{"id":175427,"date":"2020-08-27T15:57:00","date_gmt":"2020-08-27T19:57:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/what-kind-of-income-is-subject-to-withholding\/"},"modified":"2025-07-31T16:38:33","modified_gmt":"2025-07-31T20:38:33","slug":"what-kind-of-income-is-subject-to-withholding","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/what-kind-of-income-is-subject-to-withholding\/","title":{"rendered":"What Kind of Income is Subject to Withholding?"},"content":{"rendered":"<p>There are several different types of income subject to withholding.\u00a0 Obviously, the focus here is on investment income. However, a few other types will be mentioned.<\/p>\n<p>\u2022 The statutory rate &#8211; meaning defined by the tax code &#8211; is 30%.<br \/>\n\u2022 Many US tax treaties lower this rate to 15%.<br \/>\n\u2022 If you live in an EU country that is the standard treaty rate. Tax treaties lower the rate to a different point &#8211; for example 10% for China.<br \/>\n\u2022 The US is not the only country withholding income sourced from within the country. For example, Canada, France and the Netherlands also have withholding on payments sourced within their countries.<\/p>\n<p>IRS publication 901 contains an outline of many of the US tax treaties and is available for free at <a href=\"https:\/\/www.irs.gov\/\">IRS.gov<\/a>.<\/p>\n<h4>What types of income is subject to withholding?<\/h4>\n<p>\u2022 Interest Income (with exceptions)<br \/>\n\u2022 Dividend Income<br \/>\n\u2022 Payments in lieu of interest or dividends<br \/>\n\u2022 Rents<br \/>\n\u2022 Royalties<br \/>\n\u2022 Gambling winnings &#8211; some things do stay in Las Vegas<br \/>\n\u2022 Trade or business income<\/p>\n<p>This is not an all-inclusive list, but some of the more common types that investors &#8211; and perhaps vacationers have.<\/p>\n<p>\u2022 Proceeds from securities transactions of US securities are not subject to withholding assuming that the seller has proper, valid US tax documentation in place. A current W-8 BEN must be on file with the custodian for no withholding to occur on proceeds.<br \/>\n\u2022 For US withholding, the withholding agent, usually a bank or a broker, pays the withheld tax to the IRS on a weekly basis.<br \/>\n\u2022 Once the tax is paid and reporting forms filed the withholding agent has no claim against the IRS to make corrections or get refunds.<br \/>\n\u2022 Tax is withheld when the payment is made. For example, a dividend is declared and then is payable into your account 10 days later. The tax is withheld when the dividend is credited to your account.<br \/>\n\u2022 Not all interest is subject to withholding. Investment interest is not subject to withholding. It is, however, subject to reporting. You will receive a US tax form showing any interest credited to your account annually. However, if the interest is investment interest then there will be no withholding.<\/p>\n<h4>What is investment interest?<\/h4>\n<p>\u2022 Interest earned on US bonds including US government bonds is investment interest. Interest on free cash in a brokerage account is also investment interest. Interest paid by banks is usually investment interest &#8211; but not always.<br \/>\n\u2022 Dividends and Payments in lieu are withheld on at 30%. If you live in a treaty country, then a lower rate will apply.<br \/>\n\u2022 Payments in lieu are withheld on as if they were the actual payment. So, dividend payments are withheld on interest. Payments in lieu are not &#8211; if they substitute for investment interest.<br \/>\n\u2022 Withholding on Rents is complex and can also be changed depending on the type of real estate and how structurally it is owned. It may be a corporation, a partnership, or owned by an individual.<br \/>\n\u2022 The withholding rate on Royalties is generally 30%. However, certain types of royalties differ and tax treaties may lower the rate.<br \/>\n\u2022 Gambling winnings are withheld at 30%. This is one area where, for an alien, filing a US tax return may net a refund. It all depends on how much you win.<br \/>\n\u2022 Trade or business income &#8211; that is income paid out from a US trade or business other than as a dividend; the rate of withholding changes if the US tax rates change.<\/p>\n<p>Any adjustments in withholding because of re-classification from one income type or another generally can be done until reporting for the year is finalized. The final reporting by the withholding agent is due to the IRS in March for the previous year. Once reporting is complete the withholding agent is unable to receive a refund from the IRS.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this series, we will look at US taxes for non-US individuals.  Definitions are critical in this area of US tax and we will start with them.<\/p>\n","protected":false},"author":850,"featured_media":221502,"parent":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":true,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":{"0":"post-175427","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-interactive-brokers","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Archives | Traders&#039; Academy | IBKR Campus<\/title>\n<meta name=\"description\" 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