Have you ever used a contractor from outside of the United States? Do you know what tax forms are required for using foreign work services? You may think that all independent contractors require a 1099 form, but if the services are performed outside of the US by a non-US citizen, you don’t have to use a 1099.
Here are two sure-fire ways to confirm that you’re doing everything correctly when utilizing foreign contractors:
- Have your contractor complete a W-8BEN form. By signing this form, the contractor confirms that he or she is not a United States citizen. This form is not filed with the IRS, but you should maintain it for your records in the event of an audit to explain why you did not use a 1099 form.
- It is important to ensure that the contractor’s services are performed outside the US as well. While there is no official form for this, you can draft your own document confirming that all work is being done outside the United States to include with the W-8BEN and have them sign it. Form 1042 is used for payments of “US Source Income”, and if all services are being performed outside of the US, the payments are known as foreign source income, and Form 1042 is not needed.
If you feel uncertain about the services being performed in another country, or if you know that the contractor was perhaps born in the United States but travels and works overseas, it is better to withhold so you don’t get into any trouble with the IRS. If it turns out that the foreign contractor does not need to pay US taxes, they will be able file a tax return. If you’re unsure- just withhold; it’s better to be safe than sorry!
Still have questions? Give us a call! Paragon Accountants can help you will all of your filing needs for independent contractors, both in and out of the United States.
