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Compliance Blog highlights new IRS withholding certificate regs
NAFCU Regulatory Compliance Counsel David Park breaks down the Internal Revenue Service's (IRS) new rules regarding withholding certificates in a new post on the Compliance Blog. The IRS finalized the regulations explaining due diligence and reporting rules applicable to credit unions making U.S. source payments to foreign persons earlier this year.
"The final regulations, among other things, clarified the requirement for a withholding agent to obtain a foreign taxpayer identification number (foreign TIN) and date of birth on a withholding certificate," writes Park.
In the blog, Park provides credit unions with background information on the regulation, including highlighting the IRS' specific definitions for a foreign person, U.S. person, U.S source income, and withholding agent.
"IRS Publication 515 notes that foreign persons are usually subject to a U.S. tax of 30% on U.S. source income unless there is an applicable exemption," explains Park. "If the credit union has members that are foreign persons under the IRS's definition, it is possible that the members could be subject to a 30% tax on any U.S. source income payments made by the credit union (e.g., the payment of dividends)."
Park notes that dividends can be exempt from the domestic backup withholding requirement; however, "foreign persons are required to submit a Form W-8BEN, a withholding certificate, in order to claim the exemption."
Additionally, Park explains the requirements to obtain a foreign TIN and date of birth on a W-8BEN and consequences of not having a valid withholding certificate.
Read Park's full blog for more on the foreign TIN and date or birth requirements for withholding certificates. Those interested may sign up to receive new posts straight to their inbox every Monday, Wednesday, and Friday.
Have a question? NAFCU member credit unions have direct access to the association's award-winning Compliance Team via email or the compliance helpline for assistance with federal compliance issues.