International linguists with US accounts?
Thread poster: KellyMargelony

KellyMargelony  Identity Verified
United States
Local time: 17:51
German to English
Mar 1, 2016

Hello my fellow linguists! I have a few questions for you. I have heard of many non-U.S. based linguists having U.S. accounts for payment. They have the company send the check to their U.S.-based bank along with their deposit information. Many times, from what I've heard, this is to avoid PayPal fees, etc.

My questions are:

1) If you are paid in the U.S., are you required to complete a W9, even if you live in another country?
2) Do you have to pay US taxes on that money?
3) Is this a "legal" process?

I guess I'm just wondering because I have a company saying they don't pay money to foreign suppliers that have a U.S. account - they only pay foreign suppliers via PayPal or Skrill even if they have a U.S. account due to tax reasons.


 

Patrick Porter
United States
Local time: 17:51
Spanish to English
+ ...
It's complicated. Mar 1, 2016

Well... generally speaking... whether or not a person owes U.S. tax on income paid by a U.S. company, 2 things have to be determined: whether the payee is a "U.S. taxpayer" (generally a citizen or legal resident) and the "source" of the income (i.e. the activity giving rise to the income, not the paying party) and whether it is "U.S. source" income or not.

In the case of a translator, the source would likely be income from personal services. In general, for U.S. income tax purposes, personal services performed outside the U.S. are non-U.S. source income.

The distinction is less important for "U.S. Taxpayers", who incur U.S. income tax on worldwide income. But for non-U.S. taxpayers, typically only income considered to be "from U.S. sources" is subject to U.S. income tax.

But then there are other issues, like whether the individual's activity amounts to being "engaged in a trade or business in the U.S.", in addition to other things like whether a bilateral tax treaty would apply in the case of U.S. tax owed on U.S. source income by a non-U.S. taxpayer.

From the point of view of a U.S. company, they would want to establish these things in some way. Lots of them ask for a form "W-8 BEN", which, contrary to common belief, is not actually required in this kind of instance and the primary purpose of which is otherwise...but they tend to use it as a way to establish the foreign residency of the payee. And in fact the Treasury Regulations say the form can be used for this (although in my opinion it's not the best way).

But if the services are being performed inside the U.S. then the company could have a liability to withhold some of the income paid to non-U.S. payees corresponding to U.S. tax owed, as it would then be considered to be U.S. source income.

So perhaps this company is concerned that the presence of the U.S. bank account is a red flag that the services are really being performed inside the U.S. or that the payee is really a legal resident for tax purposes. The policy you mention might be a bit overly-cautious and possibly unnecessary, but it is not completely illogical.

A thorough and accurate determination of the requirements, etc. would take more in-depth analysis of the Treasury Regulations, which actually contain many hypothetical examples of how the IRS believes the statutory laws apply in certain cases. Then there is case law precedent to be considered...which fills in some of the holes and in some cases even nullifies the Regs. and requires the IRS to change its interpretation. In other words it would probably take a tax lawyer to give definitive answers to your questions.

And of course nothing that I am saying here should in any way be seen as legal advice.

[Edited at 2016-03-02 00:12 GMT]


 

Clarisa Moraña  Identity Verified
Argentina
Local time: 18:51
Member (2002)
English to Spanish
+ ...
I have an account in Miami Mar 2, 2016

KellyMargelony wrote:


1) If you are paid in the U.S., are you required to complete a W9, even if you live in another country?


No, I'm not. I have to complete the W-8 BEN, which is a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. https://www.irs.gov/uac/Form-W-8BEN,-Certificate-of-Foreign-Status-of-Beneficial-Owner-for-United-States-Tax-Withholding
2) Do you have to pay US taxes on that money?

No, I don't have to pay US taxes (unless I fail to deliver the W-8 BEN on time). But I have to pay the taxes required in my country. This is not tax evation, in fact it is a tool to avoid paying double taxation.
3) Is this a "legal" process?


Yes, it is. It is a process offered by the IRS to tax payers in foreign countries.


Kind regards

Clarisa

Edited to add some information: I also use Paypal, and the purpose of my US bank account has nothing to do with avoiding the Paypal charges. I use it because checks sent by my foreign clients to my home in Argentina might be lost in the mail, or are imposible to cash; besides, the Argentine banks charge big amounts of money for receiving foreign payments (and I can not receive small amounts, as the minimun bank charge might be higher than the paid amount).



[Edited at 2016-03-02 03:49 GMT]


 

Neptunia
Local time: 23:51
Italian to English
us citizens Mar 2, 2016

I don't have specific experiences with paypal or real answers to your questions, but here are some basic things to keep in mind:
If you are a US citizen, you not only have to declare you US-based income but also your foreign income and even the value of your foreign bank accounts no matter where you live in the world. You may well not end up paying a cent to the IRS, (I never do) but you still have to file with the IRS (I always do). Most places have a tax treaty with the US so that you would not risk paying taxes twice, you just have to establish yourself as a tax payer of one place or another and show the other that you are fulfilling your tax obligations. In general, there is no escape from taxes. I've also found there is no good way of moving money around the world - - I spend my dollars in the US and my Euro in Europe - - to try to move chunks of money is counterproductive because of fees, etc. If you are not a US citizen, the rules are definitely different. Most countries don't expect to tax and keep tabs on what their folks do when living abroad.


 

Patrick Porter
United States
Local time: 17:51
Spanish to English
+ ...
Almost correct, but... Mar 2, 2016

Clarisa Moraña wrote:
...No, I don't have to pay US taxes (unless I fail to deliver the W-8 BEN on time). But I have to pay the taxes required in my country. This is not tax evation, in fact it is a tool to avoid paying double taxation...


Although I'm probably splitting hairs here, the W-8 BEN may be a sufficient, but certainly not necessary, condition to show that an individual is not a U.S. taxpayer. Now, for practical purposes, if an agency tells you that they are going to withhold some of your money if you don't fill out the W-8 BEN, then perhaps you could say that it is necessary. But that is simply because of the agency's internal policy.

It is most definitely not a requirement of the IRS, and whether or not you provide a W-8 BEN has no bearing on whether an agency must/should/can withhold any portion of your earnings for performing services outside the U.S. if you are not a U.S. taxpayer. Simply put, such services are not considered to be from U.S. sources and are therefore not subject to U.S. taxation for non-U.S. taxpayers.

The W-8 BEN is a tool to avoid double taxation, but only for U.S. source income. Agencies simply use it as a questionably convenient way to show that payees are foreign. The true purpose of the form, however, is to claim treaty benefits on U.S.-source income, where applicable.

It's a subtle distinction, but the issue is a pet peeve of mine, because when agencies tell translators that they must fill out the W-8 BEN or have their money withheld ... "because IRS" ..., it is misinformation.

And another bit of information, in case anyone is interested: the IRS doesn't make the tax laws; the Congress does. The IRS is the arm of the Treasury Department of the executive branch which enforces the laws. In that enforcement, it is granted some room to interpret those laws as it sees fit. That interpretation is issued, among other sources, in the Treasury Regulations. So the IRS doesn't actually get to say what is "legal" or not...only what it feels that the Congress has said is "legal" or not. And that interpretation is open to being challenged in court, which happens quite often...and sometimes the IRS loses.


 


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