NRA withholding applies to foreign persons and not to U.S. persons. You normally determine whether a payee is a foreign person or a U.S. person by the documentation that is provided to you as the payer. Normally you would withhold the 30% tax unless you have valid documentation showing that the payee is a U.S. person, or a foreign person entitled to a lower withholding rate.
You can treat the payee as a U.S. person if you receive a Form W-9, since this form can only be used by U.S. persons. Foreign persons would normally provide you with a Form W-8. If you are paying a person for personal services, that person should give you a Form W-4, to have less tax withheld, or Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, to be exempt from withholding.
Documentation that can identify a foreign person as the beneficial owner includes Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. In addition to establishing the person’s foreign status, this form can be used to claim a reduced rate of withholding or an exemption from withholding based on a tax treaty. It can also be used to avoid 1099 reporting and backup withholding on income that is not subject to NRA withholding, such as proceeds from the sale of securities.
Identifying the Payee
There are some situations in which the person you are paying may not be the actual beneficial owner of that income. In these cases you will need to identify the actual payee or ultimate recipient or beneficial owner of your payment in order to determine whether that person is a foreign person subject to NRA withholding.
As mentioned above, you may have to withhold tax on payments made to a U.S. person who is receiving the payment as an agent of a foreign person. And there may be cases where you are paying an entity, but the entity should be disregarded for tax withholding purposes, because it is not a corporation and the owner and the entity are one and the same. In this case, if the owner is a foreign person, NRA withholding would apply unless the person presents documentation showing eligibility for a lower rate of withholding or exemption from withholding. If the owner is a U.S. person, NRA withholding does not apply, but you may need to report the payment on a Form 1099.