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To Pay or Not to Pay: Tax for U.S. workers paid by Overseas Companies

Foreign (non-U.S.) companies may be surprised to learn that they have U.S. tax withholding responsibilities when their employees work in the U.S. but are paid overseas.

According to the U.S. Internal Revenue Code, a company (employer) is required to deduct federal income and social security taxes from the wages of its U.S. tax resident employees (employees who work in the US). The employer must file the employer’s quarterly tax return (From 941), where he reports the amount of income and social security tax withheld during the period and a Federal Tax Deposit Form must be filed with the payment of the withholding taxes the month after closing each quarter.

The question could be more legal than tax-related, however it is clear that the contract signed by both parties will determine the jurisdiction in case of a litigation or separation of both parties.

Below are some more details for foreign employers with their employees working in the United States (i.e., for their U.S. entity) who are paid overseas (e.g., France):

  • Foreign companies can pay their U.S. employees from overseas for a maximum duration of 5 years limit. The 5 years limit applies on the exemption of Social Security taxes on the foreign income paid oversees that is subject to the foreign social security system. However the company can pay the salary from France as long as they want .
  • If the employee is working in the US for more than 6 months, he/she will become U.S. tax resident, where:
    • the employee needs to declare in the US his/her gross salary (without the employer taxes – charges sociales patronales)
    • consequently, he will pay additional taxes on taxes he/she already paid in France (charges sociales salariales).
  • The employee can avoid paying Social Security in the U.S. by claiming he/she is already paying the retirement benefit in France. However, by doing that he/she will not collect Social Security benefits in the US.
  • There are no additional taxes for the U.S. Company to pay (the employer taxes).

If you want to know more or meet with our fiscal expert, joins us for our workshop in Paris on March 28!

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