Due to budget and staffing issues, as of October 1, 2018, the IRS will no longer create Central Withholding Agreements (CWA) with artists making less than $10,000.
Wait, wait, wait, wait..before you click away thinking this fine Arts Hacker post has nothing to do with you, it actually might if you typically host any type of creative artist from other countries. These new regulations will make it more difficult for some artist to decide to work in the U.S.
Central Withholding Agreements make it easier for foreign artists to tour the United States. That is everybody from solo pianists and writers on book tours to the Rolling Stones.
A Central Withholding Agreement is made between an artist, the IRS and a US withholding agent. That withholding agent can be anyone and occasionally it is an arts organization, but will typically be the artist’s agent or a law firm.
Regardless, it can be helpful for arts organizations to understand how these changes influence foreign artists.
Absent a CWA or a tax treaty with their country of residence that says otherwise, an artist earning money in the U.S. would have 30% of every payment withheld. Imagine trying to tour the US and only getting a check for 2/3 of what you were owed.
A Central Withholding Agreement allows you to submit your tour plan and budget to the IRS and only have the projected actual tax withheld.
So if your taxable income after business expenses is 15%, this is the difference between having 15% withheld now and having 30% withheld now and getting the other 15% back after you file at the end of the year.
While it is all the same in the end, having that CWA set up helps with the cash flow situation while touring.
The $10,000 requirement then impacts smaller musicians the most. A small ensemble may have difficult choices to make about whether they can afford to do a handful of dates in the U.S. without raising their fees.
Also, CWAs are arrangements with individuals, not groups. A musical group might be paid $100,000, but if the front person is making $80,000 and bearing all of the business expenses and the side musician is making $5,000, the front person may only have 10% of earnings withheld while the side musician is having 30%.
Now fortunately, there are a number of things that can count toward that $10,000. If you are only making $5,000 but are receiving a sponsorship from your home country to tour the US and your airline and hotel costs are being paid by others, all that money and benefits count as taxable toward that $10,000.
For more information about these changes and pretty much any regulations impacting creative artists from other countries looking to work in the United States, check out Artists from Abroad. They keep abreast of all immigration/visa and tax issues impacting creative artists.
As is often the case with my posting on legal topics, I have to give a nod to Robyn Guilliams from G&G Arts Law who ran a session on this topic at the 2018 Arts Midwest Conference.