Tax withholding clause: Copy, customize, and use instantly
Introduction
A tax withholding clause outlines a party’s obligations related to withholding and remitting taxes under the agreement. It ensures compliance with tax laws, clarifies who is responsible for tax deductions, and protects against liabilities arising from non-payment of withholding taxes. This clause is commonly included in employment contracts, service agreements, stock compensation agreements, and international business contracts.
Below are templates for tax withholding clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard tax withholding clause
This clause allows a party to withhold taxes as required by law.
The [Company] shall have the right to withhold from any payments due under this Agreement any taxes required to be withheld under applicable law. The [Company] shall remit such withheld amounts to the appropriate tax authorities in compliance with applicable regulations.
Tax withholding clause with indemnification for tax liabilities
This version requires the recipient to indemnify for unpaid taxes.
If any taxes required to be withheld under applicable law are not deducted or remitted by the [Company], the recipient shall indemnify and hold harmless the [Company] against any claims, penalties, or liabilities arising from such failure.
Tax withholding clause with gross-up provision
This clause requires the paying party to increase the payment amount to cover withheld taxes.
If any amount payable under this Agreement is subject to tax withholding, the paying Party shall increase the payment to ensure that the receiving Party receives the full amount due after withholding.
Tax withholding clause with obligation to provide tax forms
This version requires the recipient to submit necessary tax documentation.
The receiving Party shall provide the paying Party with all necessary tax forms, including but not limited to IRS Form W-9, W-8BEN, or other applicable documents, to determine the appropriate withholding amount under applicable law.
Tax withholding clause with responsibility for self-employment taxes
This clause clarifies that independent contractors are responsible for their own taxes.
The [Recipient] acknowledges that they are responsible for all applicable self-employment taxes, social security contributions, and other required tax payments. The [Company] shall not withhold any amounts beyond those expressly required by law.
Tax withholding clause with compliance with international tax laws
This version ensures compliance with tax obligations across jurisdictions.
The Parties acknowledge that payments under this Agreement may be subject to withholding tax obligations under the tax laws of multiple jurisdictions. Each Party agrees to comply with applicable tax laws and shall provide any required documentation to minimize tax withholding, including tax residency certificates and treaty benefits claims where applicable.
Tax withholding clause with notice of tax law changes
This clause requires the parties to inform each other of tax-related legal changes.
If any change in tax law affects the withholding obligations under this Agreement, the affected Party shall promptly notify the other Party, and the Parties shall cooperate in good faith to adjust the withholding procedures accordingly.
Tax withholding clause with withholding tax reimbursement
This version allows a recipient to claim reimbursement for excess withholding.
If the paying Party withholds an amount in excess of the required withholding tax, the receiving Party shall be entitled to reimbursement for the excess amount upon submission of appropriate documentation demonstrating overpayment.
Tax withholding clause with escrow for disputed withholding amounts
This clause establishes an escrow mechanism for disputed tax withholdings.
If there is a dispute over the amount of tax required to be withheld, the disputed portion shall be placed in escrow until the Parties resolve the matter or receive guidance from a tax authority. Any amounts determined to be properly due shall be promptly remitted to the appropriate authority or refunded to the receiving Party.
Tax withholding clause with exemption for tax-exempt entities
This version exempts tax-exempt organizations from withholding obligations.
If the receiving Party is a tax-exempt entity under applicable law, no tax shall be withheld from payments under this Agreement, provided that the receiving Party furnishes satisfactory documentation of its tax-exempt status to the paying Party.
Tax withholding clause with allocation of tax risk
This clause allocates tax liability risk between the parties.
Each Party shall be responsible for its own tax liabilities arising under this Agreement. If any tax authority challenges the withholding treatment of a payment, the Party responsible for the incorrect tax treatment shall bear any resulting interest, penalties, or additional taxes.
Tax withholding clause with deferred withholding for equity compensation
This version applies to stock options, RSUs, or other equity-based payments.
If any equity compensation granted under this Agreement is subject to tax withholding, the [Company] shall withhold the required tax amount at the time of vesting, exercise, or settlement, as applicable, in accordance with applicable tax laws. The [Recipient] agrees to provide sufficient funds or authorize a share deduction to cover the withholding amount.
Tax withholding clause with requirement for tax certification updates
This clause requires ongoing updates to tax-related documents.
The receiving Party shall provide updated tax certification forms (such as IRS Form W-8BEN or W-9) upon request or at least once every [number] years to ensure compliance with applicable withholding tax obligations.
Tax withholding clause with refund claim cooperation
This version requires parties to assist in obtaining refunds of withheld taxes.
If the paying Party withholds tax that the receiving Party is later eligible to recover from a tax authority, the paying Party agrees to provide reasonable assistance, including furnishing required documentation, to facilitate the receiving Party’s refund claim.
Tax withholding clause with cap on tax gross-up liability
This clause limits the financial exposure of the paying Party in a gross-up scenario.
If the paying Party is required to gross-up payments to cover withholding taxes, the total gross-up obligation shall not exceed [percentage]% of the original payment amount.
Tax withholding clause with automatic adjustment for tax rate changes
This version ensures payments remain compliant with changing tax rates.
If the applicable tax withholding rate changes during the term of this Agreement, the Parties agree to adjust payments accordingly to reflect the new withholding rate, ensuring compliance with the revised tax laws.
Tax withholding clause with tax dispute resolution mechanism
This clause outlines a procedure for resolving disputes over tax withholdings.
If a dispute arises regarding the tax withholding obligations under this Agreement, the Parties shall first attempt resolution through negotiation. If the dispute is not resolved within [number] days, it shall be referred to a mutually agreed-upon tax expert for binding determination.
Tax withholding clause with separate treatment for different payment types
This version distinguishes between different types of payments for tax purposes.
Compensation for services, equity awards, and reimbursements under this Agreement shall each be subject to separate tax withholding treatment, in accordance with applicable laws. The paying Party shall withhold taxes only where legally required.
Tax withholding clause with survival of tax obligations after termination
This clause ensures that tax obligations persist beyond contract termination.
The tax withholding obligations under this Agreement shall survive its termination, and each Party shall remain responsible for reporting and remitting any applicable withholding taxes due for payments made prior to termination.
Tax withholding clause with indemnification for secondary withholding obligations
This version protects against secondary withholding tax claims from tax authorities.
If any tax authority determines that additional withholding tax was required and seeks to recover such tax from the paying Party, the receiving Party shall indemnify and reimburse the paying Party for such tax, including any associated interest and penalties, unless the withholding obligation arose due to the paying Party’s negligence.
Tax withholding clause with limitation on tax shifting strategies
This clause prevents a party from restructuring transactions to avoid withholding taxes.
The Parties agree not to engage in any transaction structuring, reclassification, or assignment designed solely to reduce or eliminate withholding tax obligations without mutual agreement and compliance with applicable tax laws.
Tax withholding clause with requirement to notify of tax audit
This version requires notification if a party is audited concerning withholding taxes.
If either Party receives notice of a tax audit or inquiry concerning withholding taxes related to payments under this Agreement, that Party shall promptly notify the other Party and cooperate in good faith to address the matter.
Tax withholding clause with setoff rights for unpaid taxes
This clause allows the paying Party to deduct unpaid tax liabilities from future payments.
If the receiving Party owes any unpaid withholding taxes or related penalties, the paying Party may deduct such amounts from future payments due under this Agreement, subject to providing a written notice of setoff.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.