IRS Form 8804-W – IRS Forms, Instructions, Pubs 2026 – In the complex world of U.S. tax obligations for partnerships with foreign partners, IRS Form 8804-W plays a crucial role. This worksheet helps partnerships calculate and manage installment payments of Section 1446 withholding tax on effectively connected taxable income (ECTI) allocable to foreign partners. Designed specifically for partnerships, it ensures compliance with estimated tax requirements to avoid penalties. Whether you’re a tax professional, partnership manager, or accountant dealing with international partnerships, understanding Form 8804-W is essential for accurate tax planning in 2026.
What Is Section 1446 Tax and Why Does It Matter?
Section 1446 of the Internal Revenue Code requires partnerships to withhold tax on ECTI allocable to foreign partners. This withholding acts as a prepayment of the foreign partner’s U.S. tax liability on income effectively connected with a U.S. trade or business. ECTI includes various types of income, such as ordinary income, capital gains, and other gains subject to different tax rates.
For partnerships, failing to withhold and pay this tax can lead to significant penalties. Form 8804-W, officially titled “Installment Payments of Section 1446 Tax for Partnerships,” is a worksheet (not a form to file) that assists in estimating and determining these quarterly payments. It’s particularly useful for partnerships expecting ECTI of $500 or more allocable to foreign partners in the tax year.
Key rates for 2026 include:
- 21% for corporate foreign partners.
- 37% for non-corporate foreign partners on ordinary ECTI.
- 28% on 28% rate gain.
- 25% on unrecaptured Section 1250 gain.
- 20% on adjusted net capital gain.
Who Must Use IRS Form 8804-W?
Partnerships with foreign partners (including nonresident aliens, foreign corporations, or other foreign entities) that generate ECTI must generally use this worksheet if the total Section 1446 tax is expected to be $500 or more. This applies to both domestic and foreign partnerships engaged in a U.S. trade or business.
Exceptions include:
- Partnerships where the aggregate tax is less than $500—no estimated payments required.
- Certain tiered partnerships, which may have additional considerations under Regulations section 1.1446-5.
If your partnership qualifies, complete a separate Form 8804-W for each installment based on the latest available information.
Step-by-Step Guide to Completing Form 8804-W
Form 8804-W consists of four parts: Determination of Installment Payments (Part I), Adjusted Seasonal Installment Method (Part II), Annualized Income Installment Method (Part III), and Required Installments (Part IV). It’s for internal use only—do not file it with the IRS.
Part I: Determination of Installment Payments
This part calculates the current-year safe harbor or prior-year safe harbor amounts.
- Lines 1a–1t: Enter the allocable share of ECTI by partner type (corporate vs. non-corporate) and income category (e.g., total ECTI, 28% rate gain, unrecaptured Section 1250 gain). Subtract reductions for state/local taxes (Lines 1b, 1f, etc.) and certified partner-level items via Form 8804-C (Lines 1c, 1g, etc.).
- Lines 2–6: Apply the applicable tax rates to the net ECTI amounts.
- Line 7: Total estimated Section 1446 tax.
- Line 8: Optional prior-year safe harbor—enter the 2025 Section 1446 tax (using 2025 rates) without reductions, if conditions are met (e.g., prior year was 12 months, timely filed return, ECTI not less than 50% of current year).
- Line 9: Smaller of Line 7 or 8 (note: Using Line 7 if smaller may disqualify prior-year safe harbor for penalties).
- Line 10: Installment due dates (15th day of 4th, 6th, 9th, and 12th months).
- Line 11: 25% of Line 9 per installment, or amounts from Part IV if using alternative methods.
- Line 12: Prior payments, credits (e.g., overpayments from 2025, withheld taxes).
- Line 13: Balance due per installment.
Part II: Adjusted Seasonal Installment Method
Use if your business is seasonal (base period percentage for any 6 consecutive months ≥70%). This method adjusts for income variations.
- Lines 14–21: Enter prior and current-year ECTI for specified periods and calculate base period percentages.
- Lines 22–29: Adjust ECTI, apply rates, and compute installments.
Part III: Annualized Income Installment Method
Ideal for uneven income distribution. Annualize ECTI over periods (e.g., first 3 months ×4).
- Lines 30–36: Define periods, annualize ECTI, apply reductions and rates, then multiply by cumulative percentages (25%, 50%, etc.).
Part IV: Required Installments
Compares methods and selects the smallest installment amount for Line 11.
| Line | Description | Purpose |
|---|---|---|
| 37–39 | Adjusted/annualized installment calculation | Determines base installment after credits. |
| 40–43 | Comparison to equal installments | Ensures the lowest valid amount is used. |
Payment Due Dates and How to Pay
Installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year (next business day if weekend/holiday). Use Form 8813 with check/money order or EFTPS. Notify foreign partners within 10 days of payment.
Refigure if estimates change—make catch-up payments to minimize penalties.
Penalties for Underpayment of Section 1446 Tax
Underpayments may trigger penalties under Section 6655. Use Schedule A (Form 8804) to calculate any penalty. The prior-year safe harbor can help avoid penalties if conditions are met, but switching methods requires disclosure.
Related Forms and Resources
- Form 8804: Annual return and transmittal for Form 8805.
- Form 8805: Foreign partner’s withholding statement.
- Form 8813: Payment voucher.
- Form 8804-C: Certificate for partner-level reductions.
- Schedule A (Form 8804): Penalty calculation.
Download the latest 2026 Form 8804-W and instructions from IRS.gov.
Final Thoughts on Managing Section 1446 Tax Obligations
Navigating IRS Form 8804-W requires careful estimation of ECTI and timely payments to ensure compliance. Partnerships should consult tax advisors for personalized guidance, especially with tiered structures or seasonal income. Staying updated with IRS resources can prevent costly errors and optimize tax strategies for foreign partner withholding.