| Date: | 12/13/2005 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax
Introduction
This Directive establishes and explains the application of the thresholds for the Performer Withholding Program implemented by the Department of Revenue (DOR) for performances on or after January 1, 2006.
Individuals who earn income connected with Massachusetts for performances, whether those performances are of an athletic, entertainment, or educational nature, may be subject to withholding on that income. Withholding may be waived for certain performers, for example for a resident of Massachusetts who has paid all of his or her Massachusetts taxes to date, or for a performer who is an employee of the withholding agent or performing entity for federal income tax withholding purposes. (See DOR's Guide to Withholding Taxes on Performers and Performing Entities for more information about the circumstances under which withholding may be waived.)
The threshold established in Directive 1 is a general threshold established pursuant to the withholding regulation, 830 CMR 62B.2.1(4)(f)3. The threshold explained in Directive 2 is established by G.L. c. 62B, § 2 and applies only to entities that are exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code.
Issue 1: What is the dollar threshold below which withholding on a performer is not required?
Directive 1: Withholding is not required if the gross payment by one payer to a performer or performing entity for performances during one calendar year does not exceed $5,000.
Discussion of Law
Withholding on performers and performing entities is required under 830 CMR 62B.2.1(4)(f), and 62B.2.1(6), promulgated pursuant to G.L. c. 62B, § 2, as amended by St. 2004, c. 262, § 21, approved Aug. 9, 2004. The regulation states that "[w]ithholding pursuant to 830 CMR 62B.2.1(4)(f) is not required if the payer reasonably anticipates that gross payment will not exceed the threshold established by the Commissioner." 830 CMR 62B.2.1(4)(f)3. Directive 1 establishes that threshold.
Gross payment for performances during a calendar year means all payments made by one payer to the same performer or performing entity for performances during that year. In determining whether the withholding threshold has been reached, a payer should not take a performer's expenses into account.
If a performer or performing entity has requested and received a waiver of withholding, as provided in 830 CMR 62B.2.1(4)(f)2, for every performance subject to withholding, gross payment to that performer or performing entity will be deemed to be below the withholding threshold. (A waiver of withholding must be requested in advance of the performance on Form PWH-WW.)
Payments made to a performer or performing entity must be withheld upon when the total payments by one payer to a single social security number or federal identification number exceed $5,000 for performances during one calendar year. Payments by one payer to an individual who is a member of a performing entity for one performance and who is paid as an individual performer for another performance should not be combined for purposes of determining whether the withholding threshold has been reached because these payments are made to different social security or federal identification numbers. Payments made to a performer or performing entity by different payers should not be combined for purposes of determining whether the withholding threshold has been reached.
The Commissioner has the power to "direct a withholding agent to withhold notwithstanding the established threshold." 830 CMR 62B.2.1(4)(f)3. Under this authority, DOR may direct a venue, promoter, or other performer withholding agent to withhold on a performer or performing entity because the performer or performing entity is earning substantial Massachusetts source income even though the $5,000 threshold has not been reached.
Even if withholding is not required, performers who earn income in Massachusetts are subject to personal income tax in Massachusetts and should make estimated tax payments to Massachusetts.
Examples of Directive 1
Note: No performer or performing entity in any example has received a waiver of withholding.
1a.
Robin, a stand-up comic, agrees to appear, for one performance only, on Friday night at Comedy Club for $6,000. Robin's expenses for travel, hotel, and meals come to $1,200, and Robin applies for, and DOR grants, permission to have the amount upon which withholding is calculated reduced to $4,800. Comedy Club is required to withhold since the gross payment to Robin is over the $5,000 threshold; the amount withheld upon is $4,800.
1b.
Rodney's Quartet performs for one night in July at Jazz Club. Jazz Club pays the Quartet, a performing entity, $10,000 for the performance. Jazz Club must withhold on the payment to the Quartet.
1c.
Same facts as 1b. except that Jazz Club pays each member separately, paying each of the four members of the Quartet $2,500 for the evening's performance. Jazz Club does not withhold on the payment to each member because the payment to each member does not exceed $5,000.
1d.
After the July performance in which each member of the Quartet was paid $2,500, Rodney's Quartet returns to Jazz Club in September for another performance. This time Jazz Club pays each member $2,750 for the evening's performance. For the September performance Jazz Club must withhold on the payment to each member, because the total payment Jazz Club has made to each performer for performances in one calendar year is now over $5,000. Jazz Club must therefore withhold on the $2,750 paid to each member.
1e.
Assume that for the July performance, Jazz Club paid the performing entity, Rodney's Quartet, $10,000 and withheld tax from that payment using the Quartet's federal identification number. Rodney's Quartet returns to Jazz Club in September, but this time payment of $2,750 is made to each of the four individual performers. Jazz Club does not withhold on the payments to the individual performers because Jazz Club's payments to the individual performers based on their social security numbers do not exceed $5,000.
1f.
Rick, who plays the saxophone in Rodney's Quartet, appeared at the Jazz Club in July and September. Jazz Club paid him directly $2,500 for the first performance and $2,750 for the second performance. Jazz Club withheld income tax from the payment for the second performance because its payments to Rick under his social security number exceeded $5,000. Rick returns to Massachusetts in October, this time as a solo performer, and he performs at Walden Theater, which pays him $3,000. Walden Theater would not be required to withhold under the rules of the $5,000 threshold because its payments to Rick do not exceed $5,000; however, because Rick has substantial Massachusetts source income, DOR, under its authority pursuant to 830 CMR 62B.2.1(4)(f)(3), notifies Walden Theater in advance of the performance that it must withhold on Rick, and Walden Theater complies.
1g.
Baystate Theater brings Katherine Starr, a nationally acclaimed actress, to perform her one-woman show in Boston. Baystate's agreement with Katherine requires a payment of $2,500 per performance for two performances in one weekend. The show is an unexpected sellout, and Katherine agrees to extend her stay and perform two additional shows the following weekend. Baystate is not required to withhold on the first two shows, since it did not reasonably anticipate that gross payment to Katherine would exceed $5,000. Baystate must, however, withhold on the payments made for the shows on the second weekend.
Issue 2: How does a federally tax-exempt 501(c)(3) entity determine whether it must withhold?
Directive 2: An entity that is exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code must withhold if the total gross payments to all performers and performing entities that are subject to withholding under the performer withholding regulation, excluding payments for which withholding has been waived, exceed $10,000 for a particular performance, event, program, or series. However, if the gross payment by the 501(c)(3) entity to a performer or performing entity for performances during one calendar year does not exceed $5,000, the threshold established in Directive 1, withholding is not required on that performer or performing entity.
Discussion of Law
The statute authorizing withholding on independent contractors, G.L. c. 62B, § 2, states that "nothing in this paragraph shall authorize the commissioner to require any corporation, foundation, organization or institution that is exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code, as amended and in effect for the taxable year, to withhold taxes from persons who are not employees, except where the payments made by the exempt person for a particular performance or other event exceed $10,000." G.L. c. 62B, § 2, as amended by chapter 262, § 21 of the Acts of 2004.
The regulation defines performance as an "event in which a performer or performing entity receives compensation for personal services performed in, derived from, or connected with sources within Massachusetts by competing, demonstrating, exhibiting, entertaining or educating an audience, making a public appearance, or endorsing merchandise." 830 CMR 62B.2.1(2).
An engagement of a performer or performing entity to appear several times in the same venue over a limited and defined period of time will be treated as one event. A theater run of a single production, for example, or multiple appearances of a concert performer, are considered one event for purposes of the $10,000 threshold, even if the performer or performing entity is paid in more than one payment.
If more than one performer or performing entity will be participating in a program that is presented or advertised as a single activity, it is one event and the payments to all the performers and performing entities participating in the event should be added for purposes of determining whether the $10,000 threshold has been reached.
A 501(c)(3) entity should not take a performer's expenses into account in determining whether the threshold has been exceeded. For purposes of calculating the $10,000 threshold, gross payment will not include payments to performers or performing entities that have requested and received waivers of withholding for the performance or event, as provided in 830 CMR 62B.2.1(4)(f)2.
If the payment to any performer or performing entity is below the $5,000 threshold established in Directive 1, the 501(c)(3) entity is not required to withhold on that particular performer or performing entity. The gross payment to a performer or performing entity that is below the Directive 1 threshold should, however, be included in determining whether the $10,000 threshold has been reached. Under no circumstances is withholding required by a tax-exempt 501(c)(3) entity if gross payment for the event is $10,000 or less. If the $10,000 statutory threshold has been exceeded, the 501(c)(3) entity should follow the rules of Directive 1 in determining whether the $5,000 threshold has been exceeded for a particular performer or performing entity.
Even if withholding is not required, performers who earn income in Massachusetts are subject to personal income tax in Massachusetts and should make estimated tax payments to Massachusetts.
Examples of Directive 2
Note: No performer or performing entity in any example has received a waiver of withholding.
2a.
Walden University, a tax-exempt 501(c)(3) entity, brings a world-renowned astronomer, Professor Cosmo Infinito, to deliver a lecture at the University. The University pays Professor Infinito $11,000 for his appearance. The University must withhold on its payment to Professor Infinito.
2b.
The Shakespeare Society, a tax-exempt 501(c)(3) entity, brings the Stratford Troupers to the Boston Common to perform Hamlet for three performances. The Society pays the Troupers $12,000 for the event. The Society must withhold on the Troupers, since the gross payment for the event exceeds $10,000.
2c.
The Forest and Trail Alliance, a tax-exempt 501(c)(3) entity, hosts an all-day fair in May as a fundraiser. The Alliance brings three musical acts to perform at the fair. The first band, The Walkers, has the stage from 10:00 am to 12:00 pm, and is paid $4,000. A second band, The Joggers, performs from 2:00 pm to 4:00 pm, and is paid $3,000. A third band, The Runners, performs from 6:00 pm to 9:00 pm, and is paid $6,000. The Alliance must withhold for the event, since total payment to all three groups is more than $10,000; however, since payments to The Walkers and The Joggers are each below the $5,000 threshold established in Directive 1, the Alliance is only required to withhold on The Runners.
2d.
The Forest and Trail Alliance, after the event described in Example 2c., hosts a second all-day fair in September and brings the same bands back. This time, The Walkers and The Joggers perform for free, while The Runners again earn a fee of $6,000. The Alliance does not have to withhold for the event, since gross payment for the event is not over $10,000.
2e.
The Forest and Trail Alliance, after the events described in Examples 2c. and 2d., hosts a third all-day fair in October and brings the same bands back. All three bands earn the same fees as they earned in May: $4,000 to The Walkers, $3,000 to The Joggers, and $6,000 to The Runners. The Alliance must withhold for the event, and because its payments to The Walkers and The Joggers now exceed the $5,000 threshold established in Directive 1, the Alliance must withhold on all three bands.
/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue
AL:JXD:lab
December 13, 2005
DD 05-4