When the Formula 1 season shifts into top gear in the United States, with the Circuit of the Americas in Austin in October and the Las Vegas Grand Prix roaring down the Strip in November, international drivers and teams will face challenges both on and off the track.
One of these challenges is navigating the complexities of U.S. taxation.
While most F1 drivers are nonresidents of the United States, the IRS (Internal Revenue Service) still considers certain types of income earned in the U.S. to be taxable.
Understanding these rules is crucial not only for the drivers themselves but also for the teams, sponsors, and organizers paying them.
Missteps can result in double taxation, denied treaty benefits, or IRS penalties, none of which any driver wants in their rear-view mirror!
U.S. taxation of nonresident athletes: the basics
Under U.S. tax law, any nonresident alien who earns U.S.-sourced income is subject to U.S. tax.
In the case of Formula 1, this means that when a driver earns money connected to an American race or event, that portion of income falls under IRS scrutiny.
This can include:
- Prize money and race bonuses – Payments for podium finishes, fastest laps, or even appearance fees simply for competing
- Sponsorships and endorsements – Income tied to promotional work, interviews, and brand deals that are directly connected to U.S. events or American audiences
- Merchandise royalties – Revenue from the sale of branded clothing, model cars, or digital products (such as NFTs) sold at or associated with U.S. races
- Licensing and image rights fees – Payments from U.S.-based companies for using a driver’s likeness in video games, advertisements, or collectibles
- Streaming and digital content – Income from race-related content, social media, or streaming services targeting U.S. viewers
If no tax treaty applies, the default IRS rule requires 30% withholding on gross income.
This means that, without proper planning or documentation, nearly one-third of a driver’s race-related income could be withheld before they even leave the track.
Avoiding U.S. tax residency
Most F1 drivers live in low-tax jurisdictions such as Monaco, Switzerland, or the UK and they plan their calendars carefully to avoid becoming U.S. tax residents.
However, under the substantial presence test, anyone who spends too many days in the U.S. may be treated as a resident for tax purposes, making their worldwide income taxable by the IRS.
The rule combines days spent in the U.S. across three years: all the days in the current year, plus one-third of the days in the prior year, plus one-sixth of the days two years prior.
If the total equals 183 or more, the individual becomes a U.S. resident for tax purposes. Given the frequent travel and sponsor obligations of F1 drivers, this rule requires careful monitoring.
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How tax treaties and planning can help
The United States has tax treaties with many of the countries represented in Formula 1.
These treaties are designed to prevent double taxation and often contain specific clauses for athletes and entertainers.
Some treaties exempt income from short-term appearances or limit U.S. taxation to income above a certain threshold.
Others allow for deductions of reasonable expenses or require taxation only in the driver’s home country if specific criteria are met.
However, to access these benefits, drivers must submit the correct IRS documentation. This is typically Form 8233 (for personal service income) or Form W-8BEN (to claim treaty rates on other types of income).
Without these forms, full 30% withholding applies automatically, even if the treaty would otherwise reduce or eliminate the tax.
Timing also matters: forms must be provided before payment, not after.
Withholding and reporting responsibilities
For payments connected to a U.S. race, the payer – whether that’s the event organizer, team, or sponsor – is treated as a withholding agent under U.S. tax law.
This means they are responsible for withholding the correct amount of tax and reporting it to the IRS using Forms 1042 and 1042-S.
If withholding is done incorrectly, the IRS can hold the payer personally liable for the unpaid tax, along with penalties and interest.
For this reason, race promoters and teams must collect tax forms in advance and maintain clear records of all payments and reporting.
Deductible expenses and recordkeeping
While U.S. withholding is based on gross income, drivers may be able to reduce their taxable income by claiming allowable deductions on their Form 1040-NR tax return.
Common deductions for athletes include:
- Travel, accommodation, and transport between events
- Equipment, race gear, and safety apparel
- Insurance, management, and coaching fees
- Legal, accounting, and professional services directly connected to U.S. races
Proper recordkeeping is essential. Receipts, invoices, and contracts should be stored securely and organized by event.
Without sufficient documentation, the IRS can deny deductions, leaving more of the income exposed to tax.
Central Withholding Agreements (CWAs)
In some cases, high-profile athletes can enter into a Central Withholding Agreement with the IRS.
This arrangement allows withholding to be calculated based on estimated net income, rather than gross. It requires advance approval and detailed financial planning but can significantly improve cash flow.
F1 drivers or teams who expect multiple U.S. events within a year may find a CWA especially beneficial.
Practical tips for drivers and teams
Competing in the U.S. brings prestige and exposure, but also tax responsibilities!
To stay ahead of the curve, they will need to:
- Submit Form 8233 or W-8BEN before payment to claim treaty benefits.
- Track travel days to ensure they don’t trigger U.S. tax residency.
- Maintain detailed records of income and expenses related to each U.S. race.
- Consider applying for a Central Withholding Agreement if multiple events or large earnings are expected.
- Use a tax agent to calculate withholding, confirm treaty eligibility, generate IRS forms, and manage U.S. compliance efficiently.
Sprintax Calculus can support those acting as withholding agents to ensure correct reporting and filing.
The checkered flag: plan ahead to avoid tax penalties
The financial rewards of Formula 1 are immense, but so are the risks of tax mismanagement.
With proper planning, drivers can take advantage of tax treaties, avoid unnecessary withholding, and stay compliant with both U.S. and home-country tax laws.
As the engines start up in Austin and Las Vegas, the best strategy is to cross the finish line with a trophy in hand – and no unexpected tax bill waiting afterward!
