Contractor or Employee from India (tax question)?

I have some offshore people that are performing work for us (for the time being). The jobs I provide them with do require training and have to be done in a specific way.

Two of these people are from India. They just invoice me for billable hours. Do I need to treat these people as employees or independent contractors. I would take it I could treat them as contractors.

I would like to keep them as contractors if possible. Unless having them as employees would be more beneficial. If I was to have them as employees I?m not sure how I would pay taxes out on them or how much it would cost?



Any experts out there experienced in this area...

also interested in what people have to say about this. Do you need then to fill out some type of form in order to claim you paid them>

Generally, you want to keep them as independent contractors because then you don't have to pay benefits like worker's comp and payroll taxes. Since they are in India, worker's comp is obviously not an issue. As for what you pay them, you may have to withhold taxes on the payments or be responsible for paying them yourself. You should really contact a CPA and ask them. Probably cost you an hour of time, but will save you a ton down the road if the IRS comes a calling.

If you pay any one outside of an american anything over $9,999 then you are responsible for collecting the 30% that the IRS requires and send it to them. I found that out when I called the IRS with the same problem. You also have to have them fill out a W8 (W9 for non-US workers) and keep it on file so that when you file your taxes, you can show who you paid. If you dont have that info handy when you file, you may get audited and you are looking at a MINIMUM of $100k fine.

The only way that I found around this problem is to have the person register a business in their country. that way when you send payments, you send them to the business. No taxes need to be withheld and it does not look weird.

Hope that helps

suga051982 said:

If you pay any one outside of an american anything over $9,999 then you are responsible for collecting the 30% that the IRS requires and send it to them. I found that out when I called the IRS with the same problem. You also have to have them fill out a W8 (W9 for non-US workers) and keep it on file so that when you file your taxes, you can show who you paid. If you dont have that info handy when you file, you may get audited and you are looking at a MINIMUM of $100k fine.

The only way that I found around this problem is to have the person register a business in their country. that way when you send payments, you send them to the business. No taxes need to be withheld and it does not look weird.

Hope that helps

Click to expand...

What do you mean w9? W9 is for American contractors. You said non-US?

Are you telling me if we pay someone more then $9,999 per year as a contractor. That we have to pay out 30 percent of that? I'm not sure what you are saying. I just checked with our tax adviser, he stated that we don't have to hold anything since they are contractors..... and not to worry about it?

Is this information you researched on your own. Or did this come from a CPA?

superaff1984 said:

I have some offshore people that are performing work for us (for the time being). The jobs I provide them with do require training and have to be done in a specific way.

Two of these people are from India. They just invoice me for billable hours. Do I need to treat these people as employees or independent contractors. I would take it I could treat them as contractors.

I would like to keep them as contractors if possible. Unless having them as employees would be more beneficial. If I was to have them as employees I'm not sure how I would pay taxes out on them or how much it would cost?



Any experts out there experienced in this area...

Click to expand...

I may not provide you the whole info you need but i can provide you sufficient info.

If you treat them as employees is the most beneficial options as apart from their salary you can also show other expenditure you incur on them like training etc [ i believe you can add others yourself ] for a ready tax deduction. And as India has a DTAA [double tax avoidance agreement] with USA the profit you generate through these guys wouldn't be charged to tax [under business connection ] by India [Trust me they do that]. And your employees would be happy coz their tax would be deducted at source by US govt and they need not pay tax back home in india.

But if you treat them as contractors
you wont have the benefit of adding those additional expenditure [that never actually occurred] to your income and expenditure sheet. Apart from that if Indian Govt takes note of ur transaction you along with ur contractors would need to pay few taxes...

if you need more clarity on the tax structure on Indo-Us transactions ask me i will throw some light...

Iam happy to pay my taxes, cause with them i buy my countries growth

by the way..curious to know what you people were working on.

One more thing...
if the amount is small and minute then need not bother ...
but if its above the trigger limit then be cautious..