Permissible B-1 Activities
The most common immigration status for entry into the United States for business is the B-1, Visitor for Business, which includes the visa waiver for business status (VWB). Foreign nationals who enter the United States in B-1 status can work temporarily in the United States in connection with their foreign employer’s international transactions. For example, B-1 classification always permits visitors to participate in meetings, conferences, etc. that facilitate exchange of information and improved communication. However, such visitors may not perform “employment” services in the United States.
The Three-Pronged Test
The immigration service developed three tests to apply to an activity taking place in the United States to distinguish the activity as employment (or not). If any one of the three applies, the activity is deemed to be employment and, therefore, not a permissible activity for a B-1 visitor unless the immigration laws allow a specific exception.
The Hong Kong Tailor Analysis
The Hong Kong tailor came into the U.S. periodically with photos of garment choices, fabric samples, and a tape measure. He solicited customers and used those things to take orders for custom garments. He then returned to Hong Kong with the orders and produced the suits there. When they were ready, he returned with them to the United States where he again visited his customers and delivered the finished garments plus took care of any final alterations required.
The immigration law question was whether his activities in the United States constituted employment or were appropriate business visitor activities. The precedent case decided, overall, that the key to resolving such cases is whether the work product is produced outside the United States. In this case, the suits were the work product.
The result of the Hong Kong tailor precedent case and subsequent interpretations is basically that pre-production and post-production activities are acceptable under B-1 classification. Express warranty work is also acceptable.
The Honorarium Exception
There are a few exceptions in which B-1 visitors may be paid amounts (in addition to reimbursed expenses) from U.S. sources for their U.S. services. One such exception is for qualified recipients of a B honorarium payment for usual academic activities.
Visitors entering the United States in B status are authorized to accept honorarium payments and incidental expenses for “usual academic activity or activities” paid by 1) an institution of higher education or related or affiliated nonprofit entity, 2) a nonprofit research institution, or 3) a governmental research organization, provided that all the following conditions are met:
This is referred to as the “9/5/6 B Honorarium Rule.”
Penalty for Unauthorized Employment
U.S. immigration law provides that any person or entity using a contract, subcontract, or exchange to obtain the services of a foreign national knowing that they are not authorized to perform such services is deemed to have hired the individual for employment in the United States. (8 CFR 274a.5) From a law enforcement perspective, what is known by an employee is imputed to the employer. This provision subjects persons or entities knowingly using the unauthorized services to employer sanctions. These sanctions were imposed on Wal-Mart who settled with the government for $11 million.
Q: How should we tax payments made to or for individuals who are in B-1 status who enter under a visa waiver?
A: If the payments are made, they are subject to the tax withholding and reporting unless an exception applies. The fact that a payment may be illegal under the immigration law does not affect the application of the tax laws to the payment, nor does it nullify the application of tax treaties to the payment. Also the fact that payments are for services not considered “employment” under the immigration laws does not exempt such payments from tax.Generally payments to B-1 visitors fall into the category of payments for "independent personal services." There is an exception for travel expenses reimbursed under an accountable plan that allows such payments to be excluded from income. If the recipient is not “substantially present” in the United States under the 183-day residency formula, the payments are subject to reporting on Form 1042-S and to 30% withholding unless a tax treaty exemption applies. If the recipient has become a resident, the payments are subject to reporting on Form 1099-MISC and 28% backup withholding if the recipient has no SSN or ITIN.
Paula Singer, Esq. CEO of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: firstname.lastname@example.org.
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