TAXATION OF ATHLETES AND ARTISTS PERFORMING IN THE UNITED STATES
The United States is one of the world’s most important destinations for international athletes and artists. Whether performing as employees or independent service providers, a performance in the United States will have tax consequences. A careful evaluation of contracts and the type of income being generated is necessary to ensure full tax compliance.
U.S. Tax Status of International Athletes and Artists
Foreign (non-American) athletes and artists performing in the United States are treated as non-residents for U.S. tax purposes unless their physical presence in the United States exceeds a certain number of days (this is called the ‘substantial presence test’). Even if you passed the substantial presence test, you can still be treated as a nonresident taxpayer under the provisions of a tax treaty between the United States and the country where you are a tax resident.
Depending on a taxpayer’s tax status, the right to tax certain types of income is allocated to either the United States or the country where the international athlete or artist is a resident for tax purposes.
Any U.S.-sourced income of nonresident athletes and artists is either taxed at graduated tax rates or is subject to withholding tax at a rate of 30% on the gross amount. If the amount of tax withheld at source is greater than the final amount of tax due (to be determined by filing a U.S. tax return), the difference will be refunded by the U.S. tax authorities (IRS).
State and Local Income Taxes
In addition to federal income taxation, international athletes and artists may be subject to state and local income taxation. Income earned in a particular state is subject to taxation in that state. There may be a state tax liability even if there is no federal income tax liability. And even if there is no state or federal income tax liability, there may still be a tax return filing requirement.
Reducing Withholding: IRS Central Withholding Agreement
The U.S. tax code requires all persons having the control, receipt, custody, disposal, or payment of certain items of income from sources within the United States of any nonresident individual, to deduct and withhold from such income a tax equal to 30 percent thereof (U.S. withholding agents). The income subject to this withholding includes payments made to athletes and artists performing in the United States.
If a Central Withholding Agreement (CWA) is executed between the U.S. withholding agent and the nonresident athlete or artist, income paid to the nonresident athlete or artist may be wholly or partially exempted from withholding. Instead, tax is withheld on projected net income at a graduated tax rate. A CWA does not reduce or increase the nonresident athlete’s final U.S. tax liability.
As an authorized representative, Sanders US Tax Services may apply for a CWA on behalf of the nonresident athlete or artist. Such application must be submitted with the IRS at least 45 days before the nonresident athlete or artist’s first performance in the United States. All members of the group performing in the United States must apply for the CWA together.
The IRS requires a written application, including documentation that substantiates all income, expenses, and a budget, as well as an itinerary of dates and locations of all performances and events. Nonresidents athletes and artists performing in the United States may be required to apply for a visa. In addition, they may be required to apply for a U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
It is important to note that, in addition to the CWA, there are other circumstances under which payments to international athletes and artists performing in the United States are exempt from U.S. withholding tax. For example, there may be no withholding requirement due to tax treaty provisions of if the payments are made to certain tax-exempt organization.
For more information about U.S. taxation of athletes and artists performing in the United States or the IRS Central Withholding Agreement, please contact us. Sanders US Tax Services specializes in tax return preparation and filing for non-Americans with U.S.-source income. We can help with any questions you may have about the U.S. tax system.