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I have a friend who is not a US citizen and is not subject to US taxes. He typically pays expenses through a solely owned trust, which the IRS considers to be equivalent to a sole proprietorship. He typically comes to the United States to make investments and under US law this investing is not considered to be "operating" in the US, so he is exempt from any reporting requirements.

However, there is the problem of sundry payments to minor employees. For example, if he hires someone as a maid or to do some landscaping, how is this reported? A 1099 cannot be used because that requires an EID, which he does not have.

One possibility is to have the maid/landscaper report the income as foreign sourced. In this case my friend would not report the income, only the employee would. How is this done?

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  • Doesn't the sole proprietorship have a Tax ID Number? – RonJohn Oct 4 '19 at 19:31
  • @RonJohn No it is not a US corporation. – Five Bagger Oct 4 '19 at 19:43
  • Re-read my answer. Especially the part that says "or SSN". – RonJohn Oct 4 '19 at 20:30
  • It's not foreign sourced. Payment for personal services is sourced where the worker is located. A US citizen employed and paid by a US company or person, but posted and working in another country, has 'foreign' income (but as US citizen still reports that foreign income as taxable), the only exception is if the person works for the US government then it's US source; similarly a foreign person located in the US working for and being paid by a foreign company or person has US income, except if working for a foreign government or supernational organization (mostly the UN). – dave_thompson_085 Oct 6 '19 at 6:59
  • Interesting friend you have. I can't reconcile the whole "not subject to US taxes" and hiring people to do work.... Regardless, tell them to hire a CPA to figure out how all this works. The CPA will definitely provide information on how to pay/report the pay of the CPA :p – xyious Oct 7 '19 at 20:31
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The 1099-MISC requires the employer's TIN, which can be either EIN or SSN.

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  • Yes, I know that. In fact, I said that I know that in my question. My friend does not have an EID, nor will he get one. – Five Bagger Oct 4 '19 at 19:20
  • What exactly do you mean by "EID"? It looks like you mean Employer ID, which does not mean anything to the IRS. They care about EIN (employer identification number) and SSN. – RonJohn Oct 4 '19 at 19:27
  • By that I mean the TIN, the taxpayer identification number. – Five Bagger Oct 4 '19 at 19:29
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    @FiveBagger TIN is by definition one of: SSN EIN ITIN ATIN (and in some special cases PTIN) but 1099 reporting only allows the first two. In spite of the name, 'EIN' is used for some entities that aren't employers, including trusts, and including foreign ('international') ones -- although they can't use the web application; see irs.gov/taxtopics/tc755 . – dave_thompson_085 Oct 6 '19 at 7:00
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Don't hire an individual, pay a company for the service. If that landscaper or maid works for another company that company handles the 1099 or W-2.

If you are a business and you are claiming the expense then you may have to file a 1099. If they are your employee then you may have to file a W-2. Both forms have requirements for who has to file and when.

If you aren't a business then you still might have to file a form if they qualify as a w-2 employee. Get around this by arranging for the service through a company. The company should have a business license from the state or local jurisdiction.

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