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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I am a sole proprietor Graphic Designer and I am

Customer Question

Hello,
I am a sole proprietor Graphic Designer and I am looking to hire out some work to a Freelance Designer in the Phillipines. They would be working around 8 hours a day 5 days a week but I would not be providing them any equipment and they can work whenever they want during the day. The Freelancer I have been talking too said he can work with me for $500 a month. Now here are my questions.
1. Would he be considered a independant contractor or employee?
2. If an independant contractor what forms do I need to send him during tax season? Would any of that $500 need to be withheld for taxes?
First time doing this. Want to make sure I get this all correct. Thank you!
Michael
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!
1. Would he be considered a independent contractor or employee?
A.
Based on your information - that person will be considered an independent contractor who performs all services for you in a foreign country..
2. If an independent contractor what forms do I need to send him during tax season? Would any of that $500 need to be withheld for taxes?
A.
You would need to collect signed form W8BEN - and that will certify that the service provider is abroad.
Generally - because that is a compensation from US sources - it woudl be reported on form 1042S, but because that is not income from US sources - there is NO withholding requirements - and the payee would not have any US tax liability - and would not need to file any US tax return.
If you still have any doubts, need clarification - please be sure to ask.
I am here to help you will all tax related issues.
Customer: replied 1 year ago.
Thank you for the quick response! Would I need to have him sign the W8BEN form right away or is this something that I should have him sign come tax time?
Expert:  Lev replied 1 year ago.
In general - you woudl need to collect a signed form BEFORE you make a payment.
That is because as a payer - you are treated as a withholding agent - and that is your responsibility to determine if withholding required.
That determination is made at the time of payment - so - I suggest to have all documents in perfect order before the payment is made.
Please also be aware that there is a tax treaty in effect between the US and
See here
http://www.irs.gov/pub/irs-trty/philip.pdf
specifically - see page 19 - ARTICLE 15 Independent Personal Services
(1) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity may be taxed by, that Contracting State. Except as provided in paragraph (2), such income shall be exempt from tax by the other Contracting State.
(2) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity in the other Contracting State
may be taxed by that other Contracting State, if:
(a) He has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State;
(b) He is present in that other Contracting State for a period or periods
aggregating 90 days or more in the taxable year; or
(c) The gross remuneration derived in the taxable year from residents of that other Contracting State for the performance of such services in the other Contracting State exceeds 10,000 United States dollars or its equivalent in Philippine pesos or such higher amount as may be specified and agreed in letters exchanged between the competent authorities of the Contracting States.
Let me know if you need any help.

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