It’s the post-holiday slump, and tax season’s in full swing. If you're a U.S. business employing international contractors, you're likely wondering, “Do I need to issue a 1099 to my foreign contractors?”
The short answer: You probably do not need to issue 1099s to your foreign contractors. But the longer answer depends on your workers’ residency status, where the work was performed, and the forms your contractors need to file.
U.S. tax rules are nuanced and challenging to navigate — everything from cross-border payments to remote work requirements adds complexity to simple tax logic. On top of this, global hiring introduces additional tax concepts, like residency status, source of income, and documentation requirements.
This employer compliance guide explains when Form 1099 applies, which forms might be required instead, and the proactive hiring practices to follow to simplify tax season.
Note: this article is for educational purposes and not legal or tax advice. Employers should consult qualified tax or legal professionals for specific guidance.
What a 1099 Is (and What It’s Not)
The 1099 reporting system is intended to help the Internal Revenue Service (IRS) track certain payments made to non-employees.
First, a 1099 is not a tax payment, proof of employment status, or a requirement for every contractor. This is particularly true for payments to international contractors who aren't U.S. tax residents and didn't work in the United States.
Instead, a 1099 simply reports income that may be taxable under U.S. law. It requires U.S. citizens and tax residents to tell the IRS how much income was paid to a contractor, so the IRS can verify that the contractor reports that income on their tax return.
When Do Employers Need to Issue a 1099?
Employers generally issue 1099 forms when they pay U.S. contractors for U.S.-sourced income.
Here are basic 1099 foreign contractor rules: you must issue a Form 1099-NEC if you paid a contractor at least USD 600 during the tax year, and the contractor is considered a U.S. person for tax purposes. This covers U.S. citizens, U.S. residents (including Green Card holders), partnerships formed in the U.S., corporations formed in the U.S., and domestic estates or trusts.
So, if the contractor you hired isn't a U.S. person and didn't perform services in the U.S., you generally do not need to issue a 1099.
The IRS uses 1099s for reporting and enforcement, so it’s important to get it right. Issuing the wrong form or issuing one unnecessarily can lead to penalties, corrections, and audit exposure.
Form 1099-NEC vs. Form 1099-MISC: What’s the Difference?
To make things even more complicated, there are two different 1099 forms — the 1099-NEC or the 1099-MISC — and the rules applying to each have changed in recent years.
Before you issue any 1099s, make sure you're issuing the correct version:
Form 1099-NEC: Non-employee Compensation
Form 1099-NEC is used to report payments for services rendered by non-employees, including:
- Freelancers
- Consultants
- Independent contractors
- Other service providers
You must issue Form 1099-NEC by January 31 if you paid a U.S. contractor USD 600 or more during the previous tax year.
Form 1099-MISC: What it Is Used for Today
Form 1099-MISC is no longer used for most contractor services. Instead, it reports certain miscellaneous income, such as:
- Rent
- Prizes and awards
- Medical and healthcare payments
- Certain legal settlements
- Other income not tied to services
Employers often mistakenly use 1099-MISC forms for international contractor payments, creating compliance risks.
Importantly:
- 1099-MISC is not a fallback option for foreign contractors
- U.S. contractors should receive 1099-NEC, not 1099-MISC
- Employees receive Form W-2, not a 1099
Do You Issue a 1099 for Foreign Contractors?
No, in most cases, you don’t need to send a 1099 to foreign contractors.
It doesn’t matter where the employer is located. The IRS generally requires 1099s only for U.S. persons, so the contractor's location and tax residency determine the reporting obligations.
This is where employers often get confused. They assume that because they're a U.S. company, they need to issue 1099s to everyone they pay. But that's not how it works. It doesn't matter if you pay them in U.S. dollars or wire the money from your U.S. bank account; those factors don't trigger 1099 requirements.
Employers sometimes worry about edge cases, like contractors who relocate mid-year or have dual citizenship. But ultimately, tax residency, not nationality, determines whether a 1099 is required.
It’s an employer’s obligation to be clear on workers’ tax residency:
- A foreign national living in the U.S. might be a U.S. tax resident.
- A U.S. citizen living abroad might still be a U.S. tax resident.
- A foreign contractor living outside the U.S., who isn't a U.S. citizen, is typically not a U.S. tax resident.
What Forms Employers Actually Need When Hiring Foreign Contractors
Employers still have documentation obligations for foreign contractors.
You must collect the appropriate IRS forms to certify the contractor's foreign status and tax residency. In fact, failing to collect these forms is one of the most common audit triggers for companies hiring global workers.
The forms you need depend on whether you're working with an individual or a business entity.
Form W-8BEN: For Individual Foreign Contractors
Form W-8BEN is used by individual foreign contractors to certify that they are not U.S. persons for tax purposes.
From an employer's perspective, this form accomplishes three things:
- Confirms foreign status
- Establishes tax residency in a country
- Determines whether U.S. withholding applies (and if yes, at what rate)
W-8BEN forms are valid for only three years, so you must track their expiration dates and request updated forms from your contractors when needed.
Avoid common mistakes, such as collecting Form W-8BEN after you’ve started paying your workers, or failing to review the listed country of residence to ensure it's accurate and consistent with where the contractor actually lives. Additionally, make sure you keep this documentation on hand for audit purposes.
Form W-8BEN-E: For Foreign Companies and Entities
Form W-8BEN-E serves the same purpose as Form W-8BEN, but applies to foreign entities rather than individuals.
This distinction is important, especially when contractors operate through foreign companies or personal service corporations. Entity status affects reporting and withholding. Misidentifying an individual as an entity (or vice versa) causes reporting and withholding errors.
Employers should not default to Form W-8BEN-E simply because a contractor has formed a legal entity — sole proprietors and unincorporated businesses should use Form W-8BEN.
How Tax Treaties Affect Foreign Contractor Payments
Tax treaties are agreements between countries designed to prevent double taxation.
Without a treaty, a contractor could be taxed twice on the same income — once in the country where they live and work, and again by the U.S.
Tax treaties can affect whether U.S. tax must be withheld from payments, but they do not change whether a 1099 is required.
In the case of a tax treaty for foreign contractors claimed on their W-8 form, make sure that you apply these benefits correctly and retain documentation in case of an audit. Failing to have the proper documentation can expose you to compliance risk.
What Happens if an Employer Issues the Wrong Form?
Issuing a 1099 incorrectly can create more foreign contractor tax compliance risk than failing to issue a form at all.
You can face IRS penalties for incorrect reporting. Meanwhile, your contractor may receive a form they don't need, which could confuse their tax filing. This then requires more work on your end, as the employer is responsible for filing an amended return to correct the error.
If you accidentally issue the wrong form, the IRS allows employers to file corrected forms — but proactive correction matters.
Best Practices for Employers Hiring Foreign Contractors
Tax season is certainly confusing, but employers can get ahead of these compliance requirements during the hiring process.
Employers hiring foreign contractors should:
- Collect W-8 forms before the first payment.
- Maintain centralized, accessible records.
- Review documentation annually.
Scalable compliance practices prevent issues. Even if you're only hiring one or two international contractors, having a clear process in place makes it easier to scale as your team grows.
Hire Foreign Contractors Compliantly With RemoFirst
RemoFirst ensures you hire compliantly by:
- Creating locally compliant contracts
- Handling tax documentation where applicable
- Following local laws around contractor engagement
This saves you the worry about missing deadlines or filing the wrong forms.
Even better? You can sign up to start managing contractors for free. For teams that want a fully streamlined solution, RemoFirst can also handle global payroll for just USD 25 per contractor, per month.
Book a demo to discuss your specific needs and how RemoFirst can help.
Frequently Asked Questions
1099 vs W-8: Do I need to issue a 1099 to a contractor living in another country?
Generally, no. If the contractor is not a U.S. tax resident and did not perform services in the United States, you do not need to issue a 1099. Instead, you should collect Form W-8BEN or W-8BEN-E to document their foreign status.
What's the difference between Form W-8BEN and Form W-8BEN-E?
Form W-8BEN is for individual foreign contractors. Form W-8BEN-E is for foreign companies and business entities. Make sure you're using the correct form based on whether you're paying an individual or a business.
Do I ever need to provide a 1099 to a foreign contractor?
Yes, if the contractor is a U.S. tax resident (such as a U.S. citizen or Green Card holder living abroad), or if they performed services physically in the United States, they may be considered a U.S. person for tax purposes and should receive a 1099.
How long is a W-8BEN form valid?
A W-8BEN form remains valid for three years. After that, you'll need to request an updated form from the contractor to maintain proper documentation.
Does paying in U.S. dollars change reporting requirements?
No. Currency and payment methods do not determine whether a 1099 is required.
What happens if I don’t collect a W-8 form?
Failure to collect proper documentation can trigger audits, withholding issues, and compliance penalties.
