1099-NEC foreign contractor

Technology has allowed us to work more efficiently as well as remotely. It’s common for companies and business owners alike to hire workers outside the state or even outside the country. It’s not just manufacturing jobs either. According to legal blog Law Crossing, law firms have hired, and continue to hire, workers in India to perform back office tasks.

There are a variety of reasons why companies hire foreign contractors and overseas companies . The main reasons include:

  • Lower costs
  • Round-the-clock productivity
  • Access to specialized talent

Hiring an American Worker

If you hire a U.S. citizen as an employee he or she will complete a Form W-4 for federal income tax withholding. Independent contractors fill out Form W-9. These forms should be collected from anyone you hire before they start working.

When you hire someone as an independent contractor and that person earns at least $600 for the year you would typically issue them a Form 1099-NEC to show their earnings. What happens though if the person you hired is not a U.S. person? Do you need to prepare a 1099-NEC for a foreign contractor? This is just one of several basic things new business owners should know about taxes.

Hiring a Foreign Worker

It’s perfectly legal to hire someone outside the United States. No federal withholding or reporting is required for that foreign person so no 1099-NEC is necessary.

Things are different if you want to hire a foreign person to work here in the United States. While an American independent contractor would give you Form W-9 a non-U.S. person would instead complete Form W-8BEN.

Federal tax withholding is required, at the rate of 30%, for foreign persons performing services. However,  the U.S. has tax treaties with several countries that could reduce or exempt the amount to be withheld.

TIP: Form W-9 and W-8BEN should not be sent to the IRS but kept for your records.

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