Paying Foreign Contractors

NOT TAX ADVICE. ALWAYS CONSULT A PROFESSIONAL FOR TAX MATTERS

Today I learned about the IRS requirements for paying international contractors. If you’ve ever hired a contractor in the United States or done contract work yourself you are probably familiar with the IRS Form 1099-MISC which is essentially how the U.S. government tracks non-salaried income.

When you pay a contractor over a certain amount in a given year you have to give them a 1099-MISC so they can claim it as income on their personal taxes. What happens if the contractor is not a US citizen? It turns out the requirements are different since that person or business has no obligation to pay taxes to the US government.

This is where I remind you that there are a lot of edge cases here so consult your tax professional

For a foreign contractor you do not have to file a 1099-MISC. In fact, you don’t have to file any forms at all. However, you will want to have a specific IRS form filled out and on file in the event you are audited come tax time.

The forms W-8BEN (for individual foreign contractors. 2021 version) and W-8BEN-E (for foreign business. 2021 version) are filled out by the party you have contracted to perform services for you. You keep this form on hand in the event the IRS audits you to show that all of the money you wrote off as a business expense was indeed done by a foreign entity that doesn’t have a tax reporting burden.