If your partnership has any foreign partners, there is a good chance you are required to withhold tax on their share of the income. That is what Section 1446 of the Internal Revenue Code is all about, and Forms 8804 and 8805 are the IRS forms that make it work.
The rules can feel heavy the first time you work through them, but once you understand what each form does and how they connect, the process is pretty straightforward. Here is a walkthrough of how partnership withholding tax works, who needs to file, and what to watch for.
Section 1446 says that any partnership (domestic or foreign) with effectively connected taxable income allocable to foreign partners must withhold tax on that income. The idea is similar to employer withholding: the IRS wants to collect tax at the source rather than waiting for the foreign partner to file a return.
The partnership withholds based on each foreign partner's share of effectively connected income (ECI), applies the appropriate withholding rate, and remits the tax to the Internal Revenue Service. The partnership then reports the total section 1446 withholding tax on Form 8804 and issues a separate Form 8805 to each foreign partner.
This applies to both a US partnership and a foreign partnership that has ECI from a U.S. trade or business. If there is partnership ECTI allocable to foreign partners, the obligation to withhold kicks in.
Any partnership that is required to pay withholding tax under Section 1446 must file Form 8804. This is the annual return for partnership withholding tax. Think of it as the summary form that reports the total section 1446 tax liability for the year.
Form 8804 shows the total amount of ECTI, the withholding rate applied to each type of partner (corporate vs. non-corporate), and the total tax paid during the year. It reconciles what was owed with what was actually remitted through quarterly payments on Form 8813.
The partnership must file Form 8804 by the 15th day of the 3rd month after the end of the partnership's tax year. For calendar-year partnerships, that means March 15. If the partnership needs more time, Form 7004 extends the deadline by six months.
A domestic partnership with foreign partners files this form. A foreign partnership with ECI that has foreign partners also files it. If a partnership has only U.S. partners and no foreign person holds a partnership interest, there is no Section 1446 obligation and no need to file.
Form 8805 is the foreign partner's information statement of Section 1446 withholding tax. It tells each foreign partner how much ECTI was allocated to them and how much Section 1446 tax was withheld on their behalf.
The partnership must issue Form 8805 to every foreign partner. Each partner gets their own copy of Form 8805 showing their individual numbers. The partner then uses this form when filing their own U.S. tax return (Form 1040-NR or Form 1120-F, depending on whether the partner is an individual or a corporation) to claim a withholding credit for the tax already paid.
A separate Form 8805 is required for each foreign partner, even if some partners had no ECTI for the year. The form is also filed with the IRS along with Form 8804.
When a foreign partner receives a Form 8805, it serves as proof that withholding tax was paid on their behalf. Without it, claiming credit on their own return gets complicated.
The withholding rate under Section 1446 depends on the type of foreign partner:
For non-corporate foreign partners (individuals, trusts, estates), the rate is the highest rate for the tax year, which is currently 37%.
For corporate foreign partners, the rate is the highest corporate rate, currently 21%.
The base for the withholding is the partnership's effectively connected taxable income allocable to each foreign partner. This is not the same as gross income. ECTI is computed using the partner's share of income, gain, loss, and deduction that is effectively connected with a U.S. trade or business, with certain adjustments.
If the partnership can reduce section 1446 withholding by using a Form 8804-C (more on that below), the amount can be adjusted. Tax treaties between the U.S. and the foreign partner's home country can also affect the calculation, though treaty reductions are handled through the 8804-C process rather than applied automatically.
Several other forms connect to the 8804 and 8805 filing:
Form 8813. This is the quarterly payment voucher. The partnership uses it to remit the tax in installments throughout the year rather than waiting until the annual return is due. These payments tie back to the Form 1065 filing and the Section 1446 obligation. Payments are generally due by the 15th day of the 4th, 6th, 9th, and 12th months of the partnership's tax year. Use Form 8804-W to estimate the installment amounts.
Form 8804-C. A foreign partner can submit this form to certify partner-level items that would reduce their effectively connected taxable income (things like deductions, losses, or treaty benefits). If the partnership accepts a valid 8804-C, it can reduce the amount it withholds for that partner. The partnership must still prepare Form 8804 and report the adjusted numbers.
Form 1042-S and Form 1042. These are different withholding forms used for other types of payments to foreign persons (like fixed or determinable income). They are not the same as the Section 1446 system, but partnerships with foreign partners sometimes need to file both sets depending on the types of income involved.
Form W-8ECI. Foreign partners who receive ECI typically provide this form to the partnership to certify that their income is effectively connected. It is part of the documentation that supports the withholding process.
Not every partnership with a foreign partner has to withhold. There are a few exceptions worth knowing:
If the partnership has no effectively connected income for the year, there is nothing to withhold on. No ECTI means no Section 1446 tax liability.
If the foreign partner provides a Form 8804-C showing that their partner-level deductions reduce ECTI to zero, the partnership can reduce section 1446 withholding to zero for that partner. The partnership can demonstrate reasonable cause for relying on the certificate if the IRS later challenges it.
Certain publicly traded partnerships have different withholding rules that fall under Section 1446(f) rather than the standard rules, and those are handled through different forms.
If a partnership has a mix of U.S. and foreign partners, it only withholds on the shares allocable to the foreign partners. The U.S. partners are not subject to Section 1446.
Form 8804 and Form 8805 are generally due by the 15th day of the 3rd month after the close of the partnership's tax year. For most partnerships, that is March 15. Form 7004 extends this to September 15.
If the partnership does not pay the withholding tax on time, the IRS can assess penalties and interest on the unpaid tax. The penalty for late filing and late payment is similar to other withholding agents. The IRS may waive penalties if the partnership can demonstrate reasonable cause for the delay.
Madras Accountancy supports U.S. CPA firms with international tax compliance for partnerships with foreign partners, including the full 8804 and 8805 filing workflow.
1. What is Form 8804? It is the annual return for partnership withholding tax under Section 1446. It reports the total withholding tax liability on effectively connected income allocable to foreign partners.
2. What is Form 8805? It is the information statement of Section 1446 withholding for each foreign partner. It shows how much ECTI was allocated and how much tax was withheld. The partner uses it to claim a credit on their U.S. tax return.
3. Who is required to file? Any partnership (domestic or foreign) that has ECTI allocable to foreign partners and must withhold under Section 1446.
4. What is the withholding rate? 37% for non-corporate foreign partners and 21% for corporate foreign partners, based on the highest applicable tax rates.
5. Can the withholding amount be reduced? Yes. A foreign partner can file Form 8804-C to certify deductions, losses, or treaty benefits that reduce their ECTI. The partnership can then lower the withholding accordingly.
6. When are Forms 8804 and 8805 due? They are generally due by March 15 for calendar-year partnerships. Form 7004 extends the deadline to September 15.
7. Does a partnership with only U.S. partners need to file these forms? No. Section 1446 only applies when there is ECTI allocable to foreign partners. If all partners are U.S. persons, these forms are not needed.
8. How does the foreign partner use Form 8805? The partner attaches their copy of Form 8805 to their U.S. income tax return (Form 1040-NR or Form 1120-F) to claim a withholding credit for the section 1446 tax withheld on their behalf.
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