Get California 587 Form

How to Use California 587

After completing the California 587 form, the next step is to return it to the withholding agent. This form helps determine the appropriate withholding on payments made to nonresidents. Ensure all information is accurate and complete before submission.

1. Obtain the California 587 form from the appropriate source.
2. Fill out Part I with the withholding agent’s information, including name, address, and ZIP code.
3. Complete Part II with the nonresident payee’s details, including name, address, and identification numbers (SSN, ITIN, CA Corp. no., or FEIN).
4. Select the entity type for the nonresident payee by checking the appropriate box.
5. In Part III, check the box that describes the payment type being received.
6. Move to Part IV and enter the gross payments expected from the withholding agent, breaking them down by location (within California and outside California).
7. Calculate the total payments subject to withholding and enter the amount in the designated space.
8. In Part V, the payee or authorized representative must sign and date the form, certifying the information is correct.
9. Return the completed form to the withholding agent for processing.

What is the purpose of the California Form 587?

The California Form 587, known as the Nonresident Withholding Allocation Worksheet, is used to determine the amount of tax withholding required on payments made to nonresidents for services performed in California. Nonresidents fill out this form and submit it to the withholding agent, who uses the information to calculate the appropriate withholding amount. It is essential for compliance with California tax laws.

Who needs to complete Form 587?

Form 587 must be completed by nonresident payees who receive payments for services performed in California. This includes individuals, corporations, partnerships, limited liability companies, estates, and trusts. The withholding agent, who is responsible for making the payment, also needs to complete Part I of the form before providing it to the payee.

When is withholding required on payments to nonresidents?

Withholding is required when payments for services performed in California exceed $1,500 during the calendar year. If a nonresident performs all services within California, withholding applies to the entire payment. If services are provided both inside and outside California, the payee must allocate the income accordingly and indicate this on the form.

What happens if a nonresident payee wants to request a withholding waiver?

If a nonresident payee wishes to request a withholding waiver, they can use Form 588, the Nonresident Withholding Waiver Request. If the Franchise Tax Board grants this waiver, the payee must attach a copy of the determination letter to Form 587 when submitting it. This waiver can help reduce or eliminate the withholding requirement based on specific circumstances.

How long should the withholding agent keep Form 587 on file?

The withholding agent must retain Form 587 for a minimum of four years. This is important for record-keeping and compliance purposes. The form should be made available to the Franchise Tax Board upon request during this period.

What should a payee do if their information changes after submitting Form 587?

If the information provided on Form 587 changes, the payee is required to inform the withholding agent promptly. This ensures that the withholding agent has the most accurate and up-to-date information for calculating withholding amounts. A new Form 587 may need to be submitted to reflect these changes.

Filling out the California Form 587 can be a straightforward process, but many people make common mistakes that can lead to delays or complications. One frequent error is failing to provide complete information in Part II, especially the Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Without this crucial information, the form may be deemed incomplete, causing issues with processing.

Another mistake is neglecting to check the correct entity type. The payee must accurately identify whether they are an individual, corporation, partnership, or another entity type. Misclassification can lead to incorrect withholding calculations and compliance issues.

In Part III, some individuals mistakenly check multiple payment types instead of selecting only one. This can create confusion about the nature of the payments and the corresponding withholding requirements. Each payment type has different rules, and clarity is essential.

Many people also overlook the importance of accurately reporting income allocation in Part IV. They may either miscalculate the amounts for services performed within and outside California or fail to provide totals altogether. This section is critical for determining the withholding amount, and errors can result in under- or over-withholding.

Another common oversight is failing to attach a copy of the Franchise Tax Board (FTB) determination letter if a withholding waiver has been granted. Without this documentation, the form may not be accepted, leading to unnecessary withholding.

Some payees forget to sign and date the form in Part V. A signature is essential for certifying that the information provided is accurate and complete. Submitting an unsigned form can lead to processing delays.

Additionally, individuals often fail to inform the withholding agent of changes in their circumstances. If any reported facts change, it is crucial to submit a new Form 587 to reflect these updates. Neglecting this step can lead to incorrect withholding amounts.

Misunderstanding the withholding threshold is another mistake. Payees sometimes do not realize that withholding is optional for the first $1,500 in payments. They may either withhold unnecessarily or fail to start withholding when required.

Lastly, individuals may not retain a copy of the completed Form 587 for their records. It is advisable to keep this document for a minimum of four years, as it may be needed for future reference or compliance checks.

The California Form 587, known as the Nonresident Withholding Allocation Worksheet, plays a crucial role in determining the withholding tax obligations for payments made to nonresidents. However, it is often accompanied by various other forms and documents that help clarify and support the withholding process. Below is a list of common forms used alongside Form 587, each serving a specific purpose in the tax landscape.

• Form 590 - Withholding Exemption Certificate: This form is used by payees to claim exemption from withholding. It is essential for those who qualify, such as residents or entities with a permanent place of business in California.
• Form 588 - Nonresident Withholding Waiver Request: Nonresidents can use this form to request a waiver of withholding on certain payments. If approved, the waiver must be attached to Form 587.
• Form 593-C - Real Estate Withholding Certificate: This form is required when a nonresident sells California real estate. It certifies the withholding amount related to the sale and ensures compliance with state tax laws.
• Form 541 - California Fiduciary Income Tax Return: Used by estates and trusts, this form reports income and calculates taxes owed. It is relevant when distributions to nonresident beneficiaries occur.
• Form 100 - California Corporation Franchise or Income Tax Return: Corporations use this form to report income and calculate taxes owed. It is important for corporate payees that may be subject to withholding.
• Form 100S - California S Corporation Franchise or Income Tax Return: Similar to Form 100, this form is specifically for S corporations. It is used to report income and determine tax liabilities.
• Form 1099 - Miscellaneous Income: This form is issued to report various types of income, including payments made to nonresidents. It is crucial for ensuring that all income is properly reported to the IRS.
• Form FTB 1131 - Privacy Notice: This form provides information on how the Franchise Tax Board handles personal information. It is important for payees to understand their privacy rights.
• Form 593 - Real Estate Withholding Statement: This form is used to report the withholding on real estate transactions. It ensures that the correct amount is withheld from the sale proceeds for nonresident sellers.
• Form 540NR - California Nonresident or Part-Year Resident Income Tax Return: Nonresidents must file this form to report income earned in California and pay any taxes owed, regardless of withholding.

Understanding these forms and their purposes can help ensure compliance with California's tax regulations. Each document plays a vital role in the withholding process, providing clarity and structure for both payers and payees. Properly managing these forms will facilitate smoother transactions and help avoid potential tax issues down the line.

• Form 590: This form is used to certify withholding exemptions for payees who are residents of California or have a permanent business location in the state. Like Form 587, it helps determine if withholding is necessary based on the payee's status.
• Form 593: This document is specifically for real estate transactions. It certifies withholding for payments made to nonresidents when selling California real estate, similar to how Form 587 handles withholding for various payments to nonresidents.
• Form 588: This form is a Nonresident Withholding Waiver Request. It allows nonresidents to request a reduction or waiver of withholding, akin to the provisions in Form 587 for withholding exemptions.
• Form 1040NR: The U.S. Nonresident Alien Income Tax Return is filed by nonresident aliens to report income and calculate tax. Both this form and Form 587 address the tax obligations of nonresidents in California.
• Form W-8BEN: This is a certificate of foreign status for beneficial owners of income. It serves a similar purpose as Form 587 in establishing the tax status of nonresident payees for withholding purposes.
• Form W-9: This form is used by U.S. persons to provide their Taxpayer Identification Number (TIN) to payers. Like Form 587, it is essential for determining tax withholding obligations.
• Form 1099: This form reports various types of income other than wages, salaries, and tips. It is used in conjunction with Form 587 to report payments made to nonresidents that may be subject to withholding.
• Form 941: This is the Employer's Quarterly Federal Tax Return, which reports income taxes, Social Security tax, and Medicare tax withheld from employee paychecks. While it focuses on employees, it shares the theme of tax withholding with Form 587.
• Form 1042: This form is used to report income paid to foreign persons and the tax withheld on that income. It parallels Form 587 in its focus on withholding for nonresident payments.
• Form 1120: This is the U.S. Corporation Income Tax Return, which is relevant for corporations subject to withholding. Like Form 587, it addresses tax obligations for entities operating in California.

When filling out the California 587 form, there are several important dos and don'ts to keep in mind. Following these guidelines can help ensure that your form is completed correctly and efficiently.

• Do provide accurate information for all required fields.
• Do include your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
• Do check the appropriate boxes for your entity type and payment type.
• Do sign and date the form before submitting it.
• Do keep a copy of the completed form for your records.

• Don't leave any required fields blank.
• Don't submit the form if you are a California resident or have a permanent place of business in California.
• Don't forget to update the withholding agent if any information changes.
• Don't use abbreviations for your address, especially for countries.

Understanding the California Form 587 can be challenging, especially with the various misconceptions surrounding it. Here are nine common misconceptions, clarified for better understanding:

• Form 587 is only for individuals. This form is applicable to various entity types, including corporations, partnerships, and LLCs, not just individuals.
• No withholding is ever required. Withholding is required for payments made to nonresidents for services performed in California unless specific exemptions apply.
• All payments to nonresidents are subject to withholding. Payments for goods or services performed entirely outside of California do not require withholding.
• Once a withholding waiver is granted, it is permanent. Waivers must be re-evaluated, and payees are responsible for notifying withholding agents of any changes in their circumstances.
• The withholding rate is always 7%. While the standard rate is 7%, it can be reduced if a waiver is granted by the Franchise Tax Board (FTB).
• Form 587 is only needed at the time of payment. The form should be completed and submitted before any payment is made to ensure compliance with withholding requirements.
• Only California residents need to file this form. Nonresidents who perform services in California must also complete and submit this form.
• All nonresidents qualify for the $1,500 exemption. The exemption applies only if total payments of California source income do not exceed $1,500 during the calendar year.
• Once submitted, Form 587 does not need to be retained. Withholding agents must keep this form on file for a minimum of four years for compliance purposes.

Clearing up these misconceptions can help ensure compliance with California tax regulations and facilitate smoother transactions for all parties involved.

Understanding the California Form 587 is essential for nonresidents receiving payments for services performed in California. Here are five key takeaways to consider:

• Purpose of Form 587: This form is used to determine the withholding amount required on payments to nonresidents. The payee must complete and return it to the withholding agent.
• Withholding Requirements: Payments made to nonresidents for services performed in California are generally subject to a 7% withholding tax unless a waiver is granted by the Franchise Tax Board (FTB).
• Income Allocation: Payees must specify the portion of payments received for services performed within and outside California. Only payments sourced within California are subject to withholding.
• Threshold for Withholding: Withholding is optional for the first $1,500 in payments made during the calendar year. Once total payments exceed this amount, withholding must begin.
• Certification: The payee must certify that the information provided is accurate. This includes signing the form and agreeing to inform the withholding agent of any changes in circumstances.

By following these guidelines, nonresidents can ensure compliance and avoid potential issues with withholding on payments received in California.