Have a Tax Question? Ask a Tax Expert
Hello JA Customer,
Assuming that this foreign person does all of his work for you remotely from the foreign country that he lives in, then you are not required to withhold any US taxes from the payments you make to him for his services.
His invoices should simply reflect the type of services he performed for your company and the amount he is billing you. You should of course also maintain copies of your canceled checks or wire transfers to document payments made to this person so that you can deduct these as business expenses. Other than that, no special reporting or withholding is required.
Thank you JA Customer
What if the consultant was in the US to perform the service?
Hello again Customer,
Any services that he actually performed here in the US would be considered US source income, and you would be required to withhold 30% US tax from his payments for those services.
At the end of the year you would then remit those taxes to the IRS by filing payment with Form 1042. At the same time you would issue Form 1042-S to the foreign consultant showing how much he was paid, and how much you withheld in US tax from his payment (similar to a 1099 form you would issue to a US person, only this is the form to use for foreign payments).
He could then use that form to file a US tax return if he is entitled to any partial refund of the taxes paid.
Thank you Customer