Tax Forms if Your US Business Hires Offshore Workers


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As we’ve moved our businesses and jobs online, it only makes sense that we’re also starting to deal with other countries.  This might be the first time for your business, so this question I received from a reader at USTaxAid.com is really on point. 

Here’s the question:  

Hello. I want to outsource my online website /digital marketer to the Philippines. What tax form do I need to use (either for me to file or for me to give to the overseas digital marketer) to get the tax benefit of my expenses when I outsource? Thank you. 

Answer:  

Generally, there is no tax withholding or annual reporting requirements if you’re a US based company. Your workers should submit a Form W-8BEN or W-8BEN-E to prove their non-US tax status. Otherwise, the government could claim that they actually are US taxpayers. 
For example, if you hire someone in Thailand to do some work on your website, you need to make sure your worker isn’t a US taxpayer who is a digital nomad currently in Thailand. The Form W-8BEN (-E) tells you that the worker isn’t. If they lie on the form, that’s on them, not you. But if you don’t get it and keep it on file, you could have problems.  

The payments you make to offshore workers or companies are fully deductible as long as it’s a country that is currently not blacklisted by the US. In most cases, there is no problem. 
One of the benefits of hiring offshore workers (besides avoiding any employment tax issues) is that you won’t accidentally create nexus. On the other hand, if you hire a remote worker from California as an independent contractor, CA law may require you to turn them into an employee. And if you have an employee working in CA, chances are your business now has California nexus. That means you have to file a California income tax return and pay taxes in California. That’s true even if your business has nothing else to do with CA. 
You won’t have the income tax nexus with a foreign country if you have workers in that country.
Taxes are trickier in a global market. Make sure you, and your tax strategy, are up to date. Here are some ways we can help:
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