Artists and Athletes (Income Codes 42

Because many tax treaties contain a provision for pay to artists and athletes, a separate category is assigned these payments for chapter 3 withholding purposes. This category includes payments made for performances by public entertainers (such as theater, motion picture, radio, or television artists, or musicians) or athletes.

Use income code 42 to report payments to nonresident alien athletes and entertainers (NRAAEs) who have not signed a central withholding agreement (CWA), discussed later. Use income code 43 to report payments to artists and athletes who have signed a CWA.

Income code 42, earnings as an artist or athlete—no central withholding agreement. You must withhold tax at a 30% rate on payments to artists and athletes for services performed as independent contractors. See Pay for independent personal services , earlier, for more informa- tion. You must withhold tax at graduated rates on pay- ments to artists and athletes for services performed as employees. See Pay for dependent personal services , earlier, for more information. However, in any situation where the nature of the relationship between the payer of the income and the artist or athlete is not ascertainable, you should withhold at a rate of 30%.

Income code 43, earnings as an artist or ath- lete—central withholding agreement. NRAAEs who perform or participate in events in the United States can request a CWA for a lower rate of withholding. A CWA is an agreement entered into by the athlete or entertainer, a designated withholding agent, and the IRS. Under no circumstances will a CWA reduce taxes withheld to less than the anticipated amount of income tax liability.

The IRS has temporarily waived the income requirement for which form to use when applying for a CWA. Form 13930-A is currently unavailable. While the waiver is in effect, individuals with income below $10,000 can apply for a CWA using Form 13930. For more information on how to apply for a CWA, see Form 13930.

For more information on the CWA program, go to IRS.gov/CWA .

Tax treaties. Under many tax treaties, compensation paid to public entertainers or athletes for services per

formed in the United States is exempt from U.S. income tax if the artist or athlete derives receipts for the tax year concerned, including expenses reimbursed to them or borne on their behalf, not in excess of $10,000, or in more recent treaties, $20,000. See Tax Treaties , later, for infor- mation about treaty benefits.

Employees and independent contractors may claim an exemption from withholding under a tax treaty by filing Form 8233. Often, however, you will have to withhold at the statutory rates on the total payments to the entertainer or athlete. This is because the exemption may be based upon factors that cannot be determined until after the end of the year.