Home Improvement Contractor - Licensed Contractors

How do I pay a foreign contractor that is in another country? How does taxes work in this case?

I've heard of W8 form. but I don't really know how it works. Does the contractor I deal with have to pay taxes in US? and how do I report this to IRS? The contractor has a US bank account. If I choose to fill out W8 form. Do I have to ship or deposit the money to the foreign bank account or can I deposit the money to their US bank account?

Public Comments

1. Ask your contractor. Are they a US Citizen? Are they a US resident alien? If yes to either, have them fill out a W-9 and issue a 1099-misc at the end of the year. If they are neither, is the work done on US soil? If yes, it's US source work and you have them fill out W-8BEN and issue 1042-S at end of year. If none of the above, you get them to confirm this in writing, under penalties of perjury and file the statement with your records.
2. If a contractor is a foreign person and is not present in the U.S. to work for you, then it is not U.S. source income. You will get W-8BEN to confirm the contractors foreign status. The income is not subject to U.S. taxes. W-8BEN. Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 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. Do not file W-8BEN if you are a U.S. citizen, resident or U.S.person, you are non-resident who worked in the U.S. Read http://taxipay.blogspot.com/2008/04/list-of-articles.html