We are a company in CA partly owned by a Japanese company. They plan to send an employee from Japan to work with us for 2 to 3 years on an L1-B visa, and they will pay his salary from Japan. Is he required to pay USA Income taxes? What about Japanese income taxes?
Since he is not on our payroll, and he will be still on the Japanese company's payroll (located in Tokyo), if he is required to pay taxes how does he do that? Quarterly payments to the IRS and State?
Bob in CA

QUOTE," Is he required to pay USA Income taxes? What about Japanese income taxes? "--It depends onhis filing status;if he is a single, and does not meet SPT, substantail presence test, then he will file non-resident tax return. If he meets SPT, and he were non-resident in the beginning of the year, then he will file dual status tax return( still nonresident status, not fully resident status). Then he doesn't have to report hisincome in Japan but is responsible only on his income in US (if there is).
If he is married, then during the first year of L1, if he doe not meet SPT, he can then file non-resident tax return or he can file joint return as residents after meeting SPT in the next year if he meets SPT, then he can file joint return as residents (As he has passed SPT, he can file joint return with his spouse even if his spouse has never been to the U.S. and is foreign alien.).
On the resident tax return, he can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, he must report his worldwide income( including all of his income in Japan) for the year. And he needs to file Form 1040/1040a or 1040ez( if not claiming itemized ded.) and pay Federal, Social Security, Medicare and State Taxes. He can claim foreign tax credit (Form 1116) or he can use Foreign Earned Income Exclusion (Form 2555).

Additionally, he WILL have to file quarterly estimated tax payments if the taxes are not being withheld from his paycheck.

He is also liable for FICA (Social Security and Medicare) taxes.

For the benefit of everyone concerned, contact the Japanese company and suggest that he be paid through YOUR payroll so that the appropriate taxes can be withheld from his salary.

Agreed~~