This Policy Statement has been modified and superseded by PS 2002(1)
Income Tax Withhholding for Athletes and Entertainers
PURPOSE: The purpose of this Policy Statement is to explain the Department's new requirements for income tax withholding at the source of payment for nonresident athletes and entertainers. This policy, which is modeled on California's nonresident withholding-entertainment guidelines, has been developed to facilitate the payment of income tax by nonresident athletes and entertainers on their income derived from Connecticut sources, as required by the Connecticut income tax regulations. This policy is not applicable to athletes and entertainers who are treated, for federal income tax withholding purposes, as employees by withholding agents.
BACKGROUND: Conn. Agencies Regs. §12-705(b)-1 requires income tax to be withheld from compensation paid to a professional athlete or entertainer for personal services performed in Connecticut. That regulation also provides that the person who pays the athlete or entertainer (or their agent) for rendering such services is treated as an employer, and that the athlete or entertainer is treated as an employee, for Connecticut income tax withholding purposes, whether or not such person is considered an employee for federal income tax withholding purposes. Consequently, the person who pays the athlete or entertainer must first register to withhold, withhold, then remit Connecticut income tax and file the returns as described below.
STATUTORY AUTHORITY: Conn. Gen. Stat. §12-705, Withholding of taxes from wages and other payments, Conn. Gen. Stat. §12-711(c), Determination of income, gain, loss and deduction derived from or connected with sources within this state, Conn. Gen. Stat. §12-701(c), Definition of "derived from or connected with sources within this state," Conn. Agencies Regs. §12-705(b)-1, Professional athletes and entertainers, and Conn. Agencies Regs. §12-707-2, Liability for tax.
EFFECTIVE DATE: Effective upon issuance.
GENERAL RULES FOR WITHHOLDING TAX AT SOURCE OF PAYMENT: Connecticut venues, or lessees of venues, that contract to pay athletes or entertainers (hereafter "performers") or performing entities for services performed in Connecticut are designated withholding agents. (Venues are locations where performances are held.) Under this policy, withholding agents are required to withhold Connecticut income tax at the source of payment at a rate of 4.5 percent of the gross payment to performers and performing entities, unless the Department grants a request for reduced withholding (see page 3).
If the Department grants a request for reduced withholding, income tax withholding at the source of payment will be required, at the rate of 4.5 percent, only for payments to nonresident performers who expect to earn more than $1500 during the calendar year for services performed in Connecticut. "Catch up" withholding will not be required for a performer who reasonably believed that its compensation for services performed in Connecticut for the year would not exceed $1500, but who later determines that the payments will exceed $1500. Other individual performers whose compensation is not subject to this withholding policy nevertheless remain liable for Connecticut income tax.
Note: When a performance is co-promoted, it is the promoters' responsibility to determine which promoter will be responsible for the withholding and to inform the Department accordingly.
PAYMENTS SUBJECT TO THESE WITHHOLDING RULES: The types of payments that are subject to withholding include, but are not limited to, payments for services performed in Connecticut by actors, singers, musicians, dancers, circus performers, writers, directors, set designers, any other person appearing on television, radio, the stage, in a night club performance or hotel show, and payments to any person whose performance in Connecticut is recorded or filmed. Other payments subject to withholding include payments to public speakers, wrestlers, boxers, golfers, tennis players, baseball players and other athletes, as well as payments to referees and trainers. These withholding rules are triggered by a performance in Connecticut, rather than whether or where such a performance is broadcast.
Under Conn. Agencies Regs. §12-701(a)(1)-1(a), an individual may be a resident of Connecticut for income tax purposes, and taxable as a resident, even though he or she would not be deemed a resident for other purposes. In general, a resident of this state includes every individual domiciled in Connecticut and any individual (other than an individual in the armed forces of the United States) who is not domiciled in Connecticut but who maintains a permanent place of abode in Connecticut, and spends in the aggregate more than 183 days of the taxable year in Connecticut.
A corporation, limited liability company or partnership has an office in Connecticut if it has an office in Connecticut that is continuously maintained, occupied and used by its regular employees, who are regularly in attendance to carry on its business in its own name.
The following examples illustrate the application of these rules and the withholding agent's responsibility to withhold.
Independent Contractors. Payments to independent contractors such as nonresident owners of bands, orchestras, plays, dance teams, circuses and other similar performing entities are also subject to these withholding rules.
Supporting Acts. Withholding is required on behalf of a nonresident supporting act when the contract is negotiated with a headliner, the withholding agent pays the headliner, and the headliner pays the supporting act. In that case, it is the withholding agent's responsibility to ensure that the tax is withheld and remitted properly.
Sound and Light Crews. Withholding is also required on payments made for sound and light services provided by nonresidents.
Contracts That Prohibit Withholding. Conn. Agencies Regs. §12-705(b)-1 supersedes any provision in a performer's or performing entity's contract that states that tax should not be withheld; income tax must still be withheld from payments for the performance.
EXCEPTIONS TO WITHHOLDING:
Income tax withholding at the source of payment is not required where:
the performer who receives payment for services performed in Connecticut is a Connecticut resident individual, or
the performer who receives payment for services performed in Connecticut is an individual who is treated, for federal income tax withholding purposes, as an employee by the withholding agent, or
the performing entity that is paid by the withholding agent registers to withhold income tax as a Connecticut employer, or
the performer or performing entity that is compensated for services performed in Connecticut is a corporation, limited liability company or partnership that has an office in Connecticut, or
the total amount of income derived from or connected with Connecticut earned by the nonresident individual performer is $1500 or less for the calendar year, or
the performer or the withholding agent receives a withholding waiver (Form CT-595, Notice to Withholding Agent) from the Department, or
the services are not performed in Connecticut.
However, withholding is required where the withholding agent pays a Connecticut promoter, who in turn pays a nonresident performer or performing entity with whom he has contracted to perform at a Connecticut venue.
Note: Because Connecticut law does not have provisions similar to federal law relating to foreign income protected by US tax treaties, a performer's Federal Form W-8, Certificate of Foreign Status, does not exempt the performer from these withholding requirements, and the performer is subject to Connecticut income tax. The performer may request a reduced withholding rate or waiver (see below) if the statutory amount will result in over withholding.
REDUCED WITHHOLDING RATES AND WAIVERS: Withholding agents are required to withhold income tax at the source of payment at a rate of 4.5 percent of the gross payment to performers and performing entities, unless the Department grants a request for reduced withholding. Performers or performing entities may request reduced withholding rates or waivers from the Department. The Department may permit tax to be withheld at a reduced rate when the 4.5 percent withholding rate will significantly exceed the income tax liability of nonresident performers who expect to earn more than $1500 during the calendar year for services performed in Connecticut. The Department may grant a waiver if the performer or performing entity has a satisfactory history of filing Connecticut returns, is currently making estimated tax payments or if the performing entity that is paid by the withholding agent registers to withhold income tax as a Connecticut employer.
To obtain a reduced rate or waiver, the performer or performing entity must submit Form CT-588, Athlete and Entertainer Reduced Withholding Request, and Form CT-590, Athlete and Entertainer Withholding Exemption Certificate (if applicable) to the Department. The Department must receive Form CT-588 and all applicable Forms CT-590 at least 14 calendar days before the date on which payment will be made for the performance.
Requests for a waiver or reduced rate should be sent or faxed to: Audit Division/Entertainment Withholding Section, Department of Revenue Services, 25 Sigourney Street, Hartford, CT 06106 (fax: 860-541-4599).
The Department will issue a Form CT-595, Notice to Withholding Agent, to authorize a reduced withholding rate or waiver or to deny the request. A withholding agent who receives an authorization to withhold at a reduced rate or an authorization to waive these withholding rules is absolved of liability to withhold at 4.5 percent of the gross payment for services performed in Connecticut.
If the withholding agent or performer has requested a reduced rate or waiver from the Department and the withholding agent has not received a reply by the date that payment is made to the performer or performing entity, the withholding agent should presume that the request has been denied and withhold the tax at a rate of 4.5 percent on the gross payment to the performer or performing entity. If the withholding agent or performer has requested a reduced rate or waiver from the Department and the withholding agent has not received an authorization of reduced rate or waiver from the Department within 14 calendar days of the due date of the return, the withholding agent or the performer may call the Department's Entertainment Withholding Section at 860-541-4542 for information on the status of the request. The withholding agent may be instructed to return any excess amounts withheld to the performer or performing entity.
SUMMARY OF PROCEDURES FOR WITHHOLDING, REPORTING AND REMITTING INCOME TAX WITHHELD:
Step 1. As designated withholding agents, venues and lessees of venues that pay performers or performing entities must register to withhold Connecticut income tax by filing a Form REG-1, Application for Tax Registration Number, with the Department with a letter explaining the requestor's intent to register for entertainer withholding purposes. A separate registration number will be assigned specifically for entertainment withholding purposes.
Step 2. When paying a performer or performing entity for services performed in Connecticut, the withholding agent must withhold 4.5 percent (or less if authorized by the Department) of the gross payment to the payee.
Step 3. The withholding agent must then complete a Form CT-594, Nonresident Athlete and Entertainer Withholding Remittance Statement, showing the amount withheld, date(s) of performance and the name of the payee/performer or performing entity.
Step 4. The withholding agent must complete a Form CT-941, Connecticut Quarterly Reconciliation of Withholding, showing all amounts withheld on behalf of nonresident performers for each calendar quarter.
Step 5. By the last day of the month following the end of the calendar quarter during which tax was withheld, the withholding agent must remit Connecticut income tax withheld, accompanied by a Form CT-941 showing the withholding agent's entertainment withholding registration number and all state copies of Forms CT- 594 for each calendar quarter's performances.
Step 6. (a) If the performer whom the withholding agent pays for services performed in Connecticut is the individual for whom income tax is being withheld, the withholding agent must show the amount of Connecticut income tax withheld on the Form CT-592, Nonresident Athlete and Entertainer Withholding Tax Statement and furnish it, along with the performer's copy of the Form CT-594, to the performer when payment is rendered. (b) Withholding agents then must also file with the Department a Form CT-1096, Connecticut Annual Summary and Transmittal of Information Returns, along with the "state copy" of each Form CT-592, by the last day of February of the year after the year during which the tax was withheld. (c) The individual for whom income tax was withheld must submit a copy of the Form CT-594 and a copy of Form CT-592 with his or her Form CT-1040 NR/PY, Connecticut Nonresident or Part-year Resident Income Tax Return. Additionally, filing such forms may be a prerequisite to obtaining a refund or credit against the individual's home state income tax.
Step 7. (a) If the entity that a withholding agent pays is not the individual for whom income tax is being withheld, the withholding agent must show the amount of Connecticut income tax withheld on the Form CT-594 and furnish it to the payee when payment is rendered. (b) At the close of the performance, the payee then must issue, or provide for the issuance of, a Form CT-592 and a copy of the Form CT-594 to the individual for whom income tax is being withheld. At the close of the performance, the payee must also issue, or provide for the issuance of, a copy of the Form CT-592 to the withholding agent to be submitted with the Form CT-941. (c) The individual for whom income tax was withheld must submit the state copies of Forms CT-592 and CT-594 with a Form CT-1040 NR/PY. Additionally, filing such forms may be a prerequisite to obtaining a refund or credit against the individual's home state income tax.
PENALTIES AND INTEREST: A withholding agent who fails to withhold or remit income tax withheld is liable for the payment of the tax whether or not it is withheld from the performer. The withholding agent is liable for the correct amount of the tax. In addition, the withholding agent is liable for penalties and interest as if the withholding due were the withholding agent's tax liability. See Conn. Agencies Regs. §12-707-2(a). In general, penalties will apply in cases of evading, failing to collect, account for or pay over tax; fraud; willful violations; and false statements relating to withholding allowances. See Conn. Gen. Stat. §§12-736, 12-737 and 12-738.
EFFECT ON OTHER DOCUMENTS: IP 92(8.2), Connecticut Circular CT, and IP 92(9.2), Is My Connecticut Withholding Correct?, are clarified.
EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current department policy or practice affecting the liability of taxpayers. Unlike a Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions.
PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.
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