Tax & Accounting Blog

Paying Foreign Employees Part 6: Income Reporting

1099, ONESOURCE, Tax Information Reporting, Withholding Management June 6, 2012

Wages paid to foreign employees are reported on Form W-2 with the following exceptions:

  • Treaty-exempt wages of nonresident employees are reported on
    Form 1042-S
  • Wages paid to H-2A Agricultural Workers (both residents and nonresidents) are reported on Form 1099 MISC if the amount paid during the calendar year equals or exceeds $600
  • Wages paid to nonresident aliens employed abroad are not reportable (although they may be reportable to the country where the employment occurs) 

Failure to report income properly could cause foreign employees to submit incorrect tax returns, which might result in their loss of future immigration benefits.

Understanding and correctly applying all the rules and regulations surrounding payments to foreign employees is more important now than ever before. The IRS is now focusing on compliance with international tax rules because of the international tax gap. As a result, when the IRS performs an employment tax audit, employers should be prepared for a review of compliance with international tax rules.