Foreign owner withholding
When a property manager pays rent to a nonresident alien (NRA) owner, US-source rental income is generally subject to 30 percent withholding under IRC section 1441. The manager acts as the withholding agent, remits the tax, and reports it on Form 1042-S (with Form 1042 annually), not a 1099.
The basics
- Default rate is 30 percent of gross rents for a nonresident alien owner.
- Reported on Form 1042-S per recipient and summarized on Form 1042.
- An owner can elect to treat the income as effectively connected (net basis) by filing Form W-8ECI, which changes how it is taxed.
- A tax treaty may reduce the rate for owners in certain countries.
Why it is easy to miss
Foreign owner withholding is a real liability that many managers handle manually or overlook, because it depends on knowing the owner tax residency and applying the right rate before the payout goes out. AXYS classifies owners, carves the required withholding out of the distribution at the source, and keeps a remittance worksheet, so a foreign owner payout is never sent gross by accident.
Is foreign owner withholding reported on a 1099?
No. Payments to a nonresident alien are reported on Form 1042-S under the section 1441 regime, not on a 1099, which is for US persons.
Who is liable if the tax is not withheld?
The withholding agent, typically the property manager, can be held responsible for tax that should have been withheld and remitted.
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