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Tax Returns

A foreign individual artist who receives compensation for personal services performed in the U.S. is required to file a U.S. tax return to report the U.S. income.  The correct return for nonresident individuals is Form 1040NR or Form 1040NR-EZ.^[1]  The foreign artist is required to file a tax return even if the income is exempt from U.S. income tax. Furthermore, filing an income tax return is the only way that the foreign artist might acquire the benefits of any allowable deductions or credits – or claim the benefit of certain tax treaty exemptions^[2] – and thus claim any refund of an overpaid withholding. Form 1040NR or Form 1040NR-EZ for any given calendar year is due by April 15 for employees and June 15 for independent contractors of the next year.

There is one exception to the above filing requirement.  If a foreign artist performs personal services as an employee in the United States and earns wages less than the personal exemption amount ($3,400 in 2007 tax year), that employee need not file a U.S. tax return.  Note, however, that this exception does not apply if the employee is seeking a refund of U.S. tax, has a U.S. income tax liability not satisfied by withholding, or has income either wholly or partially exempt for one of the reasons outlined above.

A foreign artist performing as an independent contractor would be allowed to deduct from his or her taxable income any ordinary and necessary business and travel expenses that were incurred in earning the U.S. income. These expenses would be claimed on a Schedule C (or Schedule C-EZ) as an attachment to the filed Form 1040NR tax return.  Note also that a foreign artist who is an independent contractor, unlike a U.S citizen or resident, is not subject to self-employment tax with respect to business income earned as an independent contractor.

For businesses, the proper tax return is Form 1120-F.  As with individual returns, expenses that are related to the U.S. performances (such as payments to employees or independent contractors, hotel, travel and per diem) are deductible for the purposes of calculating the businesses taxable income.

Aside from being in compliance with U.S. law, there are two added incentives for foreign artists to file their U.S. tax returns:

• If an individual fails to timely file a required return, he or she will lose any available deductions and any exemptions that may apply.  This means that the artist would not be allowed to deduct ordinary and necessary business expenses from his or her income, and any tax treaty exemption that might otherwise have applied to the artist would no longer be available.

• Federal agencies are getting more sophisticated about sharing information and databases.  At some point in the future, the IRS and U.S. Citizenship and Immigration Services could implement a policy where any individual applying for an “O” or “P” visa must be current on his or her tax returns to qualify for the visa.  In other words, if an artist has been granted “O” or “P” visa status previously, and the artist did not file returns for the years that he or she worked in the U.S., the requested visa would not be granted until the delinquent returns were filed.  While it’s doubtful that this policy will come to fruition any time in the very near future, it’s a good reason to begin filing required returns now!

FAQs

Does every individual have to file a U.S. tax return, regardless of whether they are an independent contractor for a U.S.-based organization, or an employee of a foreign organization?
Generally, yes. There is an exemption for artists who are performing as employees, if they make less than the amount of their personal exemption in a given year. The personal exemption amount for the 2007 tax year is $3,400, but this amount is subject to change by the IRS every year. One can determine the current personal exemption amount by going to www.irs.gov and searching “personal exemption.”

Our artists have found it difficult to obtain a U.S. tax ID, although tax is invariably withheld from their pay. Since these artists are likely overpaying U.S. taxes, are there any other risks being run by our artists in not submitting or being unable to submit a U.S. tax return through lack of a tax ID number?
Artists who perform in the U.S. are required to file U.S. tax returns. However, the penalty for failure to file a return is based on the amount of tax owed. Therefore, if the amount withheld exceeds the amount of tax that would be owed, there is no actual risk in failing to file a tax return. Note, however, that if the artist intends to enter into a Central Withholding Agreement (CWA) at some point in the future, the failure to file a U.S. tax return will prevent him/her from qualifying for a CWA.

Another consideration is whether the amounts withheld are being correctly applied to the artist’s tax debt. If the artist has no tax identification number, there is a greater chance that the withheld taxes will not be appropriately credited toward the artist’s debt. The moral here is that, even if taxes are withheld at the source, it still behooves the artist to obtain a tax identification number!

Will individuals that begin filing U.S. tax returns, but have not previously filed as required, be penalized because they are now showing up on the IRS “radar screen?”

No. Just because an artist begins filing U.S. tax returns does not necessarily mean that he or she has been delinquent in filing in the past, or that the IRS will necessarily apply penalties. (It could mean simply that the artist has not previously earned any income in the U.S.) What is more likely to trigger the IRS’s interest is if a presenter reports an amount paid to a nonresident artist, and that nonresident artist fails to file a tax return.

If the foreign individual does not file a U.S. tax return, and an organization makes a payment through a U.S. management agency, who would the IRS require to pay the penalty – the organization, or the agency? Is the original payer liable?
If no one withholds and the artist does not file a U.S. return, everyone is liable – the organization, the agency, and the individual artist.

I bring in artist groups from a European country with which there is a tax treaty and have helped them acquire a Federal Tax ID number. As the W-8BEN form has been filled in, signed by the artist group and shared with the presenting venue, no income tax has been withheld before monies have been paid to foreign based artist groups. Should each individual artist and member of these groups still file an individual U.S. tax return for their share of personal income they have each received from these monies, even though they may have filed an individual return on their side with the country in which they are legally based?
If a group is exempt from tax and withholding pursuant to a tax treaty, the U.S. presenter’s liability ends with obtaining a valid W-8BEN from the group. The group, however, is still required to withhold taxes on its payments to its performers. If individual artists are employees who earn less than the “personal exemption” amount in a tax year, the artists are not required to file U.S. tax returns. If, however, the performers are employees earning more than the personal exemption amount, or if they are independent contractors (regardless of the amount earned), then each individual performer is required to file a U.S. tax return.

For artists with limited English, completing a U.S. tax return can be very difficult. Where can they turn for help?
The IRS has a Taxpayer Advocate Service that strives to assist those who need help in preparing tax returns and related documents. By completing IRS Form 911, Request for Taxpayer Advocate Service Assistance, an individual may request assistance with any tax matter, and may request that the IRS contact him or her through an interpreter.

Also, the IRS offers publications that include glossaries of words and phrases used frequently in tax documents. The glossaries are currently available for the following languages: Spanish, Russian, Chinese, Korean and Vietnamese.

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.