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Form 1099 Requirements for Foreign Workers

January 30, 2015

Be aware of requirements under IRS Form 1099 if you hire self-employed contractors from different countries.

Many companies hire independent contractors and various service providers for a variety of business tasks like freelance writing and graphic designing. Companies involved in self-employed work are undoubtedly familiar with Form 1099, but it is important for companies hiring foreign independent workers to be aware of specific Form 1099 requirements that may also apply.

Non-U.S. Worker Requirements

Self-employed via internet- For businesses hiring foreign individuals for work remotely or over the internet, a Form 1099 is not required. If your independent worker completes all tasks in his/her country of origin and receives compensation via PayPal, a Form 1099 is also not necessary.

Foreign worker providing services inside the U.S.- It is vital, for tax purposes, to monitor where services are performed because if a foreign worker performs tasks in the U.S., he/she will need to be provided with a Form 1099 for their US source income.

Form W-8BEN- To verify that the self-employed person is truly a non-U.S. citizen and that all his/her jobs were performed outside the U.S., it is required that the individual complete Form W-8BEN and provide that to you for your files. Failure by a foreign vendor to provide you with a Form W-8BEN would require you to withhold 30% from all payments owed to such vendors. Failure to withhold in these circumstances could leave you on the hook for the tax, plus penalty and interest.

Form 1042 and 1042S- If you determine that foreign independent workers are performing tasks within the U.S., Form 1042 and 1042 S need to be completed. These forms are required when U.S. companies make payments to foreign workers. The forms report the gross amount of income paid to these workers, along with any US withholdings you may have held back and remitted to IRS.

Don’t be afraid to ask!

The general rule of thumb, here, is to simply ask your foreign workers where they perform their tasks. It can be difficult to know what forms are required if you are unsure where workers complete their work. In all cases where you are making payments to a foreign worker, Form W-8BEN should be obtained prior to making any payments.

Questions? Contact any member of our International Tax Services Team.

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