United States

California updates withholding at source regulations


Effective July 1, 2014, California adopted final revised withholding at source regulations that conform to current withholding laws and existing Franchise Tax Board (FTB) withholding procedures. This represents a significant step in the FTB's "Withhold at Source System Project" (WASS).

The WASS is a modernization project designed to integrate the FTB's withholding system into other FTB systems, implement greater security, and provide greater transparency for taxpayers subject to withholding. For the past several years, the FTB has been focused on refining the proposed withholding at source regulations to ensure consistency with California's withholding statutes, the WASS project forms and practices, and other departmental changes (such as electronic banking and file processing).

The revised withholding regulations have been reorganized into a simpler, more descriptive order and now include a table of contents, definitions, and rules applicable to all withholding at source. The regulations now provide specific guidance for major withholding areas, including:

  • Nonresidents
  • Nonresident independent contractors
  • Entertainers, athletes and speakers
  • Pass-through entities
  • Real estate withholding
  • Alternative real estate withholding elections
  • Reduced withholding
  • Credit for tax withheld

At present, the FTB has various documents providing withholding guidance that is not in conformity with the revised regulations, including:

  • FTB 1076 Withholding on Nonresidents With California Source Income
  • FTB Pub 1016 Real Estate Withholding Guidelines
  • FTB Pub 1017 Resident and Nonresident Withholding Guidelines
  • FTB Pub 1023R Real Estate Withholding Electronic Submission Requirements
  • FTB Pub 1023S Resident and Nonresident Withholding Electronic Submission Requirements
  • FTB 7429LLC Real Estate Withholding for Sales by Limited Liability Companies (LLCs)

It is anticipated that the FTB will revised these publications as part of the WASS, but until the revision process is complete, taxpayers should be aware that the guidance in these publications may be superseded by the new regulations. The actual forms used for computing, remitting and/or reporting withholding (Forms 587, 588, 589, 590, 590-P, 592, 592-A, 592-B, 592-V, 593, 593-C, 593-E, 593-I, 593-V, etc.) are likely still valid; however, the instructions to specific forms may be subject to revision.

Taxpayers required to withhold should review the revised regulations to ensure that their withholding procedures are in conformity. Continued reliance on other FTB withholding publications or form instructions may be misplaced, as any guidance therein may conflict with the revised regulations.