IRS has launched an Issue Management Team focused on improving U.S. income reporting and tax payment compliance by foreign athletes and entertainers who work in the United States. The initial focus is on those engaged in tennis, golf and music. These individuals and those associated with arranging their appearances in the U.S. and managing their financial affairs are typically high income individuals. Because of this, it is important to ensure proper tax reporting and payment.
IRS is using a three pronged approach for this initiative:
» improving the availability of information and guidance needed to help this group comply with income reporting and tax payment requirements
» providing IRS enforcement personnel with information they need to identify and work compliance issues frequently encountered with this population and
» conducting direct compliance and enforcement activity.
Foreign athletes and entertainers generally must pay US income tax on their US source income. This includes compensation for performances, endorsements, the sale of merchandise, and royalty, or other, income closely related to the event. These taxpayers are generally subject to special withholding rules. They are required to file a U.S. federal income tax return to report and pay any US tax.
» IRS focus on foreign athletes and entertainers
» Payments to Foreign Athletes and Entertainers are subject to special withholding rules. Refer to Artists and Athletes (Income Code 20) in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
» A Central Withholding Agreement (CWA) is a tool that can help reduce withholding for non-resident athletes and entertainers who plan to work in the United States. A CWA provides for the correct amount of withholding based upon net income.
» Prior to filing a US tax return, foreign athletes and entertainers must determine their Alien Tax Status
» A Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) must be furnished on tax returns, statements, and other tax related documents. In general, only non-citizens, who have permission to work from the Department of Homeland Security, can apply for a Social Security Number. Other non-resident aliens must apply for an Individual Taxpayer Identification Number (ITIN)