Outsourced Payments

Today TaxMama® hears from Lloyd in the TaxQuips Forum with a little problem. “I paid someone in Thailand approximately $15K a year to do data entry for me. IRS is not happy that I did not issue a 1099-misc to her. Until now, she did not have ITIN or Social Security Number. However, this year 2012, she came to U.S., applied for and received Resident Alien status. Now she has a Social Security Number. Can I retroactively apply that SS# to income from prior years?” 

Ask TaxMama 

 Dear Lloyd, 

No, don’t do that! 

You should have been having her fill out a W-8 BEN to prove her foreign status for the prior years before issuing a check. But it’s not the end of the world, if you did not. Most people don’t know that we need to get paperwork from foreigners, not working in the U.S., when we pay them. 

For now, just issue her a 1099-MISC for the time she is living in the US and subject to US taxes. In other words, if she moved to the U.S. and got her ITIN in June of 2012, that’s when her worldwide income becomes subject to U.S. taxation – not a moment before. 

If she was not a US citizen or green card holder or resident alien until now…she is not subject to U.S. taxes for prior years.

And remember, you can find answers to all kinds of questions about outsourced payments and other tax issues, free. Where? Where else? At www.TaxMama.com.

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