California Form 588: Nonresident Withholding Waiver Request

Must I withhold California tax on a payment to a nonresident?

Yes, if you pay California-source income to a nonresident and no exemption or waiver applies. California law requires the payer, called the withholding agent, to withhold 7% once total California-source payments to that payee pass $1,500 in a calendar year (FTB: withholding on nonresidents; Form 588 instructions).

The same rule covers owner distributions. A partnership, LLC or S corporation that distributes California-source income to a domestic nonresident owner is the withholding agent for that owner (Publication 1017).

A case is not simple when:

• the payee might be a California resident, or a corporation qualified in California, and nobody has checked;
• the work is split between California and other states;
• the payee is a foreign (non-US) partner, who follows different rules;
• the payer has many payees, or owners in several states.

Gather before the first payment: each payee's name, taxpayer identification number and address, whether the payee is a resident, the type of payment, where the work was done, dates, year-to-date totals, and any earlier waiver or exemption certificate.

Who counts as a nonresident payee, and who is exempt?

A nonresident payee is any person or entity that is not a California resident and receives California-source income. The FTB's list includes nonresident individuals, corporations, partnerships and LLCs with no California registration or permanent place of business, trusts with no resident grantor, beneficiary or trustee, and estates of nonresident decedents (FTB).

Withholding is not required for these payees, who certify their status on Form 590, the Withholding Exemption Certificate (Publication 1017):

• California residents
• corporations with a permanent place of business in California, or qualified with the California Secretary of State
• partnerships and LLCs with a permanent place of business in California or registered there
• tax-exempt organizations
• insurance companies, IRAs and qualified pension or profit-sharing plans
• California trusts and estates of California residents
• nonmilitary spouses of servicemembers who meet the Military Spouse Residency Relief Act rules (Form 590)

Payments to a federal, state or foreign government or its agencies also need no withholding (Form 588 instructions).

Two traps: single-member LLCs are not disregarded for California, so name the LLC as the payee (Form 588 instructions); and a withholding agent that knowingly accepts a false Form 590 carries the failure-to-withhold liability (Publication 1017).

Which payments are covered, and which are not?

Payments for services performed in California, rent or royalties from California property, prizes, and distributions of California-source income to nonresident owners and beneficiaries are covered. Where the payee lives, where the contract was signed and where the money is sent do not decide it; where the work is done does (Publication 1017).

Backup withholding replaces other withholding where it applies, and Form 588 does not apply to it (Form 588 instructions). When a payee works partly in California, the payee can complete Form 587 to split the payment, and the withholding agent may rely on a complete, signed worksheet (Publication 1017). Rent paid to a nonresident landlord has its own guide: nonresident landlords.

How much do I withhold, and when do I send it?

Withhold 7% of the California-source payment, or a lower amount if the FTB has approved reduced withholding on Form 589. Withholding is optional on the first $1,500 paid to a payee in a calendar year, and it must begin as soon as the year's total passes that line. There is no catch-up on earlier payments (Form 592 instructions; Publication 1017).

Every payment made after the year's total has passed the line is withheld in full: the FTB sources agree on that. They differ on one payment, the one that carries the total over the line. The FTB web pages say to withhold on the part "more than" the threshold. Publication 1017 says the rate applies to gross payments, and every worked example applies it to the whole California-source payment. The FTB does not reconcile the two, so this guide's examples use Publication 1017, the longer guidance. A job paid in one sum above the line is this case: confirm the method with the FTB.

Send the tax each payment period, with the matching forms:

A payment due date on a weekend or holiday moves to the next business day. The payee statement, Form 592-B, is due January 31 following the calendar year; for 2026 payments, with January 31 on a Sunday, that is February 1, 2027. Keep each form for at least five years. With more than 250 payees, file Form 592 or 592-PTE electronically; the FTB web page and Publication 1017 say 250 or more (Form 592 instructions; Form 592-B; FTB).

Who can request a Form 588 waiver, and why?

The withholding agent, the payee, or an authorized representative of either can file Form 588. The waiver is for domestic nonresident payees only. A foreign (non-US) partner or member cannot request a waiver and may ask for reduced withholding on Form 589 instead (Form 588 instructions).

The form asks for a reason code for each payee:

Choose the income type in Part III (independent contractors, trust distributions, rents or royalties, owner distributions, estate distributions or other) and list every payee on the form's own Schedule of Payees. Do not attach your own schedule. For a sole proprietor, also attach Schedule C or F. The FTB accepts a Social Security number, ITIN, federal employer identification number, California corporation number or Secretary of State file number as the taxpayer identification number (Form 588 instructions).

How early do I file Form 588, and when can I stop withholding?

File at least 21 business days before the first payment. Registered users can file through MyFTB; the form can also be mailed or faxed. The FTB's web page says processing takes about a month, so earlier is safer (Form 588 instructions; FTB).

The FTB issues a Waiver Determination Notice for each request. The withholding agent must have received it before it stops withholding. A pending request does not count. If you withheld but have not yet sent the money in and a waiver arrives, return the amount to the payee (Publication 1017).

Payments of $1,500 or less in the calendar year need no waiver. Above that line, a first-time payee still needs a reason code.

How long does a waiver last, and what must I keep?

A waiver lasts a maximum of 24 months and expires on December 31 of the calendar year after the one in which it was granted. A reason code D waiver expires at the end of the calendar year after the payee was newly admitted. The withholding agent keeps the notice for at least five years and gives it to the FTB on request (Form 588 instructions).

Calendar a renewal request before the expiry date. After it expires, withholding resumes on the next payment. A payee that fell out of compliance, for example by missing a return, may not qualify for a new waiver.

Does a waiver or withholding end the payee's California return duty?

No. A waiver applies only to the withholding duty under R&TC section 18662. It does not decide whether the income is taxable or whether the payee must file. A nonresident who meets the filing rules files a California return even when a waiver or an exemption applied, and may owe a penalty for not filing, filing late, or withholding that falls short of the tax (Form 588 instructions; Publication 1017).

Tax withheld is a credit. The payee claims it on its own return: Form 540 or 540NR (individuals), 541 (fiduciaries), 100, 100S or 100W (corporations), 109, 565 or 568. Excess withholding is refunded on a return that allows refunds. A pass-through entity that was itself withheld on cannot take a refund; any credit it does not use against its own tax goes to its owners on Form 592-PTE (Publication 1017).

Which other form applies instead of Form 588?

Use the form that fits the payee and the payment:

Foreign partner withholding is based on allocated income, not distributions, and uses California's highest rate for the partner's type: 12.3% for non-corporate partners, 8.84% for corporate partners and 10.84% for foreign banks and financial institutions. For a non-corporate foreign partner, an additional 1% applies to the share of income over $1,000,000 (Form 592-F instructions). See foreign partner withholding. A funds-wide view is in the fund withholding guide.

Electing California's pass-through entity elective tax does not affect the withholding requirement (FTB: PTE elective tax help). Whether to elect is a separate question: see the PTET election guide.

What if I paid a nonresident without withholding?

The withholding agent can be personally liable for the tax it should have withheld, plus interest, unless the failure was due to reasonable cause (Form 592 instructions). The liability is the greater of the amount actually withheld, or the nonresident's tax due, capped at the amount required to be withheld. Interest runs from the due date of the withholding payment (Publication 1017).

Penalties are separate and are assessed per payee. Form 592-PTE carries the same three tiers as Form 592, and Publication 1017 sets the same top figure for Form 592-F:

The FTB may withdraw penalties for reasonable cause. Publication 1017 says penalties are not imposed on a withholding agent that makes a good-faith effort to comply when its estimate of the California-source share proves inaccurate (Publication 1017; Form 592 instructions). Publication 1017 also says a "no withholding" clause in an entertainer's contract does not remove the duty. If you missed periods, a stack of years or many payees, work through the periods before filing anything.

Example

These examples use US dollars and round numbers. Where a payment carries the year's total over the $1,500 line, they use Publication 1017's method.

A Nevada consultant works in California

A company pays a Nevada consultant $20,000 for work done entirely in California. The total is above the $1,500 line, and no exemption fits. Under Publication 1017's method, withholding is 7% of $20,000, or $1,400; the FTB web pages' "more than $1,500" wording would give 7% of $18,500, or $1,295. If the consultant has two years of California returns on file and is current with the FTB, either side can file Form 588 with reason code A at least 21 business days before the first payment. Until the Waiver Determination Notice arrives, the company withholds.

A Texas LLC distributes to a nonresident member

A Texas LLC taxed as a partnership earns California-source income and distributes $50,000 of it to a Florida member. The LLC is the withholding agent for that member. Unless the member has a waiver, a Form 590-P or another exemption, the LLC withholds 7%, or $3,500, reports it on Form 592-PTE, pays it with Form 592-Q, and gives the member a Form 592-B. Electing the pass-through entity elective tax would not change this. The member still files a California return and claims the $3,500 as a credit.

A Washington corporation qualified in California

A payer is about to withhold on a Washington corporation. The corporation is qualified with the California Secretary of State. The payer asks for a completed Form 590 and keeps it. With that certificate, withholding is not required, and no Form 588 is needed.

Different for you?

• Your entity may not need to file in California at all: see business income tax in other states.
• Your payee is a foreign (non-US) partner or owner: a waiver is not available; see foreign partner withholding and talk to corporate tax help.
• You run a fund with investors in many states: read fund state returns and nonresident withholding.
• You pay rent to a nonresident landlord: see nonresident landlords.
• You pay contractors outside the US: see paying contractors abroad.
• You own an S corporation and want to compare payment methods: see S corporation estimated tax payments.
• You are weighing a pass-through entity tax election: see the PTET election guide.
• You missed withholding for several payees or periods, or have many owners: get corporate tax help before you file the late forms.
• You are selling California real estate: that sale uses Form 593, not Form 588.