Pay Foreign Independent Contractors Withholding In Hennepin
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A U.S. business payor making a compensation payment to a non-U.S. independent contractor must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be U.S.-source income is withheld.
Do you issue a 1099 form to international contractors? You do not need to issue or collect Form 1099-NEC from your international contractor. Form 1099 is only used if the company and contractor are based in the U.S. Form W-8BEN declares the contractor's foreign status and will suffice.
All persons ('withholding agents') making US-source fixed, determinable, annual, or periodical (FDAP) payments to foreign persons generally must report and withhold 30% of the gross US-source FDAP payments, such as dividends, interest, royalties, etc.
The IRS requires a flat 30% withholding on ALL types of payments to foreign national individuals UNLESS: The individual has a U.S. tax identification number (SSN or ITIN) and qualifies for a tax reduction under the tax treaty between the U.S. and their country of tax residency.
It is illegal for an employer to classify a worker as an independent contractor if the worker qualifies as an employee. An employer also cannot make a worker an independent contractor by having workers to sign a contract saying that they are independent contractors, when in reality they are employees.
Exemption from withholding To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it's furnished to the employer.
Payments to a foreign corporation in exchange for personal services performed in the US by either a US citizen or alien is considered to be US-sourced income and is usually subject to withholding. (Can be wages or self-employment income.)
Form W-8BEN or W-8BEN-E: Foreign contractors who are not U.S. citizens and have earned US-sourced income or performed work within the United States must provide Form W-8BEN (for individuals) or Form W-8BEN-E (for business entities).
Without this form, you must withhold 30% of your payments to foreign contractors for taxes. IRS Form W-8BEN-E is similar but is for foreign businesses rather than individuals. For example, if you work with a foreign contractor who has formed a business entity, they may need to file W-8BEN-E instead of W-8BEN.