Can I work on a 1099 under a TN status?

[GoldisRising]

The reason why i asked this is because now a days a lot of company ofcourse they want to save money and why give 7.5% SS and EI when you can just hand over the 1099 and let the person pay taxes.

I'll let my company know to go ahead on a 1099 my question is that is their any other way besides a 1099 the company won't give me a W2.

Just wondering.
Thanks

[agnelson]

Of course, when you accept to be paid on contract basis, you shpuldbe getting 20-40% more than as an employee.

[Steven]

"But your business cannot sponsor you for TN-1 obviously otherwise you are self-employed at that point which is illegal."

Correct, but the illegality is not self-employment, but self-sponsorship. CBP would not grant the TN in the first place.

Very few people are using CCPC, steven.

The question was:

This is the reason why i come to this board i just need to know if Legally i can work through my Canadian Corporate.

I doubt it's a regular corporation if it's small.

I think this question of "self-employment" and "self-sponsorship" needs clarification, because self-employment on TN-1 is illegal but it's basically defined as not being an arm's length situation with the sponsor:

As with the CFTA, admission as a TN under section 214(e) of the INA does not imply that the citizen of Canada or Mexico would otherwise qualify as a professional under section 101(a)(15)(H)(i)(b) or section 203(b)(3) of the INA. Note too that Section D of Annex 1603 does not authorize a professional to establish a business or practice in the U.S. in which the professional will be self-employed. Section D of Annex 1603 is limited to the entry of a citizen of a Party country seeking to render professional-level services for an entity in another Party country.

Self-employment also clearly conflicts with the intent of the NAFTA Implementation Act and its accompanying Statement of Administrative Action, which states, at page 178, “Section D of Annex 1603 does not authorize a professional to establish a business or practice in the U.S. in which the professional will be self-employed.” In this regard, Section B of Annex 1603, which deals with “traders and investors,” establishes the appropriate category of temporary entry for a citizen of a Party country seeking to develop and direct investment operations in another Party country. Canadian or Mexican citizens seeking to engage in self-employment in trade or investment activities in the U.S., therefore, must seek classification under section 101(a)(15)(E) of the INA.

Although the issue of self-employment was never specifically addressed under the regulations promulgated by the INS pursuant to the CFTA Implementation Act, the bar on establishment of a business or practice in which the professional will be self-employed is consistent with the intent of the U.S. and Canada in entering into the CFTA. Since entry into NAFTA was not intended to substantively change the treatment of professionals, this explicit bar merely clarifies existing law.

Note that the bar on establishment of a business or practice in which the Canadian or Mexican citizen will be self-employed is in no way intended to preclude a Canadian or Mexican citizen who is self-employed abroad from seeking entry to the U.S. pursuant to a pre-arranged agreement with an enterprise owned by a person or entity other than him/herself located in the U.S. On the other hand, a Canadian or Mexican citizen is precluded from entering this country in TN classification for the purpose of rendering pre-arranged services for a U.S. corporation or entity of which he or she is the sole or controlling shareholder or owner or over which he or she holds de facto control.

-- Thu Sep 10, 2009 1:13 pm --

Ok so in other word both You guys think 1099 is ok.

I don't think that's really the issue frankly, as I mentioned further back. In your case the 1099 is just a bit of paper that is the equivalent of a receipt for your bill. Could be a 1042-S instead. Could be a handshake for all it matters.

I think you need to be a bit more clear on what the structure of your company is, that's the relevant point, as a CCPC having employees in the US (which appears to be your situation) is a very complex situation to be in and I don't recommend it although legally it is possible.

You end up with two payrolls (possibly), two sets of corporate withholding, two returns for the corporation 1120-F and T2, and then you have all the personal stuff to do to depending on whether you've paid yourself in Canada for anything, i.e. two personal tax returns and a whole crapload of claiming foreign tax credits, both for you personally and for the corporation and if you're exposed to US corporation tax because the CCPC rate is lower in Canada, a schedule 21 application won't recover all the tax you paid in the US.

Ad naseum (tax treaty claims on 8233 and 8833 perhaps). Not recommended. Not recommended frankly even for a large company, better to have two corporations, which is why they generally have a separate corporation in each country they operate in.

For a small company you're basically working as an accountant at that point. Most accountants frankly don't understand it because it's a cross-border situation, another reason to have the two businesses separate so it's a standard situation for an accountant on either side of the border to deal with.

It would be better to be on their payroll and get a W-2 so you or your company doesn't have to do the withholding, regardless of what is legally possible.

[agnelson]

I guess we will have to disagree on this. I would encourage any who are comfortable being a contractor, and who live in canada, to embrace this method of work arrangement.

I know a guy who had 14 TNs at once on this arrangement -- and he was living in US. This would be even easier if living in Canada.

The more clients (and TNs) you have, the easier it is to prove "no fixed base" in US.

[Steven]

Well the problem is really the CCPC. If there were no CCPC then s/he would not need to be non-resident in the US for tax purposes. And the next question was paying through a CCPC. Shouldn't have a CCPC because they're working in the US, shouldn't pay through the CCPC even if they want to keep it because of the huge volume of paperwork involved. Easier just to file a 1040NR and pay the tax based on the invoiced amounts. Start using the CCPC again when they're back in Canada.

There is no form 1099 or even 1042-S in that situation because Canadians are exempt from NRA tax. All they have to do is file an 8233 with the client which basically is proof the client doesn't have to issue a 1099 or 1042-S. If they issue one it's a pointless piece of paper.

Even US citizens in the US have problems with 1099s because it's used as a way of offloading social security matching onto employees. Canadians being more naive about this get caught out by it, seen it mentioned various times on here.

And like you were saying in the other thread, why are accountants recommending CCPCs to people anyway, especially if they're going to be working in the US?

It's all people getting tricked by unethical employers and accountants as far as I can see (although there are occasions where corporations and things like 1099s make sense). My basic principle with accountants is to use them when I'm really stuck, not because I'm too lazy to look up the information.

[GoldisRising]

I don't think that's really the issue frankly, as I mentioned further back. In your case the 1099 is just a bit of paper that is the equivalent of a receipt for your bill. Could be a 1042-S instead. Could be a handshake for all it matters.

Sorry for the delay let me ask this.

Can i file as a NRA from Canada and then just file taxes on 1099 in the US?
It seems like this is the option i have currently W2 is not an option as of right now

[dannykool]

I guess we will have to disagree on this. I would encourage any who are comfortable being a contractor, and who live in canada, to embrace this method of work arrangement.

I know a guy who had 14 TNs at once on this arrangement -- and he was living in US. This would be even easier if living in Canada.

The more clients (and TNs) you have, the easier it is to prove "no fixed base" in US.

------------

So basically from an immigration standpoint one is on TN (company sponsors and company specific) but since one is not on the company payroll, one is self employed from a tax perspective (file in US or Canada wherever the base is).

It is also easier from Canada (other than the tax issue) in that if the TN ends one does not have to move back right away and so the whole uprooting thing is not there.

The important question to answer is that if the work is done in the US, will the company pay for the accomodation etc.?

[Steven]

I have to say I'm getting utterly confused here so let me just clarify a few things:

As a Canadian who owns a CCPC, you MUST have your tax home in Canada, Canadian law requires it. If you're working in the US pretty much indefinitely, there is no point in having a CCPC because it just causes you problems and you should probably dissolve it (which may expose you to departure tax but face the reality!)

You can if you want file as a non-resident in the US, but the IRS will start asking questions if you do it for years on end. You file a 1040NR and an 8833 in the US if you're there for more than 183 days, 8840 if it's less than that. This only makes sense for a long period if you have a CCPC or for some other reason you must keep your tax home in Canada e.g. exposure to lots of departure tax. Eventually if you're filing a 1040NR with a US address on it every year, the IRS will write you a letter asking for proof of residential ties abroad.

You can if you want have a CCPC in Canada, but work as a self-employed person or directly employed person on an entirely separate payroll in the US and this is advisable to avoid the CCPC having to file a ton of paperwork in the US and having a US payroll.

The question about "working on a 1099" is a bit disingenuous, because if you're a non-resident alien there is no 1099, it's not a relevant form for NRAs. Payment is made on 1042-S but this is optional because there is no NRA tax so in fact there is nothing, all you have to do is prove your status to your client which is done on Form 8233 and they keep that in a filing cabinet somewhere in case they're ever audited. If you're directly employed you state on the W-4 that you are an NRA (find the instructions that tell you to do this, I dare you, they are fantastically obscure) and they just give you a W-2, it's as simple as that.

BUT really the better option if you're doing TN-1 in the US for a long time is to simply scrap all the NRA stuff, close down your CCPC because you clearly don't live in Canada and do your taxes like any other American does.

I was advised by the IRS many years ago that it is unwise to file as a non-resident alien self-employed person because it's the rarest filing category (hint, hint, nudge, nudge, audit, audit), so basically not a good idea to either have a CCPC and set up a US payroll for it because of the paperwork and not a good idea to have a CCPC and file as a non-resident alien self-employed person in an attempt to avoid that paperwork - get rid of the CCPC and file as a US resident.

Okay, that's the NRA bit covered.

There's another issue which goes to whether you can be self-employed on TN-1. I've had this discussion in depth with the IRS legal dept. if you can believe it and although the IRS doesn't care if you file that way, there are various international treaties involved (tax treaty, NAFTA) and legally it's very confusing, which is why I quote the bit from the CBP manual which is slightly less confusing. Essentially your sponsor must be arm's length from you, you cannot in any way control them or their company.

Assuming you're okay with what CBP may think when they ask you if you're self-employed then from a tax standpoint you can do what agnelson suggests - get 1099s once you are a US tax resident which does make sense in the example he gave, a guy with 14 TN-1s because it's impractical to be on 14 payrolls.

But don't be a naive Canadian and meekly accept a 1099 when this person is your only client - employers do it in the US to offload social security matching on to you and then you have to do all the self-employment stuff as well. If you're working principally for one company then really you should be on their payroll and getting a W-2.

This is advice the IRS gives to Americans employed in the US, let alone Canadians.