1099's for International Contractors.....

[tealmad]

Hi everyone. I am new to this forum and was reffered by my tax guy to check this site out.

I do have a question about international contractors that my wife's company uses. She currently has a small business and has international contractors do software work for her. In turn, when her company starts to sell their software, she has the contractor submit an invoice based on the sales numbers for the product. She in turn sends out funds to the individual based on their royalty percentage via check or PayPal. She was told to do that this way so she did not have to send out 1099's. Is it safe to say this is a good way of doing her books, or is she supposed to be sending out special 1099's to these international contractors?

Any help with this question would be appreciated. Thanks in advance. - Gregg P. -

[Bees Knees]

Royalty payments of $10 or more are reported on Form 1099-MISC, box 2. There is no exception to the reporting rules if the recipient is a nonresident alien. The only exception for aliens is if the alien is an entertainer. Then the payments are subject to backup withholding on Form 1042-S, rather than having to be reported on a 1099-MISC.

[tealmad]

So in other words, we should be filing a 1099 for both domestic and international contractors, even though they are submitting invoices? I just want to make sure. In addition, would it be who of us to ammend our taxes for the years we did not send out 1099's?

[Bees Knees]

There is nothing to amend. It does not change your tax situation whether you send out or don't send out a 1099. All you are doing is telling IRS that they received money from you when you do. You are protecting your deduction for the expense by following the rules and reporting the transaction.

[Unregistered]

1099's

As I remember, if the international contractor or domestic contractor are incorporated, then you don't have to issue 1099's. is that correct?

[BOB W]

Unregistered....

..... I always enjoy someone who is thinking "outside" the box. Each responder knows that rule but somehow gets caught in the text as stated in the thread. Here is a for you.

[Bird Legs]

1099s'

Would the international contractor have a SSN or a FEIN? If not, how would this be reported?

[Bees Knees]

Same as any independent contractor that refuses to furnish a SSN. You do backup withholding on them, until they furnish you with one.

[tealmad]

With Backup Witholding, you mean, hold their pay until they provide me with the information that I need? Sorry, I don't completely understand the tax jargon.

[Bird Legs]

Backup Withholding

is the same as withholding on a W-2. Except for Contractors that receive 1099s you are
required to Withhold a flat 20% if the contractor does not furnish the info needed. Soc. Sec. #, FEIN, address etc. This 20% Backup withholding is reported and paid to the IRS.

[Mark Goldberg]

?

If a non resident of the US did work for a Us company but never set foot in the US the income would not be subject to US tax. So why would a 1099 be required?

[Bees Knees]

If a non resident of the US did work for a Us company but never set foot in the US the income would not be subject to US tax. So why would a 1099 be required?

How does the payer know whether or not the payee is subject to US tax? Where in the 1099 instructions does it say send them a 1099, unless you think they are not subject to US tax?