As a UK based tax resident company - employing USA citizens for work in the USA, do I have to register with the IRS and pay USA tax

Question

We are a UK based VAT registered company doing some business in the USA. We employ / Sub-Contract USA citizens for film production work on short term production contracts. We pay sub-contractors / contributors, on the basis of the submission of an invoice. Payments are made from our UK bank account to the sub-contractors account in the USA.

We are contracted by USA / European based companies to undertake such work. All income earned from such contracts is paid into our UK bank account. We pay UK VAT and Corporations tax on such income.

Do we need to register with the IRS and submit Tax returns.

Peter

Answer 1

Official answer: it depends.

The US distinguishes between employees, usually called W-2 after the tax form on which their income is reported, and contractors, called 1099. If a person is a contractor, you just pay him (or her), while if he's an employee, you have to withhold income tax (what's called PAYE in the UK) and pay social security and unemployment taxes. The IRS has a 20 point checklist to decide whether someone's an employee or a contractor.

http://art.mt.gov/artists/IRS_20pt_Checklist_%20Independent_Contractor.pdf

If it turns out the people are paying should be employees, rather than you registering as a US employer, there are companies that will do it on your behalf. They're not cheap, but the amount of paperwork otherwise is very large.