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If you were hired as an employee they would have to register in the U.S. However, they may be treating you as an independent contractor. In that case you would make estimated tax payments as a self employed person.
If they win a contract in the U.S. whether they have to register in the U.S. and get a tax I.D. number depends on the circumstances of the business and what is involved in soliciting business. If they solicit work from U.S. companies that they will perform overseas, they do not need to a U.S. tax I.D. as they will have no U.S. tax obligations. However, if they employ you as an employee, solicit business in the U.S. through their employees, they will be subject to U.S. tax on some portion of their incomie and will need a U.S. Tax I.D.
This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.
What state are you in? If they employ people in a state they have to pay unemployment insurance and provide workers compensation insurance, among other things. To pay that insurance have to register with the state. At the federal level, withholding of federal taxes is required. To pay those taxes the employer has to have a federal I.D. number.
They may not want to do all of things. You might consider discussing with them paying you as an independent contractor. Then they would pay you a fixed compensation that included both your gross wages but also the employer required contributions for things such as social security. One advantage of this approach is that you would negotiate a fixed contract in terms of duration of the agreement. You could form your own corporation and pay all your own withholding. These costs they should cover.
If you let me know which way you would prefer to go, I will get you where you should look to get the forms and costs you would need to consider.
Point is that we are not registered in USA and we do not have the tax ID number. And we do not do business in USA. We are a UK-based company which has hired US-based employee who is the citizen of the USA. Maybe your consultant (my tax accountant) can help us taking into consideration what I have mentioned above. It would be helpful.
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I addition I would like to note that we not do anything in USA. We do not work, e.g monitoring, management, etc on the territory of USA. We do it outside of USA. And you are only our employee who support us to find the contract to be executed outside of USA.
The best way for this to be handled is for you to act as an independent contractor that they retain pursuant to a written contract. If you are an employee, the must make withholdings for federal taxes, they have to pay into state unemployment compensation, and withhold state taxes. To do these things , they have to have some level of registration in the U.S. which it is clear they do not want to do.
I suggest you tell them that to avoid registration, you need to be hired as an independent contractor and then they must pay you a gross up amount to cover all the things they would have to pay as an employer. Your accountant can give you the numbers. For example, there is the employer part of social security and medicare which is must be paid. You can create an S Corp. that would be the independent contractor. You would work for your S Corp. and pay yourself the salary. Your company would issue you your W-2 at the end of the year. The company would make all the filings. These costs they should bear because they are costs they would pay as an employer.
If the work you are looking to develop for them is to be done outside the U.S., this arrangement should avoid the necessity of them registering in any way in the U.S. If you are an employee they have to register there is no way to avoid it. There could be other adverse tax consequences to them if California took the position your office was actually their place of business in the state and that they should be taxed accordingly.
It seems to me the only way to make this work is for you be hired not as employee but as an independent contractor.
IRS Circular E Publication 15 Employers' Tax Guide You can get a copy of this by going to the IRS website and searching for this publication. It is in pdf format.
I do not have any answer to paying the bonus as yet. Once I get the answer I will let you know.
If you need more help please let me know.
Good to hear back from you Steve. There are many advantages of being a limited liability company. Many things that you cannot deduct as an individual you can as a company. If you will be the only employee, you can be either an S Corporation or a limited liability company. Limited Liability companies provide more flexibility in terms of capital structure and types of profit participations than do S Corp. They are better suited to groups of more than one person. If it is just one person, I suggest an S Corp. The cost is much less because a limited liability company requires an operating agreement which is like a partnership agreement. This is a fairly sophisticated document. The S Corp requires that you create an corporation and make a subchaper S corporation. Tax wise it is treated like a sole proprietorship if there is one shareholder or a partnership if there is more than one person.
Delaware has the most developed corporate law in the U.S. However, since you live n CA and will work from there, incorporating in Delaware only adds an additional lawyer of administration and expense because you will have to qualify your corporation in CA. This means you will pay minimum fees in Delaware plus your normal tax in CA as that is where the income will be generated. I would incorporate in CA.
You will need a separate Tax ID for the corporation and a separate bank account.
As a corporation, you want to make sure that your base compensation from the company is increased to pay all the employment related taxes you normally would pay. Have all your payments from the company go into the corporate account. You will work for the corporation. Expenses you incur will be billed to your company and then charged for reimbursement to the overseas company.
Check with your accountant on the handling of the unemployment insurance. You have a number of additional benefits from being a separate corporation. For example you can deduct a portion of your home as a home office deduction. You can also create your own pension plan and save more than you can in a traditional IRA. You should discuss these and other opportunities with your accountant. He or she can help you set up your books of account and do your overall planning.
Also be sure to have a written agreement with your overseas company on all the terms of your contract, the period it will operate for, how it gets renewed and things such as bonus compensation. As you are not their employee you cannot rely on company policies for these issues.
I did not get the $40 bonus from the last time.
If you have any more questions, please get back to me.
California additional taxes
S-corporations pay a franchise tax of 1.5% of net income in the state of California (minimum $800). This is one factor to be taken into consideration when choosing between a limited liability company and an S-corporation in California.
The tax is on net income so it will be what is left after payment of salary and expenses. This is a controlable number. If LLC has a lower rate you can use the LLC format. You can be a sole proprietorship but you may lose some important tax benefits. For example, if you wanted to save $10,000 a year rather than $2,500 for IRA. You can set up a pension plan, pay yourself $125,000 and make a pension contribution of $10,000 from pretax funds.
That is why you should talk to your accountant.
I did receive the $45 bonus. Thanks
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