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We are a DE Corporation looking to hire an Australian Citizen

doing software engineering contract work...
We are a DE Corporation looking to hire an Australian Citizen doing software engineering contract work for us from his office in Australia. He is an individual and does not have any corporation status either in the US or abroad. Is he subject to US withholding taxes? If so, what do we need to file/do on our side? What paperwork does he need to file on his side? All of the work would be done from Australia.
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Answered in 15 minutes by:
9/24/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

If your Australian contractor is performing the services outside of the US and never sets foot on US soil, then he does not have US sourced income and has no income tax reporting obligation. There is no form for you to file, and no form for him to file. Simply keep documentation of your payments to him for your tax records for the deduction you can take. However, there's no withholding.

Megan C :

If the Australian individual performs some of the services within the US, then he/she has US sourced income. You would have to fill out form 1042-S reporting gross pay and amounts withheld. You would withhold 30% tax

Megan C :

But, if everything is performed outside the US there's no reporting requirement.

Megan C :

You can read more about this, HERE

Customer:

Thank you, Megan! If he performs 100% of the work in Australia and we cut a check for him and give it to him in person if he is in the US on holiday (no work would be done on US soil), would that pose any issues? Basically, he prefers to be paid in US$ due to the favorable exchange rate and will be here on holiday later this year.

Megan C :

That's fine...picking up a check is not performing work. So long as he's not actually providing a service while inside the US then he's okay

Megan C :

Is there anything else that I can assist you with today?

Customer:

Form W-8BEN was mentioned on the link you sent me. Should I have the contractor fill out that document even though we know he will not be performing work on US soil?

Megan C :

Yes, you will need to have him fill out form W-8BEN

Megan C :

but this form is not filed to the IRS, it is kept for your records. It's their certification that they are an Australian citizen

Customer:

Perfect! To confirm, we will verify that he completes all work from Australia as a contractor. He will need to certify that he is an Australian citizen with form W-8BEN that he will provide to us to keep for our records and we will issue him a check in US$ and give to him in person while he is here on holiday. No work will be performed while in the US. We do not need to file any forms with the IRS on his behalf, nor will he need to do the same as long as his status doesn't change.

Megan C :

That is correct. I gave you the article as a resource to confirm this understanding.

Megan C :

Is there anything else that I can assist you with tonight?

Customer:

That's it, thank you, Megan!

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
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Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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