For many international contractors, the United States is a prime country to look for clients that need specialized talent. The range of opportunities across industries is almost unlimited, and pay rates are typically high. However, it is one thing to find a US client that offers you a role, and a whole other challenge to meet immigration requirements.
There is an irony to this considering that the United States is a nation of immigrants, and was founded by individuals seeking independence and opportunity. But the popularity of the US led to policies that narrowed the visa and immigration path, especially for those that want to work inside the country. Still, the US is a very pro-business country, and most rules favour those who begin their enterprise versus being an employee.
This guide will discuss the rules around work visas, tax filing and residency and how to stay compliant if you do end up as a United States contractor.
What visas do I need to be a contractor in the United States?
Contractors that want to work in the US should be aware that there is no self-employment visa available. So, the only way to work as a self-employed contractor in the United States is if you already have another type of visa such as the spouse of a US citizen. This means that usually, you would have to be an employee of your client to accept any on-site role in the US. It may be possible to use an umbrella company as well.
The visa category for employees is the H1B work permit. This is not easy to obtain, however, as there is an annual quota and lottery to handle the hundreds of thousands of applicants. Still, your client may choose to sponsor your application and enter your name into the lottery. The H1B visa is valid for three years and can be extended another three years.
How do I get paid as a contractor in the United States?
Work as a self-employed freelancer
As discussed, working as an ex-pat self-employed in the US is virtually impossible given the immigration rules. Your only option as a self-employed would be to work online as a remote contractor to your US client.
Set up your own limited company
Setting up a limited company in the US is also a challenge. There is a Treaty Investor visa, but it cannot be used to set up a ‘marginal’ business where there are no employees or significant investment.
Work with an umbrella company in the United States
It may be possible to work through a USA umbrella company as a contractor, as you would essentially be their employee. This is known as ‘W-2 contracting’, the tax form used to report employee income.
However, this does not solve the H1-B visa problem. You would have to contact an umbrella company and ask how they handle the H1B visa application process. In the end, you might be better off going through the process as an employee of your client if they are willing.
How do taxes work for contractors in the United States?
Both self-employed and employees pay the same individual income tax rates in the US. The progressive rates are based on income and range from 10% to 37%. There are no special tax rates or exemptions for ex-pats working in the US.
Tax residency rule in the United States
Tax residency in the US is based on the Substantial Presence test, which is determined by a complex multi-year calculation that you can find here on the IRS website.
How to file taxes in the United States
Taxes must be filed by April 15th of each year, with filing extensions available until October 15th. The extension is only for filing, not payment. Late payments will incur penalties and interest.
When filing taxes in the US, you have a few options. First, you can hire an accountant to do it for you, or there are fairly reasonable tax services. You can also use an online filing company that allows you to fill out the forms and file your taxes electronically. These services charge a fee, but the process is automated and simple to use. The final and cheapest option is to file a paper form by mail with a check for taxes due.
What are the social security contributions in the United States?
Self-employed pay 15.3% of net revenue, after all, business deductions. This is one disadvantage to self-employment, as you end up paying both employer and employee shares of social security. This self-employment tax is imposed on annual income up to $142,800. If you decide to be an employee of your client, you only pay 7.2%.
Can I work remotely for a company in the United States from my own country?
There is another way to approach contracting in the United States. In many ways, working for a US client from your home country may end up being a good choice. You would not have to go through the time and headache of trying to get a work visa, and you could work comfortably from home. You could arrange payment through an umbrella company in your own country to minimize risk.
More US companies are securing global talent through remote work, and if the role is suitable, it is a good option. One caveat is that you should not expect to be paid an equivalent US rate for your services. Most likely, your rates will be ‘localized’ to your country’s standard pay rates. This is one of the motivations for US companies to hire remote foreign workers as it presents a real cost saving on labour.
How do I stay compliant while contracting in the United States?
If you can begin contracting in the United States, compliance will be a paramount concern. Whether it’s work permits, tax withholding or banking, it helps to have a local partner involved in the process. This is where an umbrella company can be invaluable. They are already set up and ready to facilitate your client contract, invoicing and payments.
This takes the guesswork out of the most important part of your contracting journey: receiving accurate and timely client payments into the account of your choice.
Other benefits of umbrella companies include:
- Manages all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Sponsors work permits
- Helps set up the contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
If you have questions about how an umbrella company can help while contracting in the United States, please contact us at Contractor Taxation.