🐈 Community
» Forums » Clients » Limiting US tax deductions for offshore labor...
Page options
outsourcerer
Member

Limiting US tax deductions for offshore labor?

I heard something from an accountant to the effect of, "US clients hiring offshore freelancers may not be able to deduct this for business expenses." This surprised me. Additionally, as Upwork clients, we are paying Upwork. For the 2022 tax year, how are US businesses handling expensing offshore labor hired through Upwork?

12 REPLIES 12
812dd08c
Moderator
Moderator

Hi Brien,

 

The amount of tax we are required to collect can vary based on factors such as your state, county, or city of residency, the type of fee at issue, and the category of the job posting.

 

You’ll be able to see the amount of tax charged on your Upwork invoices. Unfortunately, we can’t list the tax amounts for all cities, counties, states, etc,. here, as there are thousands across the country, and tax laws change frequently. We suggest talking to a tax advisor in your area if you have questions or checking with your state’s tax department. 

 

You may also want to check this help article for more details.

 

~ Arjay
Upwork

I am asking a different question than the one answered above. Clients deduct contract labor as business expenses.

But thats a CPA question and not an upwork question right? I'd be curious to hear the answer though,

 

And another clarification, you are not paying upwork, upwork is a marketplace. You are paying the freelancer who is an independent company on its own. It doesnt matter that the money flows through a payment provider like paypal or upwork or another

It's true that if the need for certainty surrounding particulars is high, then we clients need to engage CPAs. I'm merely hoping here to get general answers that are generally useful to clients using Upwork in the US (which probably accounts for a very large fraction of business conducted on Upwork).

 

P.s. according to Upwork, "When you pay your freelancer on Upwork, you actually pay Upwork Escrow Inc"

If you look at what an escrow service is, its mostly a financial function. You are actually buying offshore services so if govt wants to make it more difficult to buy offshore services, paying upwork escrow won't save you. I googled this a bit and saw it was one of the laws suggested by current administration but im not sure its in effect or not,

Hi Alper, thanks for the message. "I'm not sure if it's in effect or not" was the feeling I was left with after speaking with an accountant, too.

And another clarification, you are not paying upwork, upwork is a marketplace. You are paying the freelancer who is an independent company on its own. It doesnt matter that the money flows through a payment provider like paypal or upwork or another

Actually, it does matter. Freelancers in the US do not receive a 1099 from each and every client during the tax year - we get a lump 1099 from Upwork. And we only file a single W-4 form, which we submit to Upwork, not our clients.

It is because the law has changed and moved the 1099 duty to payment processor rather than the actual client. Doesnt change the fact that client is using offshore services. Please refer to this articlr which explains all : https://www.graphite.com/blog/new-1099-k-rules-irs-catching-up-with-freelance-economy

Hey Brian, I would ask your CPA, however I have never heard that international freelancer expenses can't be deducted. Thanks!

Hi William, I haven't ever heard this until recently - see the message in the thread above from Alper. It sounds like it's being considered by the current administration. The impact on the Upwork marketplace would be massive.

25005175
Member

Found this on another discussion. From the Upwork Team. I guess this means that Alper is correct.

 

Another thing - would this new proposal only categorize labor/services as non-deductable or all off-shore purchases like equipment, raw material, finished goods?

ceefaeca
Member

I am pretty sure it should be okay to show independent contractors as expense for business wherever one is located. Because one hire contractors and experts for driving knowledge base of business and it benefits the country where you are too, if the government penalize someone on this just because they are hiring talent from abroad then it will not make sense.

 

I run a consulting company in the UK and do hire people all time from different sources from everywhere, I have no such issues yet. I will be curious to see how it is emerging in the US

Upcoming Events
Dec 13
Succeeding with Clients Talent Toolbox
Dec 21
Virtual Community Hour Community Hour