As an expat business owner or freelancer living abroad, you may need to deal with IRS Form 1099 for citizens abroad. Form 1099 is a crucial tax document used to report payments made to independent contractors. If you’re an independent contractor, your payer will fill out and send you a copy of this form, which you’ll then use to report your self-employment income on your individual tax return.
If that sounds complicated, don’t worry. We’re here to clear up any confusion you may have. Here’s what you need to know about 1099s for US citizens living abroad.
Key Takeaways
- Form 1099 is used to report payments made to an independent contractor.
- Expat business owners may need to file Form 1099 when working with contractors abroad.
- Failing to file Form 1099 as required could result in penalties.
Form 1099-NEC and Independent Contractors
There are several versions of Form 1099, each used to report a different type of income. In this case, we’re referring specifically to Form 1099-NEC—which is what people usually mean when they refer to Form 1099.
Form 1099-NEC is used to report payments made to an independent contractor. Independent contractors are self-employed workers who offer professional services to clients. Other terms for an independent contractor include:
- Freelancer
- Self-employed worker
- 1099 contractor
Do You Have to Send Form 1099 to a Foreign Contractor?
You will have to issue Form 1099 to an independent contractor if you have paid them at least $600 in a single year AND either of the following is true:
- The independent contractor is considered a US person
- The independent contractor is not a US person but performed at least part of their services within the US.
Conversely, if the independent contractor is not a US person and did not perform any of their services within the US, you will not be required to issue Form 1099. Instead, the foreign contractor will have to complete and file Form W-8BEN.
1099s for US Contractors Abroad
If you are a US contractor living overseas, you will not have to file Form 1099. Instead, you may receive a completed Form 1099 from clients who paid you at least $600 over the course of a year. You will then use these forms to report your worldwide income on your US tax return.
Foreign clients may not be required to send you a Form 1099. In that case, you will be responsible for tracking your own income so you can report it accurately on your US taxes.
The IRS provides several tax benefits for US citizens living abroad, such as:
- Foreign Earned Income Exclusion (FEIE)
- Foreign Tax Credit
- Foreign Housing Deduction
Using these tax breaks, you can reduce what you owe in US taxes—or erase your US tax bill entirely.
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—with no maximum penalty.
Employees Abroad vs. Contractors
According to the IRS: “The general rule is that an individual is an independent contractor if the payer 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, who work under the full control and direction of their employer.
There are quite a few differences between the tax obligations of an employer versus a client working with an independent contractor. Most importantly for this post, employers do not have to file Form 1099 to report payments made to an employee. Instead, an employer must file IRS Form W-2. Form 1099 is only used to report payments made to an independent contractor.
There are also important distinctions between how independent contractors and employees file taxes while living overseas. Independent contractors must report their self-employment income and pay the US self-employment tax. Employees will report their salary and pay only the employee portion of the US Social Security and Medicare tax.
The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.
Let’s look at a couple of examples of contractor and employee taxes for Americans working abroad.
Example #1: Paying Expat Taxes as a Contractor Abroad
US expats will have to be compliant with the host country’s income tax (if applicable) and also US income tax because the US taxes all US citizens or Green Card holders (legal permanent residents) on worldwide income.
For example, let’s say John Expat contracts overseas and earns $60,000 of net self-employment income during the year. John is a resident in Dubai from January 1–July 31 of the tax year and in Singapore from August 1–December 31 of the tax year. For the $35,000 ($60,000 x 7/12) earned while resident in Dubai, John will be subject to no income tax in Dubai. Since John is resident in Singapore for less than 183 days in the year, $25,000 ($60,000 x 5/12) earned while in Singapore is subject to a 15% flat non-resident tax rate. Therefore, the tax payable in Singapore will be $3,750.
Using the FEIE, John is able to exclude the entire $60,000 of his net self-employment income from taxation. However, John’s self-employment income is still subject to the US self-employment tax. This is because the FEIE cannot be used to exclude income from the self-employment tax.
The typical formula for the self-employment tax is 15.3% of 92.35% of the individual’s income. In John’s case, he will pay 15.3% of ($60,000 x 92.35%). This comes to $8,478. Thus, John’s total tax liability for the year would be $12,228 ($3,750 of Singapore tax, plus $8,478 of US self-employment tax).
Example #2: Paying Expat Taxes as an Employee Abroad
Consider the same example as above, but now, John is an employee of a foreign company. In this case, John can exclude the full $60,000 of his salary from US taxation using the FEIE. And because he is an employee, he is not subject to the US self-employment tax. (And expats employed by a foreign employer are generally not subject to US Social Security and Medicare taxes, either). Thus, John has no US tax liability and only owes the Singaporean tax of $3,750.
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 complete both copies with the same information.
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, regardless of which method you use.
Pro Tip: If you can’t make the January 31 deadline for Form 1099, you can request a 30-day extension by filing IRS Form 8809. However, this extension is not automatic. You will have to explain why you cannot reasonably file on time.
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 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.
Get Expert Help with Your 1099s as a US Citizen Abroad
We hope this guide has helped you understand when (and how) you should file Form 1099 as a US citizen abroad. Still have questions? We have answers! In fact, we can even prepare and file your expat taxes on your behalf.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
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FAQs
Conversely, if the independent contractor is not a US person and did not perform any of their services within the US, you will not be required to issue Form 1099. Instead, the foreign contractor will have to complete and file Form W-8BEN.
Do foreign contractors have to pay US taxes? ›
Freelancers and Independent contractors must file a US tax return even when working overseas. The IRS provides a variety of tax benefits for Americans living abroad. Using these expat tax benefits, many overseas contractors can reduce their US tax bill significantly.
Do US citizens living abroad receive a 1099? ›
If you're an American living abroad, you may receive a 1099 form each year. There are various types of 1099 forms, and each one has a specific purpose. To ensure that you understand what your 1099 form means, let's take a closer look at Form 1099 and how it may affect your expat taxes.
How do taxes work for over overseas contractors? ›
Do foreign contractors have to pay taxes? Yes, your international contractors will have to pay taxes in the country where they live and work. You must comply with local tax laws in each country.
Can US companies legally hire foreigners living in other countries as independent contractors? ›
Can a US Company Hire Foreign Contractors? Yes, a US company can hire foreign contractors. The process is different from hiring foreign employees, where a company would either establish an entity in the local country or partner with an EoR to compliantly hire, pay, and manage foreign employees.
Do I need to issue 1099-NEC to foreign person? ›
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.
What is the IRS form for international contractors? ›
More In Forms and Instructions
Form W-14 is completed by foreign contracting parties and is used to claim an exemption from withholding, in whole or in part, from the 2% tax. Form W-14 is provided to the government department or agency that is a party to the contract.
How do I pay a contractor internationally? ›
What Are The Best Ways to Pay Contractors in a Foreign Country?
- SWIFT Transfer - The Swifty payments system. ...
- Moneygram - The money Telegram. ...
- PayPal - The first mover platform. ...
- Transferwise - A wise payments app. ...
- Payoneer - The 'No-fee' payments method.
Foreign employees of US companies working and living abroad aren't taxed in the US. Foreign contractors working for US companies should pay taxes where their self-employment is registered and in the country of residence. US citizens remain to be taxed for their worldwide income in the US.
How do I report foreign independent contractor income? ›
US-based companies, for example, must report the US-sourced income of foreign contractors to the IRS using forms 1042 and 1042-S unless the contractor's country of residence has a tax treaty with the US, in which case companies should file exemption Form 8233.
If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don't act timely.
How do I report self employed foreign income? ›
As a self-employed expat in a country with a tax treaty, you can file Form 8833 to protect yourself from double taxation on your self-employment income.
Can I work as a contractor from abroad? ›
U.S. companies cannot simply pay an individual in a foreign country to perform work for them without establishing an employment relationship. Misclassifying an individual as an independent contractor in a foreign country could result in foreign tax liability.
How much overseas income is exempt from U.S. taxes? ›
The Foreign Earned Income Exclusion (FEIE) is a US tax benefit that allows you to exclude from taxation a certain amount of foreign-earned income over $100,000. The maximum foreign-earned income exclusion for the 2022 tax year is $112,000.
Can a non US citizen be an independent contractor? ›
All immigrants regardless of legal status are able to earn a living as independent contractors, or start a business using an ITIN or SSN. An independent contractor must pay self-employment tax and income tax. An independent contractor may use an ITIN to file and pay taxes instead of a SSN.
Can a US company hire foreign employee outside US? ›
Can US companies hire foreign workers? Yes, US companies can hire foreign workers either as full-time employees or independent contractors, with the option of either working remotely in their home country or relocating to the US with the relevant labor certification and visa.
Can I work for a US company and live abroad? ›
If you're a non-US citizen, yes: You can work abroad for an American company. However, you need to make sure you're correctly classified—either as an employee or contractor. If you're misclassified, both you and the hiring company face a very real risk of legal consequences and possible financial penalties.
Is it legal to work for a US company from another country? ›
Non-US citizens can work remotely for a US company from their home country or anywhere in the world as long as they have consent from their employer, follow local laws regarding visas, and file taxes with their country of tax residence.
Who is exempt from a 1099-NEC? ›
In general, you don't have to issue 1099-NEC forms to C Corporations and S Corporations. But there are some exceptions, including: Medical and health care payments. Payments to an attorney.
Who gets a 1099 and who does not? ›
Businesses are required to issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year. For example, a taxpayer might receive a 1099 form if they received dividends, which are cash payments paid to investors for owning a company's stock.
An Individual Taxpayer Identification Number (ITIN) is insufficient for verifying an individual's right to work. If you've hired workers who don't have a Social Security Number, you can file them as a 1099 contractor using their Individual Taxpayer Identification Number (ITIN).
Do foreign contractors need to fill out w9? ›
Foreign vendors do not complete the Substitute Form W-9; foreign persons or entities must submit one of five available forms. The vendor must determine the one most appropriate to their United States tax status for reportable transactions.
Do I need a w9 for a foreign contractor? ›
Do Non-US Companies Need W-9 and W-8 Forms? Foreign individuals and entities that don't reside in the U.S. don't need to file a W-9 form. The IRS, however, requires you receive a W-8 form from each foreign individual or company you conduct business with. Foreign aliens who are US residents will need to file a W-9.
Do Canadian companies need to issue 1099 to US contractors? ›
Any Canadian or American corporation must file with the IRS the following forms in order to report the payments they have made: tax slips Form 1099-MISC; summary Form 1096.
What is an overseas contractor? ›
An international contractor is a person who is not a citizen of your own country and who resides in another country while performing work for your company. An international contractor is not your employee, but they have entered into an agreement to work with you in certain ways: On a specific project.
How do I pay a foreign worker? ›
Once a company decides to expand overseas, the next step is to determine how to legally hire and pay international employees. There are two primary ways to legally pay foreign employees overseas. First, a company can set up and incorporate a legal entity. Second, a company can use a global employer of record (EoR).
How long can you work in another country without tax implications? ›
Do You Have to Pay Remote Work Taxes in Another Country? Yes. Most countries have tax-residency rules that dictate how long you can stay in their country before becoming a tax resident. In most cases, you must file as a tax resident and pay income tax if you stay for more than six consecutive months in a year.
Do I have to pay taxes if I work remotely in another country? ›
Although it's legal to work remotely from another country, you should be aware of the 183-day rule, which states that anyone working 183 days (half the year) in another country is considered a resident for tax purposes and subject to taxation laws in both countries.
How much taxes do I pay if I work overseas? ›
If you are an American living abroad, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time. In other words, you are subject to the same rules regarding income taxation as people living stateside.
Will the IRS catch a missing 1099? ›
If you forget to report the income documented on a 1099 form, the IRS will catch this error. When the IRS thinks that you owe additional tax on your unreported 1099 income, it'll usually notify you and retroactively charge you penalties and interest beginning on the first day they think that you owed additional tax.
For each fund that paid foreign taxes, use Schedule A (Form 1040), Itemized Deductions, to report the amount from Box 7 of your Form 1099-DIV. See the instructions for Form 1040 for additional information.
What is the penalty for not issuing a 1099? ›
If your business fails to issue a Form 1099-NEC or Form 1099-MISC by the deadline, the penalty varies from $50 to $280 per form (tax year 2022), depending on how long past the deadline the business issues the form.
Do US citizens living abroad pay double taxes? ›
As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.
How long can a U.S. citizen stay out of the country? ›
Absences of more than 365 consecutive days
You must apply for a re-entry permit (Form I-131) before you leave the United States, or your permanent residence status will be considered abandoned. A re-entry permit enables you to be abroad for up to two years. Apply for a re-entry permit.
Do dual citizens pay taxes in both countries? ›
Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen.
Do I need to issue a 1099 to a foreign worker? ›
If the foreign contractor is not a U.S. taxpayer, and all of the contracted services were performed outside the U.S., a Form 1099 is not required. Instead, you will need to ask the contractor to complete a Form W-8BEN. The Form W-8BEN certifies that the foreign contractor is not a U.S. taxpayer.
Do I need to file a 1099 for a foreign company? ›
However, the IRS doesn't require a company to withhold taxes or report any income from an international contractor if the contractor is not a U.S. citizen and the services provided are outside the U.S. Filing a 1099 is required if: The contractor is located internationally but is a U.S. citizen.
Do I send a 1099 to a foreign contractor? ›
Conversely, if the independent contractor is not a US person and did not perform any of their services within the US, you will not be required to issue Form 1099. Instead, the foreign contractor will have to complete and file Form W-8BEN.
Do foreign companies issue 1099s to US contractors? ›
The IRS requires businesses to issue Form 1099-MISCs to most non-corporate independent contractors or service providers – foreign or domestic – to whom they paid a minimum of $600 during the prior calendar year.
What is the difference between an employee and an international contractor? ›
Unlike employees, international independent contractors do not work regularly for an employer but work as required and are typically paid on a freelance basis. Contractors will not rely on you as their sole source of income, and they often work at their own pace, as defined by an agreement.
Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).
Do I have to report foreign income to IRS? ›
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts.
What happens if you don't report foreign income? ›
As a U.S. taxpayer, you can face penalties for failing to report your foreign-earned income even if you don't owe any federal income tax. The IRS penalizes both failures to report and failures to pay and the penalties for reporting violations can be substantial.
Do federal contractors have to be US citizens? ›
(g) Each individual employed under the contract shall be a citizen of the United States of America, or an alien who has been lawfully admitted for permanent residence as evidenced by a Permanent Resident Card (USCIS I-551). Any exceptions must be approved by the Department's Chief Security Officer or designee.
Is the independent contractor considered to be an employee under US law? ›
There may be some factors suggesting a California worker is an employee and others suggesting he or she is an independent contractor. It is even possible that a worker can be considered an independent contractor for purposes of IRS tax filing, but they are considered an employee under California's wage and hours laws.
Who is exempt from filing 1099s? ›
Freelancers and independent contractors do not need to include the 1099 form when they pay taxes, as only the amount of income reported in the form is required. Therefore, provided you know the amount of income you received in the tax year, you can still file taxes, without a 1099 misc form.
Do international contractors need a w9? ›
Foreign vendors do not complete the Substitute Form W-9; foreign persons or entities must submit one of five available forms. The vendor must determine the one most appropriate to their United States tax status for reportable transactions.
What happens if I don't issue a 1099 to a contractor? ›
If your business fails to issue a Form 1099-NEC or Form 1099-MISC by the deadline, the penalty varies from $50 to $280 per form (tax year 2022), depending on how long past the deadline the business issues the form.
