The workforce is tight and finding qualified workers is hard. To supplement your workforce, you may need to hire foreign workers/contractors. North Carolina has special regulations when hiring a foreign contractor.
Special Considerations with Foreign Contractors
As with all contractors you must get a W-9. Make sure the person filling it out checks the appropriate box as to type of entity. Sole Proprietorships can use their personal identification number or a Federal Employer Identification Number. Businesses using an ITIN (International Tax Identification Number) is always a sole proprietorship. For businesses using an ITIN, North Carolina requires you withhold 4% of their earnings if you pay them more than $1,500 per year.
Foreign workers can be exempt from the 4% withholding tax. However, they must be a Corporation or LLC and be registered in NC to do business. If they check the box in the W-9 that says they are a corporation and they provide you with a Federal Employer Identification Number, that is the first step. Make sure they are registered in NC by looking them up on the Secretary of State’s web site. If they are not, you must still withhold the 4%.
Aggressive Collecting Practices
North Carolina’s Department of Revenue is aggressive in collecting this withholding. Instead of forcing your business to pay a penalty for non-compliance, they will assert you owe the entire withholding. They do not want to track down the workers who performed the work for you.
South Carolina Exempt & Best Defense
If you can prove that the contractor you hired worked in South Carolina, even through your business in is North Carolina, you will not be liable for this tax. However, the best defense is to collect this tax upfront!
Long & Long CPAs is a Pineville, NC based certified public accounting firm helmed by Virginia "Ginny" Long, CPA (QuickBooks Certified ProAdvisor) and CPA Skip Long. Consider us an all-in-one accounting, bookkeeping, consulting and tax preparation service for small businesses using QuickBooks Online software. Long & Long CPAs serves small business owners in South Charlotte, Pineville and Fort Mill.