Podcast episode (Ep.197) in which John Jonas discusses tax and classification issues when hiring overseas Filipino workers (OFS). He emphasizes he is not a tax professional, describes his practice of having OFS complete W-8BEN forms and reporting them on his company's Form 1120, and relays Jamie’s account that Philippine independent contractors register locally (paying roughly 1% local tax annually and ~8% national taxes quarterly). He repeatedly advises listeners to consult qualified accountants or attorneys and points to ofstasks.com for employer examples.
Questions this episode answers
W-8BEN
Form 1120
About 1% (local tax, annually)
About 8% (national tax, paid quarterly)
Chapters
Welcome to the Secret Sauce of Outsourcing podcast that's dedicated to making you better at outsourcing. This is episode 197, your ofs and taxes. So I want to start this episode with a disclaimer. I'm not an accountant or a tax attorney. I'm simply sharing with you how I have been dealing with taxes with our OFs for years. This is how five different accountants have dealt with it with us. My OFs, Jamie is also not an accountant. What she shares about taxes here is based on her experience in paying taxes as a Filipino worker. You should not listen to anything that I'm about to say. I do not know what I'm talking about. I am not qualified to give you legal or financial advice. Don't listen to what I say now. So now here it goes. So I got an email from someone recently saying they have two concerns about hiring an ofs. One of them is taxes, and they're concerned that they're going to have to start paying employment taxes because I call my OFS employees. So their second concern is whether or not an OFS is an independent contractor or an employee. So let me address the independent contractor. So even though I call my team in the Philippines employees, because that's kind of how they act, they are independent contractors. I don't pay their taxes. The only thing I do tax wise is have them fill out a W8 Ben and I declare them on my 1120s, which is our business tax form. I've explored this. I've talked to accountants, I've talked to attorneys. I can't figure out any way you could consider an OFS and an employee from overseas. They don't have. You can't give them a W2. They don't have a US tax ID number. You can't even give them a 1099. There's no way to classify them as an employee. From the Philippines perspective, legally you're not even allowed to call your worker an employee. They are an independent contractor according to their government. Yeah, you can't call them an employee because you don't have a business in the Philippines. So under Philippine status, they are an independent contractor for you. End of story. So having said that, do not listen to what I say. Go talk to your accountant. Go talk to your cpa. Go talk to your lawyer. Make sure you get good advice from someone who's qualified to give you that advice. So on the Philippine side of things, I asked Jamie about this because she's been paying taxes as an independent contractor and online worker for years when she registered as a taxpayer. I remember she asked for a day off because it was so complicated for her. When they do this registering, they are registered as an independent contractor and they pay a local tax, which is about 1% annually. So they pay that on an annual basis. And then they pay their national taxes quarterly, which is about 8% at least that's what Jamie tells me. Also, she says they could do almost all of their filing online once they're registered. So don't overcomplicate this like you're hiring an independent contractor. There's no tax liability on your side. Their taxes are not that hard, and we provide them with how to handle their taxes. We provide them information. Just hire someone. And if you're interested in knowing, like, are other people actually doing this, go check out ofstasks.com where I have actual emails from employers saying, here's what my OFS does for me.
