I am a self-employed home-based medical transcriptionist living and working in the U.S. I recently enlisted the help of a self-employed transcriptionist in India to do overflow work for me. I agreed to pay him once a month for the work he performs by transferring money from my bank account to his using xoom.com. There are no contracts between us, just a verbal agreement that I would pay him each month for services rendered. We have both agreed on how much money I will pay him for the work he performs.

I have never hired a person in another country to do work for me, so I want to know how do I handle taxes on the money I pay him? I want to make this legal and not have any problems with the IRS. And are there any other legal issues I should consider regarding paying money to a person in another country for doing work for me?