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Plan ahead for California payments to out of state residents

California requires 7% withholding (of income or franchise tax) from certain payments made to nonresidents (including individuals, corporations, partnerships, LLCs, estates and trusts) for income received from California sources unless an approved waiver or reduction is granted.

Covered payments include:

  • Compensation for services performed in California by nonresidents.
  • Rent paid to nonresidents on real or personal property located in California if the rent is paid in the course of the withholding agent’s business.
  • Royalties from natural resources paid to nonresidents from business activities in California.
  • Distributions of California source taxable income to nonresident beneficiaries from an estate or trust.
  • Distributions of California source taxable income to a domestic (nonforeign) nonresident S corporation shareholder, partner, or member.

Apply for a Waiver 

A waiver of withholding on payments to out of state persons (including distributions from an LLC to its members) can be obtained by filing California Form 588 with the Franchise Tax Board 21 business days before the payment is made. 

Once filed and approved by California, the waiver is effective for a maximum term of 24 months and expires on December 31 of the succeeding calendar year granted. 

Assistance

Please contact us if you have questions or need assistance filing these forms.