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. 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.

Foreign artists who wish to obtain a CWA must submit certain information and documents concerning their U.S. performances to the IRS, including contracts for all engagements and a 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 the previous three 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 preformed in the U.S. in any other years where there was a profit and an income tax liability, the artist must file a tax return for all years where a tax liability exists. 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.

While the IRS website indicates that an artist must apply for a CWA at least 90 days prior to the first U.S. performance, the IRS can usually process an application that is submitted as few as 45 days prior.

More information about CWAs is available at the IRS website. E-mail inquiries regarding CWA may be sent to the IRS directly at CWA.Program@irs.gov.

FAQ

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.