Withholding for overseas commision earners

August 12, 2009 5:30 PM

We're starting a US based online T-shirt company that pays sales commisions to designers. In the event that the designer is overseas, do we need to withhold tax? If not, what IRS form do we/they need to fill out?
posted by Dag Maggot to Work & Money (5 answers total)

What tax are you talking about? Income tax, fica, etc? Has someone told you that you need to withhold that from the commissions you pay to US-based designers? I have to say, even with the restrictions on treating people as contractors rather than employees, that seems odd to me.

In my experience, you don't have to withhold income tax and other related taxes from payments made to people overseas, provided that they are doing the work overseas. But without knowing more about the specifics of your situation it's hard to give a clearer answer.
posted by alms at 6:53 PM on August 12, 2009

Response by poster: Well, we've gotten some conflicting advice - we know that we need to fill out a 1099-MISC for US residents, but we're not sure on people living overseas.

We've read that we may need to withhold 30% and fill out a 1042-S (foreign Person's US Source Income Withholding) at the end of the year - or - maybe we don't need to withhold anything, and we just need to make sure the overseas person fills out a W8-BEN form.
posted by Dag Maggot at 7:13 PM on August 12, 2009

A lot of it depends on the state you are based out of. Non-resident tax withholding laws vary from state to state, and the legalities vary depending on the nature of their income from you.
posted by Zophi at 7:14 PM on August 12, 2009

Response by poster: We're based in California, and the nature of their income is that they would be getting lump sum commission payments for t-shirts that have sold using their designs.
posted by Dag Maggot at 7:17 PM on August 12, 2009

Best answer: California is one of the states that has non resident tax withholding laws. Start here, and I would definitely also contact the California Franchise Tax board.
posted by Zophi at 7:46 PM on August 12, 2009