Avoiding California Withholding: What Nonresidents Need to Know

Exemption, waiver, and withholding reductions requests available.

We are going to review the five forms available to request exemptions, waivers, and reductions on non-wage withholding required for both residents and non-residents. In this article, we will review the following California non-wage withholding requirements:

1. Form 590, Withholding Exemption Certificate;

   
   

2. Form 590P, Non-Resident Withholding Exemption Certificate for Previously Reported Income;

   
   

3. Form 587, Non-Resident Withholding Allocation Worksheet;

   
   

4. Form 588, Non-Resident Withholding Waiver Request; and lastly,

   
   

5. Form 589, Non-Resident Reduced Withholding Request.

Withholding is a prepayment of income or franchise tax due on the prepayments or distributions of California source income. Withholding is required on payments to non-resident independent contractors, including entertainers, rent or royalty payments to non-residents, distributions to non-resident beneficiaries, as well as payments to partners, members, and shareholders of pass-through entities. Withholding may be waived or reduced when the proper forms are completed and submitted by payees.

Now we’ll review the exemption, waiver, and withholding reductions requests available.

Avoiding California Withholding: What Nonresidents Need to Know

Form 590 – Withholding Exemption Certificate

Form 590 is completed by a payee who is a California resident or is considered a California entity. This form is used to certify exemption from withholding. When certified, no withholding is required. Please note the form must be completed and provided to the withholding agent prior to the payment. For the Form 590 to be valid, it must include name and address of the payee, the payee’s taxpayer identification number, SOS file number, social security number, individual taxpayer identification number, California corporation number, or federal employer identification number, the withholding agent’s name, a box checked in front of the applicable exemption, name and title of the individual completing the form, as well as the individual signature and date. The withholding agent must retain a copy of this form and provide it to FTB upon request.

Form 590-P – Nonresident Withholding Exemption Certificate for Previously Reported Income

Form 590-P is completed by a non-resident S-Corporation shareholder, partner in a partnership, or member of an LLC to certify an exemption from withholding on current year distributions on an S-Corporation’s, partnership’s, or LLC’s prior year California source income. The form must be provided to the withholding agent as proof of a qualified exemption for previously reported California source income and is due prior to payment. The withholding agent retains this form for a minimum of five years and must provide it to FTB upon request. To clarify, withholding is not required on distributions of prior year California source income if the S-Corporation shareholder or partner provides the withholding agent a signed form 590-P, certifying that they previously reported the income on the S-Corporation shareholder’s or partner’s California return.

Form 587 – Nonresident Withholding Allocation Worksheet

Form 587 is completed by non-resident payees that earned income in and out of the state of California to determine if withholding is required and the amount of California source income subject to withholding. Form 587 must be certified and is valid for the duration of the contract provided there is no material change in the facts. A non-resident payee submits form 587 to the withholding agent and the withholding agent must retain the form for a minimum of five years. The form must be available to FTB upon request.

Form 588 – Nonresident Withholding Waiver Request

Form 588 is a request for a waiver from withholding on payments of California source income to non-resident payees. The form may be submitted by the withholding agent or non-resident payee. Form 588 must be submitted to FTB at least 21 business days prior to the payment. Requests can be submitted online or by mail. If FTB approves the waiver, we will notify the requester and no withholding is required. The waiver is only valid for the remaining calendar year and the following calendar year.

Form 589 – Nonresident Reduced Withholding Request

Form 589, Non-Resident Reduced Withholding Request, is filed by a non-resident payee to request a reduced withholding amount. The standard withholding amount is 7% of the California source payments made to non-residents. The form 589 allows the non-resident payee to deduct their expenses and calculate the 7% withholding using the net amount of the payment. The total amount of expenses cannot exceed 50% of the gross California source payment. Requests can be submitted online or by mail. If submitted online, the request must be submitted 10 business days prior to the payment. If submitted by mail, the request must be submitted 21 business days prior to payment. Withholding on the gross payment is required unless the request is approved by FTB prior to the payment of California source income. If approved, FTB will provide an approval letter to the payee and withholding agent indicating the approved reduced withholding amount. The withholding agent retains a copy of the approval letter for a minimum of 5 years and must provide it to FTB upon request.

*Standard nonresident withholding is 7% on California‑source payments (including rent) once total annual payments exceed $1,500, unless an approved waiver/reduction applies

This concludes our presentation on exemptions, waivers, and withholding reduction requests.

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FTB Publication 1017 Resident and Nonresident Withholding Guidelines

Viktoriya Barsukova

CEO | Enrolled Agent | MBA

San Diego Precision Tax Service Inc.

📞 +1 (619) 910-1040

📧 viktoriya@sandiegotaxhelp.com