Paying Foreign Independent Contractors With Tax In Illinois
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The Freelance Worker Protection Act provides protections for independent contractors who provide products or services in Illinois or who work for a hiring entity located in Illinois when the value of that work is equal to or greater than $500 in a 120-day period.
What is the standard for an employee versus an independent contractor under the ECA? the individual is engaged in an independently established trade or business or the individual is deemed a legitimate sole proprietor or partnership under subsection c of Section 185/10.
Illinois Freelance Workers Protection Act: Goes into effect on July 1, 2024. For any independent contractors who are individual people (not entities), companies must provide a written contract for the services or products that the contractor is being asked to provide.
The Freelance Worker Protection Act provides protections for independent contractors who provide products or services in Illinois or who work for a hiring entity located in Illinois when the value of that work is equal to or greater than $500 in a 120-day period.
Key Aspects Rule The rule typically specifies that a contractor cannot work for the same employer for more than 2 consecutive years.
“U.S.-source compensation payments made by a U.S. business to a non-U.S. individual who is an independent contractor and who is not treated as a U.S. tax resident for the taxable year will generally be subject to 30% gross withholding.”
While this opens doors to diverse talent and skill sets, it also introduces unique challenges in terms of tax compliance. One critical aspect of this compliance involves Form 1099, which US-based businesses may need to issue to foreign contractors for reporting payments made during the tax year.
Conversely, if the independent contractor is not a US person and did not perform any of their services within the US, you will not be required to issue Form 1099. Instead, the foreign contractor will have to complete and file Form W-8BEN.