Do You Have to File Form 1099 for a Foreign Contractor?

Hiring independent contractors can be a great move for an expat business owner. However, it can also complicate your taxes—especially if you’re working with foreign contractors. Should you withhold taxes from your payments? Do you have to issue Form 1099 to a foreign contractor?

Here are the answers you need.

What Is an Independent Contractor?

Independent contractors are self-employed workers who offer professional services to clients. Independent contractors may also be known as:

• Freelancers
• Self-employed workers
• 1099 contractors

The IRS gives this definition for independent contractors: “an individual is an independent contractor if the payer [the client or company who hires them] has the right to control or direct only the result of the work and not what will be done and how it will be done.”

This is in contrast to employees, whose work is fully under the control of their employer.

What Is Form 1099?

Form 1099 is a tax form used to report payments made to independent contractors. The payer—typically the business that hired the worker—must fill this form out and send a copy to both the independent contractor and the IRS. The independent contractor will then use this form to report their self-employment income on their individual tax return.

Note: There are several versions of Form 1099, each used to report different types of payments. In this case, we’re referring specifically to IRS Form 1099-NEC, which is usually what people mean when they simply say Form 1099.

Do You Have to Send Form 1099 to a Foreign Contractor?

The question of whether you will need to issue Form 1099 will depend on a few factors.

You will generally be required to issue Form 1099 if all of the following details are true:

• The independent contractor is considered a US person
• They performed at least part of their services within the US
• You paid them a total of at least $600 in a single year

If any of these conditions are not true, you are generally not required to issue Form 1099. In that case, the foreign contractor will likely have to complete and file Form W-8BEN instead.

Form 1099 Deadlines and Penalties

If you are required to file Form 1099, you will typically have to send it to the independent contractor and the IRS by January 31. Failing to file Form 1099 on time may result in severe penalties.

• If you file within 30 days of the deadline, the standard penalty is $50 per late form. The maximum penalty is $588,500 ($206,000 for small businesses).
• If you file more than 30 days after the deadline but before August 1, the standard deadline is $110 per late form. The maximum penalty is $1,766,000 ($588,500 for small businesses).
• If you file later than August 1, the standard penalty is $280 per form. The maximum penalty is $3,532,500 ($1,177,500 for small businesses).

Note: The IRS considers a small business to be any business that has made $5 million or less in average annual revenues for the last three tax years.

The above penalties apply only to unintentional failure to file. If the IRS believes that you intentionally refused to file, the penalty is $570 per form. There is no maximum penalty in this case.

How to File Form 1099

1. Gather Information

To file Form 1099, start by gathering the information you will need to fill in. This will include:

• Your name, address, and phone number
• Your Taxpayer Identification Number (TIN)
• The independent contractor’s name, address, and phone number
• The independent contractor’s TIN
• The total amount you paid the independent contractor during the tax year
• Any taxes withheld from your payments

2. Fill Out Form 1099

Once you have the information you need on hand, it’s time to fill out the form. Or rather, forms. There are two copies of every Form 1099-NEC: Copy A and Copy B. You will fill in the same information on both.

3. Submit Form 1099

After you’ve completed both copies of Form 1099, submit Copy A to the IRS and Copy B to the independent contractor. When submitting Copy A to the IRS, you can file it electronically or by mail.

Both copies (A and B) are due by January 31 at the latest—regardless of which method you use.

4. Submit Form 1096 (If Applicable)

If you file a physical copy of Form 1099 with the IRS, you must also complete and file Form 1096. The IRS uses this form to track any physical forms 1099s you file in a given year.

5. Repeat (If Necessary)

If you have multiple independent contractors who meet the standards for Form 1099, you will need to complete and file a separate Form 1099 for each one.

To learn more, see the instructions for Form 1099-NEC provided on the IRS website.

Need Help with Your Expat Tax Return? Get Help Early!

We hope this guide has helped you understand when (and how) you should file Form 1099 for a foreign contractor. Still have questions? We have answers! In fact, we can even prepare and file your expat taxes on your behalf.

At Greenback Expat Tax Services, we specialize in helping expats manage their US tax obligations. Just contact us, and we’ll be happy to help you in any way we can.

Learn more about our services and flat-fee pricing to file your expat tax taxes.