How about using an Israeli payroll company to turn your self employed income into a wage?

How about using an Israeli payroll company to turn your self employed income into a wage?

If you have a real business, this isn't possible. 

Let me explain:

The well know method of using a payroll company to turn self employment income into wages only works if the IRS would consider you to indeed be an employee. 

Such as the common non-compliant practice that US companies pay remote workers in Israel on a 1099-NEC as an independent contractor, which is considered a self employed business in the eyes of the IRS. 

However, there are many factors the IRS looks at in order to determine if the person is really self employed. 

If working for one company, told exactly what work should be done etc. the IRS would consider them employed, and the company can be forced to pay payroll taxes and issue a W-2. 

For those living in Israel, the company may be non compliant according to Israeli laws if they don't pay an Israeli wage, giving a Form 106 summary at the end of the year.

So using a payroll company in this instance works.

Getting back to a true clear cut self employment, such as if you have a clothing store: 

Due to the fact that you make the decisions in the business and call all the shots, you cannot make yourself "employed" just by getting an Israeli Tlush from a payroll company. 

If the IRS audits it, they would consider you self employed, and on the hook for self employment taxes. 

Not only that, you would have to return child tax credit refunds you received which you didn't qualify for. The fees paid to the payroll company would be a true waste.

While payroll companies may be a good option in certain cases, it isn't possible when truly self employed.