Foreign artists and sportspersons are typically classified as nonresident aliens for tax purposes when they enter the United States on temporary visas such as O-1 or P-1 visas. These individuals are taxed only on their U.S.-source income, not on their worldwide income, unlike U.S. citizens and residents, who are taxed on their worldwide income. When an artist performs or a sportsperson competes in the United States, they are likely to be engaged in a US trade or business under US tax law.
Foreign artists and athletes are subject to U.S. tax on effectively connected income (ECI) from performances, competitions, and related activities conducted within the United States. Anyone making payments to foreign artists for services performed in the U.S. is generally required to withhold 30% of the gross payment as of 2025. This withholding can be viewed as an advance tax payment toward the artist’s U.S. tax liability.
The withholding tax rate may be reduced based on applicable tax treaties. Although the withholding rate seems to be high, foreign artists are ultimately taxed at the same graduated rates as U.S. citizens and residents when they file their final tax returns. As a result, the amount withheld (30% as of 2025) is likely to exceed the artist’s actual tax liability. The artist can recover any excess tax withheld by filing a U.S. tax return.
Foreign artists and athletes are not required to pay a formal “exit tax” like that imposed on departing U.S. citizens or long-term permanent residents. However, they may file a departing alien return using either Form 1040-C (U.S. Departing Alien Income Tax Return) or Form 2063 (U.S. Departing Alien Income Tax Statement) before leaving the country.
Form 1040-C is a detailed form that determines the individual’s final tax liability, while Form 2063 is a shorter version available if all tax obligations have been met and no additional taxes are owed. Filing these forms results in the issuance of a “certificate of compliance,” often referred to as a “sailing permit,” and it should be completed at least two weeks prior to departure.
After leaving the U.S., these individuals must submit a final U.S. tax return (Form 1040-NR) by the standard deadline for that tax year, allowing them to claim refunds for any excess amounts that were withheld.
After leaving the United States, foreign artists and athletes may still be required to fulfil other obligations. For example, they must report and pay taxes on any ongoing income sourced from the U.S., such as royalties, future performance payouts, or endorsement deals related to their U.S. activities.
It’s crucial for them to inform the IRS of any address changes by using Form 8822 so they can receive important tax notices and other correspondence. Additionally, they should either close their U.S. financial accounts or continue to report them appropriately in accordance with U.S. tax laws and regulations. This ongoing compliance is essential to avoid potential liabilities and ensure adherence to tax obligations, even after they have exited the U.S. market.