California Form 587 - Fill Out and Use This PDF

California Form 587 PDF Details

The California Form 587, officially titled the Nonresident Withholding Allocation Worksheet, determines how withholding tax is applied to nonresidents who earn income from California sources. Withholding agents must collect a completed Form 587 from each nonresident payee before making payment, and the form stays valid unless a material change in circumstances occurs.

Who Must Complete California Form 587

Any nonresident payee who receives California-source income from a withholding agent must complete Form 587. This includes individuals who reside outside California, as well as corporations, partnerships, limited liability companies (LLCs), estates, and trusts that are not formed under California law or do not maintain a permanent place of business in California. The payee completes the form and returns it to the withholding agent before the first payment is issued.

When California Withholding Is Required

California requires withholding on payments to nonresidents when total California-source income exceeds $1,500 in a calendar year. The standard withholding rate is 7% for individuals and partnerships, and 8.84% for corporations. S corporations are subject to a 13.8% withholding rate. These rates apply to income such as wages, rent, royalties, prizes, and other California-source payments that do not already have taxes withheld through another mechanism.

How Income Is Allocated on Form 587

Form 587 requires payees to allocate income between California-source and non-California-source amounts. For services performed partly in California and partly outside, the payee identifies what portion of payments relates to California activity. The withholding agent applies the tax rate only to the California-allocated portion of the payment, which is especially useful when a nonresident performs services across multiple states. Accurate allocation protects both the payee and the withholding agent from penalties under the California Revenue and Taxation Code.

Withholding Waivers and Exemptions

Payees who qualify for a reduced withholding rate or a withholding waiver may request one through the California Franchise Tax Board (FTB). Common grounds for a waiver include prior-year net operating losses in California or participation in a registered California business. An approved waiver allows the withholding agent to reduce or eliminate withholding on qualifying payments. Withholding agents must keep completed Forms 587 in their records for at least five years after the end of the calendar year in which the withholding was paid.