Paying Foreign Independent Contractors Within Canada In Travis
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Canadian contractors are not subject to US tax reporting requirements like Form 1099 because they are not US residents or citizens. Instead, Canadian contractors may receive their own country's equivalent tax forms or documentation from their clients or employers in Canada, depending on local tax regulations.
Instead of filling out a 1099, when you hire Canadian contractors, you should request a completed W-8BEN from them. This form ensures compliance with the IRS and the Canada-US tax treaty; without it, you are required to withhold and remit 30% tax on all contractor earnings.
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.
If you want to maintain control and manage employees directly, you can hire Canadian workers as independent contractors, or freelancers.
Use the t2125 form to report either business or professional income and expenses. This form combines the two previous forms, T2124, Statement of Business Activities, and T2032, Statement of Professional Activities.
The T2125 form is used to report your business or professional income. It includes details of your business activities, income, expenses, and net income. You should complete a separate T2125 form for each self-employed business or profession you have.
If you're a sole-proprietor, self-employed or a certain type of partnership, you must fill out your T1 General, that's your standard personal income tax return. You must also complete a separate T2125 “Statement of Business or Professional Activities”. This is where you specify: Business and professional income earned.
What distinguishes 1099 workers from sole proprietors is that there is no 1099 form in Canada, and 1099 forms are not applicable to foreign contractors. Instead of filling out a 1099, when you hire Canadian contractors, you should request a completed W-8BEN from them.
