Sponsors of U.S. retirement plans must generally withhold 30% from a plan distribution paid to a foreign payee unless the plan sponsor can reliably associate the payment with valid documentation that establishes the payee is a U.S. person or a foreign person entitled to a rate of withholding lower than 30%.

On an updated page on its website, the Internal Revenue Service (IRS) says documentation can include Form W-9, Form W-8BEN, or other appropriate sources. If a plan sponsor does not have documentation, it may be able to apply a lower withholding rate but only if it can verify that the recipient is a presumed U.S. person under the tax regulations.

If a plan sponsors cannot reliably document the status of a retirement plan distribution recipient as a U.S. person or a foreign person entitled to lower withholding, the sponsor should apply the presumption rules in the tax regulations. A retirement plan distribution is presumed to be made to a U.S. person only if the withholding agent has a record of a Social Security number for the payee and relies on a payee mailing address that is in the United States or in a foreign country with which the United States has an income tax treaty in effect giving its residents exemption from U.S. tax on payments of this type.

A payment that does not meet these rules is presumed to be made to a foreign person.