Thanks to technology and the emerging global talent market, U.S. companies can work with people from different countries, cultures, perspectives, and educational backgrounds. If you are a U.S. company looking to hire a contractor outside of the U.S., you may have some level of information reporting or withholding tax obligation, as discussed in the following paragraphs.
The U.S. company (i.e., the payor) would need to confirm that the foreign independent contractor is not a U.S. person (whether a U.S. citizen, legal permanent resident (green card holder), or U.S. tax resident). This determination can be made by obtaining Form W-8BEN (analogous to Form W-9) from the foreign independent contractor. The contractor will provide information verifying their country of citizenship and other basic information related to their U.S. tax status and any tax treaty benefits they are eligible to claim. Form W-8BEN is not required to be mailed to the IRS; however, the payor must keep it for their internal records.
Once it is confirmed that the foreign contractor is a nonresident alien for US tax purposes, the next step would be to determine whether the contractor will be performing services inside or outside of the U.S. If the contractor performs the services within the U.S., the income earned is considered U.S. source income and may be subject to nonresident withholding of 30%, absent a reduced treaty rate.
If it is determined that a withholding obligation exists, the U.S. payor would be required to remit the taxes withheld to the Internal Revenue Service (IRS) and also to report the withholding on Form 1042-S, which is filed annually on March 15th following the year of payment. Generally, any withholding taxes must be deposited with the IRS on an annual, monthly, or quasi-weekly basis, depending on the amount of withholding taxes.
If you are considering hiring a foreign independent contractor, please contact your WG advisor to discuss these requirements or e-mail us at [email protected].