Why was 7% income tax withheld on my independent contractor's payment?
The Franchise Tax Board requires the university to withhold 7% income tax on payments to non-California resident service providers who meet all of the following:
- Do not have a permanent place of business in California
- Perform their services in California
- Have USC payments in a calendar year of $1,500 or more
Nonresidents subject to this withholding include corporations, limited liability companies, partnerships, and individuals. Types of income subject to withholding include, but are not limited to, payments for services (consultants, speakers, designers, etc.) performed in California and payments of leases, rents and royalties for property (real or personal) located in California.
Disbursement Control & Accounts Payable will not withhold 7% under the following circumstances:
- Payments of goods
- Nonresidents who are registered through the Office of the Secretary of State
- Nonresidents who have provided Disbursement Control & Accounts Payable with a completed California Withholding Exemption Certificate Form 590 (available at: www.ftb.ca.gov).
Categories: FAQs - Taxes, FAQs - Independent Contractors