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Tax withholding for nonresident alien employees?

As a US-based online business, I have several employees living in the Philippines (citizens of Philippines). Are the wages I pay them considered to them to be US source income? Am I required to withhold tax at 30% for them? Am I required to file Form 1042 and Form 1042-S, and are they required to file any forms (such as W-4 or Form 8233)?

From what I can tell, the reporting is very simple if the workers are classified as foreign contractors, but much more complicated if they are considered employees.

Additional info:
-They perform all work in the Philippines, and have never come to the US.
-They are being paid less than $10,000 USD annually (the tax treaty between US and PH states that income derived from services in the other country is only taxable if it is above $10,000).
-They perform customer service for my clients. My clients are from across the world, but the majority of them are in the US.


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

The key is the first "additional info" that is, they don't work in the US and aren't US employees.

You don't have to a) report the income paid to the IRS, they don't have jurisdiction.

You probably don't have to inform the Philippines (you need to check your company's status there).

Your people in the Philippines should check what their responsibilities vis a vis the Philippines is, but that isn't your issue.


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