American Companies Working with Canadian Independents

[Jennie Ann]

Is there any problem for an American company hiring a Canadian independent as far as payment and taxes? In other words, if I were to hire a Canadian independent (freelance person) to work for me as an independent and I pay him/her with an American check, is that okay? Isn't the American dollar lower in value than Canadian dollars? Does this matter when paying with an American check?

Am I not required to send a 1099 if he/she makes over 600 bucks? I tried to Google this, and it is confusing. So I thought this might be a topic that somebody on this forum has experience with.

Looking forward to any and all replies! TIA!

[Kelli Combs (admin)]

Very interesting question.
I have subscribed to this thread, maybe someone can answer it.

Monti

[Janet]

Hi Jennie,

I'd tell the contractor the rate you're paying is in U.S. dollars and leave it up to them to convert it.

I don't know if this will help or not, but try this link:

http://www.irs.gov/pub/irs-pdf/p597.pdf

[Jennie Ann]

Thanks for the link, Janet. That IRS mumbo jumbo sure does have me confused.

What I am worried about is if I pay this person an American check and she cashes it, will the correct amount be taken out of my checking account, or will the amount be greater to coincide with the Canadian currency? Maybe I am not understanding how this kind of stuff works. She says she works for American companies all the time, but I just don't want to get myself in a pickle.

My next question, however, is if I claim what I pay her as a tax deduction, will the IRS get upset if I don't give her a 1099? If she lives in Canada, a 1099 would not apply to her.

Are there any Canadians on this forum, I wonder?

[Jennie Ann]

Update. Well, I asked some financial guru friends of mine about working with Canadian independent freelancers, and I am not required to send them a 1099 form.

There is some other paperwork that I would need to file, and it is just too confusing for me to understand, but I did find this on Google:

If the organization wanted to send you a slip to show what they had paid, it would be or should be a 1042S which is analogous to Canada's TR4A-NR and paid to a foreign person.

What usually happens is that the U.S. company asks you to fill out a W8-BEN which you can find at: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

or a W8-ECI - http://www.irs.gov/pub/irs-pdf/fw8eci.pdf

As described, you would fill out the W8-BEN on which you will find the following statement:

"Note: These entities should use Form W-8BEN if they are claiming treaty benefits or are providing the form only to claim they are a foreign person exempt from backup withholding."

I don't know if this will help anybody else, but I thought I would share this in case it ever comes up for anyone else.