Withholding on Payments to California Nonresidents

Withholding on Payments to California Nonresidents

February 26, 2014

California Nonresident Withholding

Non-wage payments to nonresidents of California are subject to 7% state income tax withholding if the total payments during a calendar year exceed $1,500.

California nonresidents include:

  • Individuals who are not residents of California.
  • Business entities such as corporations, partnerships or LLCs that are either not registered with the California Secretary of State to do business in California or have no permanent place of business in California.

Payments subject to withholding include:

  • Payments to nonresident independent contractors who provide services in California.
  • Other non-wage payments of California source income to nonresidents such as leases, rents, royalties, winnings and payouts.

Reporting Requirements 

The amount of income withheld on and the tax is reported to each payee on Form 592-B, Resident and Nonresident Withholding Statement (see Related Information). Form 592-B must be issued to each payee by January 31 following the close of the calendar year.

Exemption From Withholding

The withholding requirements do not apply to:

  • Individuals or business entities who are residents of California.
  • Tax-exempt entities.

Form 590, Withholding Exemption Certificate (see Related Information) should be completed by the payee to certify exemption.

Waived or Reduced Withholding

Some payees may obtain approval from the Franchise Tax Board (FTB) for a withholding waiver or a reduced rate of withholding. In this case, a copy of the FTB approval letter should be retained.

If a waiver has been approved, there is no withholding on the payment. If a reduced rate has been approved, then the amount of tax indicated on the approval letter should be withheld.