Why does it matter where the work is done?
The source of income for services is where the services are performed. Payments to a foreign person for work done entirely outside the US are foreign-source income, which the US does not tax. That is why no US withholding or Form 1099 applies. See effectively connected income.
What should you do before paying?
Collect Form W-8BEN or W-8BEN-E
It documents that the contractor is a foreign person. See which W-8 form to request.
Confirm where the work is done
In the contract and invoices.
Screen against sanctions lists
US persons, including US companies, generally cannot deal with people on the Treasury's OFAC sanctions lists.
Sign a contract
Scope, payment terms, intellectual property and confidentiality.
How does it compare with US contractors?
| US contractor | Foreign contractor, work abroad | Foreign contractor, work in the US | |
|---|---|---|---|
| Form collected | W-9 | W-8BEN or W-8BEN-E | W-8BEN, or Form 8233 for a treaty exemption |
| US withholding | None, unless backup withholding | None | Generally 30%, unless a treaty applies |
| Year-end form | 1099-NEC if $2,000 or more in 2026 | None | 1042-S, plus Form 1042 |
What if the contractor comes to the US to work?
Payments for work performed in the US are US-source. The payer generally withholds 30% and reports on Forms 1042-S and 1042, unless the contractor claims a treaty exemption for independent personal services on Form 8233 and the conditions are met. Immigration rules on working in the US apply separately.
See Forms 1042 and 1042-S for the reporting.
What about the contractor's own country?
The contractor pays tax where they live. Some countries have rules that treat long-term, exclusive contractors as employees, which can create employer obligations there. Where the relationship looks like employment, get local advice or use an employer of record.
How should payments be made?
By bank transfer or a payment platform, from the company's account, against invoices. Record the payments in US dollars at the rate on the payment date, and keep the W-8, contract and invoices together. See how to pay contractors and file 1099s for US contractors.
Paying contractors overseas?
We set up W-8 collection, check where withholding applies, and keep the records that support every payment.
Questions people ask
Do I need to send a 1099 to a foreign contractor?
No, if they are a foreign person working outside the US. Collect a Form W-8BEN instead.
Do I withhold US tax when paying foreign contractors?
Not for work performed outside the US. Work performed in the US is generally subject to 30% withholding unless a treaty applies.
Which form do foreign contractors fill out?
Form W-8BEN for individuals and W-8BEN-E for companies.
Do I need to check sanctions before paying a foreign contractor?
Yes. US persons generally cannot deal with people on the OFAC sanctions lists.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IRS Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Entities
- IRS: Instructions for Form W-8BEN
- IRS: Form 8233, Exemption From Withholding on Compensation for Independent Personal Services
- US Department of the Treasury: OFAC sanctions list search
Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.
Related guides
More in Payroll and contractors
This guide is general information. It is not tax or legal advice for your situation.