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. As noted above, 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.
As of January 1, 2013, CWA requests must be received at least 45 days prior to the first event to be covered by the CWA. The IRS will not process any request it receives less than 45 days before the event, and therefore such event(s) will be subject to 30% withholding of the gross income. Foreign artists who wish to obtain a CWA must submit specific information and documents concerning their U.S. performances to the IRS, including contracts for all engagements and a detailed 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 previous years, the artist must have filed U.S. Tax Return for those years reporting that income, regardless as to profit or loss. 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.