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Tax Planning for Nonresident Alien Artists
The independent contractor nonresident alien (NRA) who has a high level of U.S. tax-related operating expenses may wish to consider the feasibility of obtaining a Central Withholding Agreement (CWA) or otherwise be saddled with 30% tax withholding on his or her gross fees, with ultimate settlement of the actual tax liability only when an income tax return is filed. Obtaining a CWA can be an involved process requiring projected budgets of net earnings to obtain a reduced rate of withholding and must be done well in advance of the U.S. work. Whether the luxury of time before the work even exists is fundamental, but then there are the professional fees likely required to apply for the CWA and prepare all the foundational materials for such application.
Early Tax Filing
The NRA who will be an employee of a third party will have some of the same considerations, most notably the potential avoidance of Social Security and Medicare liability that would be done by eliminating the tax withholding via the bilateral agreement and obtaining the necessary proof from the foreign tax authority to supply to their U.S. employer. However, this withholding position will not be subject to the flat 30% rate of U.S. income tax. The NRA can only claim a filing status of 'Single' (whether married or not) with one Withholding Allowance on a Form W-4 and consequently will have income taxes withheld for both federal, as well as any applicable state purposes, at the rate such filing status provides (effectively at the highest possible rate). The result is that, typically, the NRA artist who is an employee can have significant tax refunds and will be best served in filing their returns as early as possible to obtain them.
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