifying "under penalties of perjury" that the information submitted in the request is true and accurate (see the instructions for requesting a CWA, IRS Form 13930).
Does the IRS require artists to enter into CWAs? Is there any repercussion for not doing so, as long as the artist files a complete U.S. tax return?
No – there is certainly no requirement that an artist obtain a CWA. The CWA program exists only as an option for individual artists to reduce their withholding rate.
The appropriate tax treatment for any particular artist is extremely fact-specific, depending on the artist's country of residence, the amount of money earned by the artist in the U.S., and the artist's status as an "individual" or "business" for tax purposes. The information included in this FAQ is not legal advice. For advice on specific situations, contact a qualified tax attorney.