By Chron Contributor Updated February 25, 2021
The Internal Revenue Services mandates that all businesses that operate in the U.S. must provide W-2s to employees and 1099 forms to independent contractors who operate as service providers. Independent contractors exclude corporations except in rare circ*mstances. Therefore, independent contractors include individuals, sole proprietorships, general and limited partnerships, and limited liability companies. Businesses issue 1099s to the contractors to assist in preparing U.S. taxes. Therefore, businesses must issue a 1099 for out of country contractors as well as domestic ones.
Independent Contractors
Many small businesses hire individuals as independent contractors in lieu of employees or engage small service providers to obtain a range of services that they do not have in-house. Other businesses use outsourcing to acquire critical but nonstrategic services, such as accounting, and legal or janitorial services. Outsourcing enables companies to reduce expenses and focus on what they do best. Vendors that solely provide products do not qualify as independent contractors.
Foreign Companies
Some companies that businesses outsource operate out of foreign countries. However, any company that generates sales in the U.S. must pay U.S. taxes on any profits on those revenues. By requiring hiring companies to issue 1099s for foreign vendors to these entities and file reports with the IRS, the IRS ensures that it receives the taxes owed.
1099-MISC Minimums
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. A business does not need to issue the form to foreign or domestic corporations that exceed the $600 threshold unless the corporation provides medical or legal services.
1099-B and 1099-C
In addition to issuing 1099-MISCs to all applicable companies, businesses must also issue 1099-B's to any companies, foreign or domestic, with which they bartered for services or products exceeding $600 in value. Businesses must also issue 1099-Cs to companies for which they canceled more than $600 in debt. The IRS lists additional 1099s to file under specific circ*mstances, but those instances are rarer. Businesses can consult with a CPA or ask the IRS if they believe additional 1099s may apply to them. Firms must also file these 1099s with the IRS.
Meet IRS Deadlines
Businesses must mail Form 1099-MISC and 1099-B to all applicable companies by January 31 and 1099-B's by February 15 following the end of the tax year. This allows recipients sufficient time to prepare their taxes by the due date. Businesses must file all 1099-MISCs, 1099-B's and 1099-C's with the IRS by February 28, if filing by mail, and March 31, if filing electronically.
FAQs
Generally, a 1099 is not required to be issued for international vendors who are foreign vendors.
Do you issue 1099S to foreign companies? ›
The IRS specifically requires businesses to issue a 1099 form to most foreign and/or domestic service providers that they paid $600 or more within a calendar year. Yet you generally will not issue 1099 forms to foreign or domestic corporations that exceed the $600 in payments.
Do foreign entities need to file 1099-NEC? ›
If your foreign contractor is not a U.S. taxpayer AND all of the contracted work was performed outside of the U.S., you DO NOT need to file a Form 1099. What you do have to do, however, is to get the contractor to fill in a Form W-8BEN instead.
Who is exempt from receiving a 1099 form? ›
Any payments made to corporations are exempted from sending form 1099-MISC or any other types. The exemption also includes payments to LLCs and partnerships that choose to be treated as S or C corporations.
Do Canadian companies have to issue 1099? ›
Instead of filling out a 1099, when you hire Canadian contractors, you should request a completed W-8BEN from them. This form ensures compliance with the IRS and the Canada-US tax treaty; without it, you are required to withhold and remit 30% tax on all contractor earnings.
How do I file a 1099 for an international 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 have to pay US sales tax? ›
Even though our customers are not necessarily citizens of the United States, if they run their businesses from and store inventory in a U.S. state, that means that they have sales tax nexus in that state (or states) and must collect and remit sales tax.
Who is not required to receive a 1099-NEC? ›
In general, you don't have to issue 1099-NEC forms to C-Corporations and S-Corporations. It's a common belief that businesses don't need to send out 1099-NEC forms to corporations. And this is true.
Who is exempt from a 1099-NEC? ›
If the entity you paid for services is an S-Corp or C-Corp, you do not need to issue a 1099-NEC unless the payment was for legal services. Legal services are reported regardless of the type of entity the law firm is. Also, certain electronic payments are exempted.
Who gets a 1099-MISC and who gets a 1099-NEC? ›
Form 1099-MISC is for reporting payments like rent or prizes that are not subject to self-employment tax, while Form 1099-NEC is for reporting nonemployee compensation that is most likely subject to self-employment tax.
If a business intentionally disregards the requirement to provide a correct Form 1099-NEC or Form 1099-MISC, it's subject to a minimum penalty of $630 per form (tax year 2023) or 10% of the income reported on the form, with no maximum.
How do you know if a company is 1099 eligible? ›
Anyone your business paid $600 or more in non-employee compensation over the year must be issued a Form 1099-MISC. According to IRS guidance, a form 1099-MISC may be required if a company makes the following types of payments: At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
What are the rules for issuing a 1099? ›
General Rules
A Form 1099 needs to be issued and sent to all sole proprietors, independent contractors, partnerships, and LLCs1 that you paid for services exceeding $600, including rent, interest, dividends, and royalties. The IRS has rules to decide if a worker is an employee or a contractor.
Can you issue 1099 to US citizen living abroad? ›
U.S. citizens are subject to U.S. income tax, and are reportable to the IRS on Forms 1099, without regard to where in the world they may currently reside. You do not need a U.S. address for the citizen on the 1099-NEC.
Can I hire a non US citizen as 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 you work abroad as an independent contractor? ›
Key Takeaways
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.
How do I file taxes if I work for a foreign company? ›
If you earned foreign income abroad, you report it to the U.S. on IRS Form 1040. In addition, you may also have to file a few other international tax forms relating to foreign earnings, like your FBAR (FinCEN Form 114) and FATCA Form 8938.
Is a w9 needed for foreign companies? ›
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.
Can I send a 1099 to a foreign address? ›
Use the following procedures to include a foreign address on the employee copy of Forms W-2 and 1099. For W-2 forms: add the foreign address to the employee record. For 1099 forms: edit the form layout in the layout editor, and then add the foreign address to the vendor record.
Do foreign corporations file US tax returns? ›
Overview. Every foreign corporation that is engaged in trade or business in the United States at any time during the tax year or that has income from United States sources must file a return on Form 1120-F, U.S. Income Tax Return of a Foreign Corporation.
