Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

We recently added a russian software developer to our team.

This individual would be considered...
We recently added a russian software developer to our team. This individual would be considered a non-resident alien. I'm trying to determine what we need to do tax wise to cover ourselves (e.g., do we request a w-8eci or a w-8bn, do we have an obligation to withhold income tax or is the income subject to a tax treaty, etc.)
Show More
Show Less
Ask Your Own Tax Question
Answered in 30 minutes by:
1/3/2013
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,022
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified
Welcome, THANK YOU for using Just Answer. My goal is to help make your life...a little...LESS taxing

Yes, the person will need to give your a Form W-8Ben. This is because foreign persons are normally subject to a U.S. tax rate withholding of 30% on certain types of income that they receive from U.S. sources. The Form W8-Ben establishes that the individual is not a U.S. person for tax purposes, and the form claims that the person is a beneficial owner of the owner.

Link to Form W8Ben/instructions:

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

There is a tax treaty between the U.S. and Russia, which means that there will be no double taxation for the foreign person. Article 22 of the treaty states the following;

In accordance with the provisions and subject to the limitations of the law of each Contracting State (as it may be amended from time to time without changing the general principle hereof), each State shall
allow to its residents (and, in the case of the United States, its citizens), as a credit against the tax on income, the income tax paid to the other Contracting State by such residents (and, in the case of the United States, also such citizens).

Link to full treaty:

http://www.irs.gov/pub/irs-trty/russia.pdf


------------------------------------

The business will need to complete Forms 1042 and 1042-S.

Link to Form 1042/instructions:

http://www.irs.gov/pub/irs-pdf/f1042.pdf
http://www.irs.gov/pub/irs-pdf/i1042.pdf

Link to Form 1042-S/instructions:

http://www.irs.gov/pub/irs-pdf/f1042s.pdf
http://www.irs.gov/pub/irs-pdf/i1042s.pdf

Please let me know if I can be of further assistance to you regarding this matter.

Thank you again for using JUST ANSWER.





Ask Your Own Tax Question
Customer reply replied 5 years ago

Thanks for your quick response. So if I understand you correctly, we need to request that our Russian developer provide us with a Form W-8Ben, correct?


 


Secondly, with regards XXXXX XXXXX treaty, does this mean that the Russian developer won't be taxed on the income received by the IRS, but rather only by Russia? If so, I assume the burden lies on him to report this income to appropriate Russian taxing agency?


 


Lastly, you mention that the business will need to complete forms 1042 and 1042-s. When you say "the business" are you referring to our United States based business that has contracted with the Russian programmer or are you saying that the Russian programmer is responsible for filing out these forms? Also, what is the difference between the two forms?


 


Thanks again.

Hello Again Erick,

You are welcome.

Q: So if I understand you correctly, we need to request that our Russian developer provide us with a Form W-8Ben, correct?

A: Yes, if you do not receive a form W8-Ben from the developer and it the form is not timely filed (refer to instructions), your company will be required withhold the 30% tax rate form the developer's income. Submitting the Form W8-Ben will exempt the developer from the 30% witholding based on the Treaty.

--------------------------------------------

Q: Secondly, with regards XXXXX XXXXX treaty, does this mean that the Russian developer won't be taxed on the income received by the IRS, but rather only by Russia? If so, I assume the burden lies on him to report this income to appropriate Russian taxing agency?

A: What this means is that any taxes that the developer pays in the U.S. will be credited back to him/her on their Russian tax return.

---------------------------------------------

Q: Lastly, you mention that the business will need to complete forms 1042 and 1042-s. When you say "the business" are you referring to our United States based business that has contracted with the Russian programmer or are you saying that the Russian programmer is responsible for filing out these forms? Also, what is the difference between the two forms?

A: Your business (the U.S. business). The Form 1042 is the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and the Form 1042-S is Foreign Person’s U.S. Source Income Subject to Withholding. You are required to submit both of these forms to the IRS even if you do not have to withhold taxes. You can refer to instructions provided in the previous post for more detailed information regarding these forms.




Ask Your Own Tax Question
Customer reply replied 5 years ago

Sorry, but I'm still a little confused. So the Treaty provides that the Russian developer is not subject to the 30% withholding so long as a Form W-8Ben has been timely filed, correct?


 


If so, then I don't understand what you mean by "What this means is that any taxes that the developer pays in the U.S. will be credited back to him/her on their Russian tax return."? How would he pay taxes on his income unless we were withholding it?

Erick,

Sorry for the delayed response. I was just about done typing the reply and lost all the info. I hate when that happens.

A1) Sorry for the confusion. The treaty eliminates double taxation, the timely filed Form W8-Ben exempts the developer from the 30% withholding. It is correct, if the W8-Ben is filed timely the developer will be exempt from the 30% withholding.

A2) "What this means is that any taxes that the developer pays in the U.S. will be credited back to him/her on their Russian tax return."? What I mean by this statement is that IF the W8-Ben was not filed in a timely manner, and the developer was subject to the 30% withholding, this amount would be credited back to him/her on their Russian tax return, which they are responsible for dealing with.

------------------------------------------------

In order to claim the tax treaty benefits, the developer will need to complete a Form 1040-NR tax return.

Link to Form 1040-NR/instructions:

http://www.irs.gov/pub/irs-pdf/f1040nr.pdf
http://www.irs.gov/pub/irs-pdf/i1040nr.pdf

In order to file the 1040-NR, the developer will need to obtain an ITIN (Individual Taxpayer Identification Number). A Form W-7 needs to be completed.

Link to Form W-7/instructions:

http://www.irs.gov/pub/irs-pdf/fw7.pdf
http://www.irs.gov/instructions/iw7/index.html

Ask Your Own Tax Question
Customer reply replied 5 years ago

Not a problem Angela. This is all great information. I found some information online, however, that appears to conflict with your answer and I'm assuming this person's advice was just inaccurate (thus the problem of relying on non-experts). It seems she is making a distinction that the work is being done outside the U.S. so none of the reporting you mentioned applies.


 


Her answer was a follows (if you could briefly comment on this, I would greatly appreciate it):


 


id="yan-question">

If I have an LLC here in the US and temporarily hire a programmer through Elance.com or Odesk.com, and that programmer lives and works in Nicaragua (or any foreign country), how do I handle withholding and taxes?

 







Best Answer - Chosen by Voters


You collect enough paperwork to prove you performed due diligence.

You need them sign a document showing their name, foreign address, under penalties of perjury and statement that they are NOT a US citizen or resident alien for US tax purposes AND that the work is being done in the foreign country.

The applicable IRS publication 515. The problem is, the publication only covers the situations where the income is taxable in the US. That happens if the individual is a US citizen or resident alien (forms W-9 and 1099-Misc) *or* if the work is done in the US (forms W-8BEN and 1042-S). Your situation is NEITHER of these, so no forms apply. (Unfortunately, the publication 515 doesn't actually spell that out.)

To get the language right for the contract, see the wording on form W-8BEN and add the NOTS. Save the contract with their invoice and proof of payment in order for you deduct what you pay them.

 



Erick,

Her:

You collect enough paperwork to prove you performed due diligence.

You need them sign a document showing their name, foreign address, under penalties of perjury and statement that they are NOT a US citizen or resident alien for US tax purposes AND that the work is being done in the foreign country.

ME:

The due diligence would be having the person complete the correct W-8 form. In your situation is the Form W8-Ben.

-------------------------------------
HER:

The applicable IRS publication 515. The problem is, the publication only covers the situations where the income is taxable in the US.

ME:

If it were not for the treaty between Russia and the U.S., the income would be taxable in the U.S.

------------------------------------------

I'm not sure what else you want me to say about this matter, I've provided you with the tax obligations of the developer, the company, and the proper forms that need to be used. I cant compare the example you provided to your situation because it is not the same. I am not going to try to dissect or figure out why this person providing the information that she did in the language that she did. I can tell you that the information that I provided is from reliable sources, and is true and correct to the best of my knowledge.



Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,022
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified
Tax.appeal.168 and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Tax.appeal.168 Your Own Question
Tax.appeal.168
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,022
4,022 Satisfied Customers
Experience: 3+ decades of varied tax industry exp. Tax Biz owner

Tax.appeal.168 is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
My question is: Is the foreign tax credit 100% Offset to the
Hi, my question is: Is the foreign tax credit 100% Offset to the Alternative Minimum Tax, if there are only foreign income? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Does copy 1 of the 1099-MISC have to be filed with NYS? I am
Does copy 1 of the 1099-MISC have to be filed with NYS? … read more
Carter McBride
Carter McBride
LLM
247 satisfied customers
Taxmanrog: Must a foreign individual owned single-member LLC
Customer Must a foreign individual owned single-member LLC (formed several years ago before 2017) file Form 5472 under the new tax law effective 1/1/2017?… read more
taxmanrog
taxmanrog
Master\u0027s Degree
772 satisfied customers
What are the forms for reporting Rental Income to the IRS on
What are the forms for reporting Rental Income to the IRS on foreign properties - we collect each month? Is this filed separately from our personal returns?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
Reporting pension and social security income on both Forms
Reporting pension and social security income on both Forms 1040 and 1041? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Is there a form to file with the IRS for tax periods that
Is there a form to file with the IRS for tax periods that have ran past the statute of limitations from the date of assessment … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am thinking about forming an LLC in another state than the
I am thinking about forming an LLC in another state than the one I live in. I am trying to lower my tax burden. I live in California, and I operate a web design business that is not specific to my loc… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Penalty for late filing of partnership LLC tax return, not
Penalty for late filing of partnership LLC tax return, not eligible for Rev Proc 84-35 relief because one of the partners is a foriegner… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,797 satisfied customers
Accidentally sent IRS an unsigned copy of our 2016 form 1040
accidentally sent IRS an unsigned copy of our 2016 form 1040 and later received a form 3531 requesting a valid original signature. Should that returned signature be dated to the original submittal dat… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
A foreign individual is a member of a US LLC. Are there any
A foreign individual is a member of a US LLC. Are there any extra requirements for filing when it comes to the partnership return?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,797 satisfied customers
Does a non-resident alien need to file a tax return on
Does a non-resident alien need to file a tax return on interest income received from a US business loan?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can my LLC with US and Foreign members be a shareholder in
Can my LLC with US and Foreign members be a shareholder in an S Corporation? The K-1 would go to the LLC.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
RE: FOREIGN TAX CREDIT We're filing a married joint filing
RE: FOREIGN TAX CREDIT We're filing a married joint filing tax return and have come up against some problems on form 1116. 1) Do we add both our names on the form? 2) On line 3a, it asks for certain i… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,797 satisfied customers
When filling a w-8 form claim of treaty benefits what
when filling a w-8 form claim of treaty benefits what tharticle for Mexico … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I filed my Form 1040, prepared on TurboTax and filed
I filed my Form 1040, prepared on TurboTax and filed electronically via TurboTax. I got nothing back and was told by the IRS that the refund was sent to a different bank transit number than the one sh… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,797 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
Tax.appeal.168
Tax.appeal.168
Tax Accountant
4,022 satisfied customers
International attorney that can help with double Taxation
International attorney that can help with double Taxation treaty between US and Germany. A US Green card holder in the year 2014 worked in Germany more than 183 days as a doctor, but less than 330 day… read more
taxmanrog
taxmanrog
Master\u0027s Degree
772 satisfied customers
How are canadian pensions reported on us form 1040. the
how are canadian pensions reported on us form 1040. the amounts on the pension form in canadian dollars or us dollors when mailed to a canad***** *****ving in us.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x