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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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We have sponsored an employee from our sister company in Italy

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We have sponsored an employee from our sister company in Italy on an H1B visa. The employees salary will be paid by our sister company in Italy. Incidentals like his first months rent were paid by our company in the US. Since we are sponsoring his visa and have paid some incidentals, do we need to pay federal and state payroll taxes for this employee based on what is spent on him for incidentals? Thank you for your assistance.
How long is this employee going to work in US?
Customer: replied 7 years ago.
He is going to work in the US for a minimum of 1-year. After a year, the company is going to evaluate whether or not the sales are warranting his further stay.
H-1 sponsorship Visa is normally when he is an employee. Since he will be an employee of the US Company the payment to him will be subject to FICA and medicare taxes.

So payment you make to him or fringe benefits that you pay him(such as his rent etc) will be part of his wages and will be subject to FICA and medicare taxes.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD and 3 other Tax Specialists are ready to help you
Customer: replied 7 years ago.
Thank you, XXXXX XXXXX clarifies the issue. I was guessing, that we would have to pay the federal and state taxes. Thank you.
Yes, federal and state tax would also apply along with FICA and medicare. The federal and state tax would depend on his overall income and will be determined based on Form W-4 submitted by him.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

Customer: replied 7 years ago.
Sorry, another question. Does the employee have to pay federal and state taxes on his salary received from the Italian company in Milan?
The employee will become a resident of US if he is physically present in the U.S. during a period that is at the least:

1. 31 days during the current year, and

2. 183 days during the 3-year period that includes the current year and the previous two years, counting:

  • all of the days you were present in the current year, and

  • 1/3 of the days you were present in the first preceding year, and

  • 1/6 of the days you were present in the second preceding year.

Once the employee is resident his worldwide income is taxable in US. So the salary from Italy may be taxable. However, he will get a credit for tax paid to the foreign country and hence double tax would be avoided.

Even considering the Double tax treaty (link attached) the above will apply.

http://www.ustreas.gov/offices/tax-policy/library/teitaly.pdf

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD and 3 other Tax Specialists are ready to help you