Question about tax liability.

[Payroll]

I own a company based in Texas and have 8 employees that are Canadian citizens.
What taxes should I withhhold?
All the income is generated in the USA and I want to instruct the payroll service about how to tax the employees.

Thank you for your assistance!

Charlotte.

[nelsona]

Do they work in US and are your EMPLOYEES? If so, then they are subject to US payroll taxes, and that is it. Their being Cdn has no impact on you, other than making sure they have proper work authorizaton.

If they are contractors, AND live in canada, you/they may be able to file a form with you/IRS that will absolve you of collecting payroll taxes, under the provision that they will pay their taxes in canada. But until those forms are filed, they are subject to non-resident withholding.

[Payroll]

Thank you for the speedy response.

They are my employees and the work is generated in the US but performed in Canada where they live.

[nelsona]

Well, then the income is NOT generated in US, is it.

They need to be paid as Cdn employees, a payroll needs to be set up with Cdn govt, and Cdn fed, Provincial, CPP and EI need to be withheld. They have NO US tax liability, and no US tax should be withheld. they musty not be paid as US-based employees.

Be aware that this may make YOU liable for reporting in canada, and perhaps for tax in canada as well.

Many small employers in this situation, merely pay their foreign workers as contractors (ie. cut them a check), as they do not want the reporting and payroll hassles.

[Payroll]

Thank you. Very informative.

Does it matter that they work on government contracts from their locations in Canada?

[nelsona]

Matter how? It may matter to the US govt if you're outsourcing work, but that is not a tax matter.