How does my company pay this Israeli?
March 10, 2008 1:31 PM Subscribe
What is the proper way, in terms of accounting and tax laws, for my small business to pay an independent contractor who is an Israeli citizen in the US on a student visa?
My production company is an S-Corp registered in NY state.
I began working with a freelance animator who was previously based in Israel but is now on his way to the US to study on a student visa.
He began the work in Israel and will finish the job once he reaches the US (he's attending school in Georgia).
The total we negotiated for is $3500, $1500 of which he has already billed me for.
I'd like to pay him asap, but my accountant is waffling on the proper way to decide withholding taxes in this situation (or if any is needed) and has referred me to an outside consultant. This consultant can not deal with me until after tax season. I really don't feel I can wait this long to begin paying this contractor. He has done a lot of work for me already on good faith, and I don't want to make him anymore nervous about getting paid than he already is.
Can anyone out there give me some advice on this? His invoice includes an "ID number" and a passport number.
I can likely get any other information about the contractor that I need from him. Can I simply send him a check for the full amount and issue him a 1099 next year as I would for a US citizen contractor?
Any help on this would be great. There's a very talented designer/animator type out there who I'd like to pay promptly, but I'm afraid of screwing with the IRS.
My production company is an S-Corp registered in NY state.
I began working with a freelance animator who was previously based in Israel but is now on his way to the US to study on a student visa.
He began the work in Israel and will finish the job once he reaches the US (he's attending school in Georgia).
The total we negotiated for is $3500, $1500 of which he has already billed me for.
I'd like to pay him asap, but my accountant is waffling on the proper way to decide withholding taxes in this situation (or if any is needed) and has referred me to an outside consultant. This consultant can not deal with me until after tax season. I really don't feel I can wait this long to begin paying this contractor. He has done a lot of work for me already on good faith, and I don't want to make him anymore nervous about getting paid than he already is.
Can anyone out there give me some advice on this? His invoice includes an "ID number" and a passport number.
I can likely get any other information about the contractor that I need from him. Can I simply send him a check for the full amount and issue him a 1099 next year as I would for a US citizen contractor?
Any help on this would be great. There's a very talented designer/animator type out there who I'd like to pay promptly, but I'm afraid of screwing with the IRS.
IAAL but IANYL. If he is in the United States on a student visa, he is most likely not allowed to do paid work for you. I highly suggest you talk to an immigration lawyer.
posted by dcjd at 2:08 PM on March 10, 2008
posted by dcjd at 2:08 PM on March 10, 2008
If he's a contractor then your company doesn't need to do any withholding. He's responsible for the entirety of the tax on the money. You only need to send him a 1099 if he's responsible for paying US taxes. For work was done in Israel, it's up to him to report that money to the government and pay taxes on it. All you need to do is send him a check.
The part I'd be concerned about (and about which you should definitely consult a professional) is dealing with paying him for any work done is in the U.S. while he's on a student visa.
posted by camcgee at 2:13 PM on March 10, 2008
The part I'd be concerned about (and about which you should definitely consult a professional) is dealing with paying him for any work done is in the U.S. while he's on a student visa.
posted by camcgee at 2:13 PM on March 10, 2008
You have probably not considered this but his visa might make it illegal for him to be paid for work. It all depends on the visa he has but he cannot be an independent contractor (AFAIK and can recall.)
It has been a while since I was an F-1 student but I think that with the new regulations, the students do not get a SSN unless they have a campus-approved job.
If I was you, I would pay him a little bit more for now, keeping back what your accountant thinks taxes might be, and then pay that amount when the job is finished.
posted by hariya at 2:14 PM on March 10, 2008
It has been a while since I was an F-1 student but I think that with the new regulations, the students do not get a SSN unless they have a campus-approved job.
If I was you, I would pay him a little bit more for now, keeping back what your accountant thinks taxes might be, and then pay that amount when the job is finished.
posted by hariya at 2:14 PM on March 10, 2008
Response by poster: To Freq:
I did not work with him in 2007.
I need to pay him for work started in 2008.
I did not even think about the conflict of interest in regard to paying him while he's here on a student visa!
That's his problem, though, not mine, right?
(Not that I want to cause him any problems)
posted by BillBishop at 2:20 PM on March 10, 2008
I did not work with him in 2007.
I need to pay him for work started in 2008.
I did not even think about the conflict of interest in regard to paying him while he's here on a student visa!
That's his problem, though, not mine, right?
(Not that I want to cause him any problems)
posted by BillBishop at 2:20 PM on March 10, 2008
Ignoring the issue of work done from within the US and his legal eligibility to work, you may well be required to take withholding from his pay for the work he did in Israel, because you are paying a nonresident alien independent contractor. See this page for more details. Basically, the US government has no way to collect taxes from a guy in Israel, so they want you to collect the money up front through withholding.
posted by zachlipton at 2:30 PM on March 10, 2008
posted by zachlipton at 2:30 PM on March 10, 2008
I'm not a lawyer, but I've been an independent contractor for years and am paid by both domestic and foreign companies. No one withholds tax. They issue a 1099 and the tax is my problem.
I doubt the US would tax an Israeli citizen for work done in Israel. And to find out if an Israeli citizen visiting the US has to pay US taxes, see the US-Israeli tax treaty.
Even if he has to pay US tax for work done while in the US (assuming he can work legally), I would be surprised if you were required to withhold anything. He's not an employee. He's an independent contractor providing a sporadic service off-site and therefore should get a 1099.
posted by PatoPata at 2:56 PM on March 10, 2008
I doubt the US would tax an Israeli citizen for work done in Israel. And to find out if an Israeli citizen visiting the US has to pay US taxes, see the US-Israeli tax treaty.
Even if he has to pay US tax for work done while in the US (assuming he can work legally), I would be surprised if you were required to withhold anything. He's not an employee. He's an independent contractor providing a sporadic service off-site and therefore should get a 1099.
posted by PatoPata at 2:56 PM on March 10, 2008
That's his problem, though, not mine, right?
No, it could very well be your problem. If the USCIS determines that you employed the person in the US, but that they're not entitled to be employed in the US (which may well be the case for an F-1 holder) you could be subject to criminal penalties.
posted by buxtonbluecat at 3:00 PM on March 10, 2008
No, it could very well be your problem. If the USCIS determines that you employed the person in the US, but that they're not entitled to be employed in the US (which may well be the case for an F-1 holder) you could be subject to criminal penalties.
posted by buxtonbluecat at 3:00 PM on March 10, 2008
More reading time:
You'll want to take a look at IRS form 8233 and the instructions. You'll also be interested in the required statement that will be needed because he is on a student visa. However, it looks like he may only be exempt from withholding on the first $3,000 in a calendar year, meaning that you'd have to deal with the remaining $500 later.
You might want to consider paying him something under the table now (at least for the work he did when he was in Israel, since that didn't violate immigration laws), with an understanding that you'll work out the tax and immigration implications later.
posted by zachlipton at 3:54 PM on March 10, 2008
You'll want to take a look at IRS form 8233 and the instructions. You'll also be interested in the required statement that will be needed because he is on a student visa. However, it looks like he may only be exempt from withholding on the first $3,000 in a calendar year, meaning that you'd have to deal with the remaining $500 later.
You might want to consider paying him something under the table now (at least for the work he did when he was in Israel, since that didn't violate immigration laws), with an understanding that you'll work out the tax and immigration implications later.
posted by zachlipton at 3:54 PM on March 10, 2008
Congrats, you've employed an Israeli who isn't legally allowed to work in the U.S. He's not going to get in trouble if anyone finds out, because he's not a U.S. citizen and doesn't file a U.S. tax return.
Consult with a tax lawyer asap.
posted by bondgirl53001 at 12:15 PM on March 11, 2008
Consult with a tax lawyer asap.
posted by bondgirl53001 at 12:15 PM on March 11, 2008
This thread is closed to new comments.
If you got the bill in 08 and or paid him less than $600 in 07, don't worry about it, just pay the guy and deal with it after tax time (or as my accountant calls it "heart attack season") It's abundantly clear he's an independent contractor, and you have all his ID info, just 1099 him next January. As a contractor, it's his responsibility to take any of the tax liability.
of course IANAA, but i sent a pile of 1099's out this year, none to israel.
posted by freq at 1:58 PM on March 10, 2008