As a virtual accountant for creative business owners, I see a lot of really impressive remote employer/contractor relationships. 

As my clients continue to grow their business, they often time seek virtual assistants and other talented contractors abroad.  One question that always comes up around tax time is “Do I have to prepare a 1099-NEC for a foreign contractor?“.

Do I have to prepare a 1099-NEC for a foreign contractor?

If the foreign contractor is not a U.S. taxpayer, and all of the contracted services were performed outside the U.S., a Form 1099 is not required. Instead, you will need to ask the contractor to complete a Form W-8BEN. 

The Form W-8BEN certifies that the foreign contractor is not a U.S. taxpayer.  The Form W-8BEN is never submitted to the IRS, however, it needs to be held in your files in case of an audit.  If you are audited by the IRS, the Form W-8BEN will support your reasoning for not issuing a 1099.

When you don’t need to file a 1099-NEC for a foreign contractor

The IRS generally requires 1099-NEC forms only for U.S. taxpayers paid $600+ in a calendar year. If your contractor is a non-U.S. person performing services entirely outside the United States, you do NOT issue them a 1099-NEC. The income isn’t subject to U.S. tax reporting because the services weren’t performed in the U.S.

To confirm a contractor’s non-U.S. status and exemption from 1099-NEC, collect a Form W-8BEN (individuals) or Form W-8BEN-E (business entities) from each foreign contractor BEFORE paying them. The W-8 documents:

• The contractor’s tax residency
• That they are not a U.S. person
• Whether a tax treaty applies to any U.S.-source income

Keep the W-8BEN on file for at least 3 years after the last payment. The W-8 is valid for 3 years from signing, then must be refreshed.

When you DO need to report payments to foreign contractors

If a foreign contractor performs services within the United States — even for a single day — the situation changes. The income is “U.S.-source income” and triggers reporting on Form 1042-S (not 1099-NEC). You’ll also generally need to withhold 30% of the payment for federal tax (unless a tax treaty reduces the rate). Specific situations:

• Foreign contractor working physically in the U.S. — withhold 30% and file Form 1042 + 1042-S
• Foreign contractor whose services are inherently U.S.-connected (e.g., consulting on a U.S. business deal physically in the U.S.) — same as above
• Royalty or licensing income to a foreign entity — withholding required, even if work performed abroad, unless a treaty exempts it

This is a complex area. If you’re paying foreign contractors significant amounts for U.S.-based work, work with a CPA familiar with international tax to determine the right form and withholding rate.

Common mistakes that trigger IRS attention

• Issuing a 1099-NEC to a foreign contractor anyway. Sometimes done out of caution, but it can create confusion and unnecessary tax filings for the recipient.
• Failing to collect a W-8 form. Without it, you have no documentation of the contractor’s non-U.S. status. The IRS can presume the contractor is a U.S. person and impose backup withholding (24%) plus penalties.
• Confusing “foreign” with “non-resident.” A U.S. citizen living abroad still gets a 1099-NEC. The test is U.S.-person status, not physical location.
• Misclassifying foreign employees as contractors. If you control the worker’s schedule, methods, and exclusive engagement, they may be an employee — and U.S. employment-tax rules may apply for U.S.-based work.

FAQs about 1099s for foreign contractors

Do I need to issue a 1099-NEC to a contractor in Canada / UK / India / Philippines?

Not if the contractor is a non-U.S. person performing services entirely outside the U.S. Collect a W-8BEN to document this status. The contractor reports the income to their own country’s tax authority, not to the IRS.

What if my foreign contractor refuses to provide a W-8BEN?

Without a W-8 on file, the IRS treats the contractor as a U.S. person by default — meaning you must issue a 1099-NEC and apply 24% backup withholding to all payments. Insist on the W-8 before paying.

Do I report payments to foreign contractors anywhere on my tax return?

Yes — they’re still deductible business expenses on your Schedule C, 1120, 1120-S, or 1065. Document each payment with invoices, W-8 forms, and proof of payment. The deduction doesn’t require a 1099 filing; the 1099 is a reporting form, not a deduction prerequisite.

Are foreign contractor payments subject to FBAR or other reporting?

FBAR reports your own foreign financial accounts, not payments to foreign contractors. However, if you make significant payments overseas (>$10,000 in a single transaction), other reporting may apply — including FinCEN’s Currency Transaction Report and your bank’s wire-transfer documentation. Consult a CPA for international payment compliance if amounts are large.