Hiring a non-US Person

 Hiring a non-US Person

If you are a business and hired a non-US Person, do you have to deduct withholding from the amount paid and report to IRS?

U.S. law treats U.S. persons and foreign persons differently for tax purposes. Therefore, it is important to be able to distinguish between these two types of taxpayers.

United States Persons

The term ''United States person'' means:

A citizen or resident of the United States

A domestic partnership

A domestic corporation

Any estate other than a foreign estate

Any trust if:

A court within the United States is able to exercise primary supervision over the administration of the trust, and

One or more United States persons have the authority to control all substantial decisions of the trust

Any other person that is not a foreign person.

Foreign Persons

A foreign person includes:

Nonresident alien individual

Foreign corporation

Foreign partnership

Foreign trust

A foreign estate

Any other person that is not a U.S. person

Generally, the U.S. branch of a foreign corporation or partnership is treated as a foreign person. Refer to Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust.

References/Related Topics

Foreign Persons

Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of:

• Interest (including certain original issue discount (OID));

• Dividends;

• Rents;

• Royalties;

• Premiums;

• Annuities;

• Compensation for, or in expectation of, services performed;

• Substitute payments in a securities lending transaction; 

or

• Other fixed or determinable annual or periodical gains, profits, or income.

References:

1. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) 

2. Instructions for Form W-8BEN

3. Withholding of Tax on Nonresident Aliens and Foreign Entities For use in 2021 Publication 515 Cat. No. 15019L

1040

 For 2021, Tax Payer will use Form 1040 or, if Tax Payer was born before January 2, 1957, Tax Payer have the option to use Form 1040-SR. 

Tax Payer may only need to Form 1040 or 1040-SR and none of the numbered schedules, Schedules 1 through 3. 

Schedule 1, Part I

Have additional income, such as business or farm income or loss, unemployment compensation, prize or award money, or gambling winnings.

Schedule 1, Part II

Have any deductions to claim, such as student loan interest, self-employment tax, or educator expenses.

Schedule 2, Part I

Owe alternative minimum tax (AMT) or need to make an excess advance premium tax credit repayment.

Schedule 2, Part II

Owe other taxes, such as self-employment tax, household employment taxes, additional tax on IRAs or other qualified retirement plans and tax-favored accounts.

Schedule 3, Part I

Can claim a nonrefundable credit (other than the nonrefundable child tax credit or the credit for other dependents), such as the foreign tax credit, education credits, or general business credit.

Line 1 Foreign Tax Credit

Line 2 Credit for Child and Dependent Care Expenses

Line 3 Education Credits

Line 4 Retirement Savings Contributions Credit (Saver's Credit)

Line 5 Residential Energy Credits

Lines 6a Through 6z Other Nonrefundable Credits

Line 9 Net Premium Tax Credit

Line 10 Amount Paid with Request for Extension to File

Line 11 Excess Social Security and Tier 1 RRTA Tax Withheld

Line 12 Credit for Federal Tax on Fuels

Schedule 3, Part II

Can claim a refundable credit (other than the earned income credit, American opportunity credit, refundable child tax credit, additional child tax credit, or recovery rebate credit), such as the net premium tax credit, health coverage tax credit, or qualified sick and family leave credits from Schedule H or Schedule SE. 

Have other payments, such as an amount paid with a request for an extension to file or excess social security tax withheld. 

Lines 13a Through 13z Other Payments or Refundable Credits

Line 13b Qualified sick and family leave credits from Schedule(s) H and Form(s) 7202 for leave taken before April 1, 2021. 

Line 13g Credit for child and dependent care expenses.

Line 13h Qualified sick and family leave credits from Schedule(s) H and Form(s) 7202 for leave taken after March 31, 2021.

Line 13z Other payments or refundable credits

2021 Instruction 1040 - IRS tax forms

However, if return is more complicated (for example, Tax Payer claim certain deductions or credits or owe additional taxes), Tax Payer will need to complete one or more of the numbered schedules. 

If Tax Payer uses our services to prepare and e-file return, we will generally determine which schedules you need.

Virtual Currency

Did you transact in virtual currency this year?

Do you need to report it?

IRS has begun sending letters to virtual currency owners advising them to pay back taxes, file amended returns; part of agency's larger efforts

In 2014, the IRS issued Notice 2014-21, 2014-16 I.R.B. 938 explaining that virtual currency is treated as property for Federal income tax purposes and providing examples of how longstanding tax principles applicable to transactions involving property apply to virtual currency.  The frequently asked questions (“FAQs”) expanded upon the examples provided in Notice 2014-21 and apply those same longstanding tax principles to additional situations.

Note: Except as otherwise noted, these FAQs apply only to taxpayers who hold virtual currency as a capital asset.  For more information on the definition of a capital asset, examples of what is and is not a capital asset, and the tax treatment of property transactions generally, see Publication 544, Sales and Other Dispositions of Assets.

Please contact us for your specific Questions.