Forms 8804 & 8805

When a partnership earns income effectively connected with a US trade or business, section 1446 makes the partnership act as tax collector for its foreign partners. It must withhold US tax on each foreign partner's share of that income, whether or not any cash is actually paid out. Forms 8804 and 8805 are how that withholding gets reported: Form 8804 totals everything for the partnership, and a separate Form 8805 shows each foreign partner their share of income and the tax withheld for them.

The rates are steep because they follow the top brackets. Withholding on a foreign individual partner's share can reach up to 37%. If a two-member LLC has $60,000 of US effectively connected income split evenly, each foreign partner's $30,000 share could see roughly $11,100 withheld before either partner files a personal return. The partner then files Form 1040-NR, uses the Form 8805 like a receipt, and claims the withheld amount against their real tax bill, often getting some of it back.

Timing runs alongside the partnership return. Forms 8804 and 8805 are due on the Form 1065 timeline, March 15 for a calendar-year LLC, and the partnership generally must also make quarterly withholding installments during the year using Form 8813. Missing the withholding does not just delay tax; the partnership itself becomes liable for the uncollected amount plus penalties and interest.

The good news for many remote founders is that none of this applies without effectively connected income. A multi-member LLC whose partners do all the work from abroad, with no US office, employees, or dependent agents, often has no ECI, so there is nothing to withhold, and the filing season is just Form 1065 and Schedule K-1s. Single-member LLCs are outside this system entirely: they file Form 5472 with a pro forma Form 1120 by April 15 instead.