Taxes Made Simple

A reader asks: If I contract someone in Uruguay, who does not have a SSN, to do some freelance work, do I need to deduct any taxes from their paycheck?  It might mean paying them more money on an hourly basis so they clear what I contracted them for.  Thanks!

My answer: I have to admit that I have very little experience dealing with international taxation, so I poked around a little bit on the IRS's site to see what I could find.

IRS Publication 515 (entitled "Withholding of Tax on Nonresident Aliens and Foreign Entities") states the following:

"Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld from the payment made to the foreign person."

As to the point about tax treaties between countries, you can find information about tax treaties here.

Want to learn more about small business taxes? Take a look at my related book, Surprisingly Simple: Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages or Less.