US tax for an owner abroad · A term for founders abroad
What is backup withholding?
The 24% a US payer must hold back from a payment when the payee hasn't given a correct taxpayer number.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 10 of 105 in the glossary, filed under B.IRS: backup withholding
Backup withholding, for a founder abroad.
When a US payee doesn't give a correct taxpayer number, usually on a W-9, the payer has to withhold tax at the current rate of 24% and send it to the IRS. It's why a company asks contractors for a W-9 before the first payment, and why a platform may hold back part of your payouts if your tax form is missing.
It's separate from the 30% withholding on foreign persons. A founder abroad who gives the right W-8BEN avoids both.
Sources: IRS: backup withholding.
Read next · guide · 3 minHiring US contractors from abroad: the W-9, the 1099-NEC, and the line you must not crossWhat founders ask next.
- Why was 24% withheld from my payout?
- Usually because the payer has no valid tax form for you. Give the right one, a W-8BEN for a foreign owner of a single-member LLC, and ask about the amount already withheld.
03 · See also
- US tax for an owner abroadForm W-9The form a US person or US company gives a payer with its tax number; what a multi-member LLC or corporation gives a US client.Read the term
- US tax for an owner abroadWithholding taxTax a US payer deducts before paying a foreign person: 30% on US-source passive income, unless a treaty rate is claimed on a W-8.Read the term
- US tax for an owner abroadForm 1099-NECThe form a US company files for each US contractor it paid $2,000 or more in a year, due to the contractor and the IRS by 31 January.Read the term
- US tax for an owner abroadDisregarded entityA single-member LLC the IRS ignores for income tax, treating its income as the owner's; it still files Form 5472 if the owner is foreign.Read the term
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