The Artists or Entertainers Exemption
Most (but not all) tax treaties include a limited exemption for individual performing artists. This exemption is usually available when the artist has no “permanent establishment” or “fixed base” in the U.S., and spends fewer than a certain number of days in the U.S. during the year. Of the treaties that include this limited exemption, many also put a cap on the amount an individual artist may earn tax-free in the U.S. For example, the U.S./U.K. tax treaty permits an artist who is a resident of the U.K. to earn up to $20,000 tax free. However, if an artist earns more than $20,000, the entire amount earned is subject to U.S. tax.
For foreign individuals, use caution when deciding not to withhold: Because the U.S. presenter or U.S. agent or manager cannot determine what other income the artist will receive in any given year, this exemption is usually inapplicable at the withholding stage – it would only apply to taxation. For example, assume that a pianist who resides in the United Kingdom performs one recital in the U.S. in April 2008. The total compensation is $15,000. While this amount alone would not be taxable in the U.S., if the pianist earns additional compensation and exceeds the $20,000 cap later in 2008, all of his compensation, including the $15,000 earned in April 2008, would be subject to U.S. tax. For this reason, a U.S. presenter or U.S. agent/manager must withhold the 30%, even if the compensation for that particular engagement is under the cap. If the presenter or agent/manager does withhold and the artist’s compensation does not exceed the cap, the artist may file a U.S. tax return (in fact – the artist is required to file a tax return) and recover the amount withheld.
Artists often submit a Form 8233 to our organization to claim exemptions from withholding. I now understand that, since I can’t verify the total amount the artist may earn in the course of a year, the Form 8233 will not sufficiently exempt the artist from withholding. Is there any circumstance in which I can accept the Form 8233 as proof of exemption from withholding?
There are only a few. Several countries are exempt from tax on all compensation paid for independent personal services (including the services of a performing artist). At present, these countries include Armenia, Azerbaijan, Belarus, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Moldova, Poland, Russia, Tajikistan, Turkmenistan, and Uzbekistan. If an artist resides in one of these countries, and meets the other requirements of the pertinent tax treaty to qualify for the exemption, then a presenter may accept a properly completed Form 8233 from an artist to exempt that artist from withholding.
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.