A person or company responsible for withholding U.S. taxes from payments made to foreign individuals or businesses and remitting them to the IRS.
What is a Withholding Agent?
A Withholding Agent is any person or business—U.S. or foreign—that has control over or makes payments of U.S.-sourced income to a non-U.S. person. The withholding agent is legally responsible for deducting the appropriate amount of tax from the payment and submitting it to the IRS. For non-U.S. residents who own or operate U.S. companies, understanding this role is critical because your U.S. business may be considered a withholding agent in certain situations.
If your U.S. company makes payments such as dividends, interest, royalties, rent, or compensation for services to a foreign individual or entity, and that income is considered U.S.-sourced, you may be obligated to withhold up to 30% of the payment, unless reduced by a tax treaty. The withheld amount must then be deposited with the IRS. The company must also file IRS forms such as Form 1042 and Form 1042-S to report the withholding and provide the recipient with proper documentation.
To determine the appropriate withholding treatment, your business should request tax forms from the recipient, such as Form W-8BEN (for individuals) or Form W-8BEN-E (for entities). These forms help establish whether the payee is foreign, what type of income is being paid, and whether a tax treaty applies to reduce or eliminate the withholding requirement.
Acting as a withholding agent carries serious responsibility. If your business fails to withhold the required tax when it should have, the IRS can hold your company liable for the full amount that should have been withheld, along with interest and penalties—even if the payee was ultimately supposed to pay it themselves.
In short, a withholding agent acts as the IRS’s enforcement tool when payments are made to foreign individuals or entities. For non-U.S. founders with U.S. companies, this means you must carefully evaluate whether payments your business makes to foreign recipients trigger withholding obligations, and take timely steps to comply with all reporting and remittance rules.
