Independant contractor in US

Hi,

My tax situation is confusing, hoping someone can help.

I lived in the US for 7 years under TN and H1B visas. In 2008 I moved back to canada, and filed taxes with both IRS and CRA for that year. I have since moved to the states again for a 5 month contract under a TN1. My customer has set me up as an out of country contractor (I know they aren't supposed to , but they wouldn't listen to me). So my checks from them are not reported to the IRS.

Does the IRS even know that I'm here? Does the TN1 status flag anything with the IRS?

If I calculate my tax and pay them, will I likely be penalized for not having had my customer withhold the 30%?

J

So you filed dual-status for 2008? Okay well then nothing prior to this year matters then because that all sounds correct.

Is this client of yours sponsoring your TN-1?

If so the simplest method is to simply go directly on their payroll, you file a W-4, you get a W-2 just like their other employees. What you do with the W-2 depends on what you're planning on doing. But essentially you either file a T1 and claim a foreign tax credit in Canada and a 1040NR in the US, or if you plan on staying a long time, move your tax home back to the US and file that way (dual-status in the US and pro-rated T1, or you can take an Article XXV position). More info in IRS publications 519 and 597.

However the key point is that tax must be withheld in the US as that is where you are working. There's an enormous thread about 1099s on TN-1 somewhere on here that goes into very painful detail about it, but if you have only one client by far the simplest method (by far, I really do mean that) is to be on their payroll as a regular employee.

If you truly are only a contractor, then you will not have any tax obligation in US by treaty. However, there is paperwiork that needs to be filed with your client, in order for them not to have to withhold IRS tax.

I would look over form 8233 and submit this to your client, keeping a copy for yourself. This would absolve you -- amnd the client -- of any liability.

But, really, this is their problem. They are paying you as a contractor. REport the income in canada, and submit a 1040NR at year end to report that you are tax exempt in US.

If they issue you a 1099 instead of a 1042 that is their problem.

Note that all this presumes that you are continuing to live in canada.

-- Fri Oct 23, 2009 8:14 am --

If you are single, living in canada, and really are a contractor, then asking to be put on W-4 payroll would be a terrible and unnecessary tax move [OK, terrible may be too strong -- expensive is better ].

Yeah, it really matters on how long you plan on staying as to what the best method is.

You can use the 8233/1042-S etc. method but it depends on how long you're staying as to which approach is better because of where your tax home is.

If you plan on staying for awhile in the US then simply going on their payroll is easiest.