1099 for foreigner

[imjulier]

I looked at Margaret's earlier post but it doesn't suffice for this situation. Client is using a Canadian to perform some computer programming work on a contract basis. He doesn't enter the US for the work and all work is performed presumably from his home in Canada. I'm thinking I don't have to issue a 1099 to him bacuase the work isn't performed in the US. Any thoughts?

Thanks,

Julie

[Margaret CPA in OH]

That's kind of where I got hung up trying to wade through the Form 42 something or other. It seems there is a reporting requirement from the US company to substantiate, maybe, that payments were made for services to a foreign entity or person. I wasn't understanding that there was a reciprocal requirement (who would chase after them?) for that person/company to report that income to the IRS? I deferred that research until after tax season because I think my client issue is resolved thanks to Pacun's astute observation.

I will follow any responses here for education, though, and wish you luck!

[mircpa]

imjulier/Margaret

Check to see if US employer has to comply with witholding rule about 28% from payment, since recipient is not US person or entity. I have a client who is not US Citizen or Resident has stock portfolio with brokerage firm, and brokerage firm withhold 28% of stock sale proceeds and remits to IRS, since he is not US person.

[imjulier]

Margaret-

I now know what you mean. I started reading Pub 515 and the instructuions for form 1042s. The instructions do not address the simplest of payments for services. I did see in the instuctions though that withholding is required for personal services performed in the US. My situation is for services not performed in the US... I'm going to see if the client will continue to use this person and go from there but will skip reporting for 2009. Can't figure it out right now.

my 2 cents.

Julie

[Margaret CPA in OH]

Thanks for this good discussion. I imagine that even some of us smaller firms will increasingly face these questions as the world of commerce reaches to the smallest businesses. I am grateful that my issue is product for resale but they may contract with other non-US citizens for services. I will catch up after tax season and learn from any other information shared here. Good luck!

[Pacun]

Canada and the US have a tax treaty. Maybe you can issue a 1099misc to the canadian contractor and the contractor just has to pay taxes to Canada. Since your client is the employer, your client should ask his contractor to get an ITIN and then issue the 1099misc using that ITIN. This is outsourcing in its pure essense and there are a lot of companies doing it. Does anyone know about tax reporting requirement for companies that do outsourcing in countries where there is tax treaty?