THINGS TO KNOW BEFORE HIRING NONRESIDENT ALIENS

I worked with over 5000+ Non-US Entrepreneurs and helped them form a company and get international tax planning. I always hear the same question “ How can we hire foreign talent to work for our U.S company remotely?” or Do we have to hire a local person to maintain our U.S. business?

If so, you need to remember that the answer to this question will present some challenges for your business regarding taxes. If you do not know how to handle it, my article may help to clear things out for you.

HIRING FOREIGNERS FOR US BUSINESS Y

A U.S. (LLC, CORP, SMLLC) company can hire as many foreign workers as it needs. As you can get independent contractors working abroad in their home country, you can also hire full-time employees, relocating them to the US. If you decide to move your employees to the US to work from your office, you will need to provide them with a foreign labor certification and an appropriate work visa.

In this case, If you hire someone in your home country or any foreign country, Form W-8BEN must be filled out by foreign independent contractors to prove their status as non-US residents and claim tax treaty benefits before the first wage.

On the other hand, When a foreign worker is employed in the US, his/, her income tax ought to be deducted at the same graduated tax rate as that applicable to US citizens, including Social Security and Medicare tax. If the employee’s nation has a tax treaty with the US and he/she requests the exemption through form 8233, the tax withholding may be exempt. When a non-US person provides services in the US, compensation for the days spent in the US is considered US-sourced income.

Foreign workers in the US are subject to US tax rates of 30%. If the US company fails to withhold tax liability, it will be held responsible for the tax, interest, and applicable penalties. The tax obligation will only be levied once, regardless of how it is implemented. What about hiring global talents and letting them work abroad? This will save you some paperwork and extra expenses. Plus, there is no tax withholding obligation if a foreign employee works 100% outside the US. However, some tax liabilities might be according to the employee’s home country.

TAX IMPLICATIONS FOR REMOTE ALIENS

Companies should be aware that they face different tax regulations when hiring a non-US citizen working remotely. When paying a non-US citizen, the company should verify that the income is US-based. Then, it should report to the IRS by submitting Forms 1042 and 1042-S. The IRS considers the salaries paid to nonresident foreigners living abroad as of foreign origin, exempting them from U.S. federal income tax reporting and withholding. Nonresident aliens are required to pay income tax only on income earned within the United States or derived from sources within the United States.

The IRS also exempts non-US resident employees from Social Security and Medicare taxes. This helps US companies save time by not filing W2 or 1099 IRS Forms.

They also save some money: up to 7.5% of all wages paid to foreign workers become savings for the company!

If you have any questions, please let us know!

samet@enterprises.social https://www.linkedin.com/in/samet-oynamis/