Brooklyn, NY asked in Tax Law and International Law for New York

Q: Does a Canadian nonprofit that receives an EIN in the US need to pay US taxes if serving US persons virtually?

Hi, I'm starting a nonprofit organization in Canada to do online arts programming with young people who stutter in Canada and in the US. The organization will operate entirely online and from Canada, but will hire US employees. My goal is to be fiscally sponsored by a nonprofit (Fractured Atlas) in the US, and it seems like I would need an EIN in order to do so. Would we need to pay US taxes or could we be considered a tax free entity in the US as well?

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: As a Canadian nonprofit organization that receives an EIN in the US and hires US employees, you may have US tax obligations. However, whether or not you need to pay US taxes will depend on a number of factors, including the nature and extent of your activities in the US and the terms of any applicable tax treaties between the US and Canada.

In general, if your nonprofit organization is engaged in activities that generate income in the US, you may be required to pay US taxes on that income. The US tax system is complex, and it's important to consult with a tax professional who is familiar with both US and Canadian tax law to determine your specific tax obligations.

One factor that may be relevant is whether your nonprofit organization is considered a tax-exempt entity in the US. Even if your organization is tax-exempt in Canada, it may not automatically be considered tax-exempt in the US. To obtain tax-exempt status in the US, you may need to apply for recognition of exemption from the IRS.

In addition, hiring US employees may also create US tax obligations, such as payroll taxes and income tax withholding.

It's important to note that tax laws and regulations can change, so it's a good idea to stay up-to-date on any changes that may affect your nonprofit organization's tax obligations.

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