Question: Edgar runs a small technology company that uses the services of two foreign contractors; one lives in Guatemala and the other in Costa Rica. They will be paid $5,500 and $8,500 respectively. Edgar needs to know if he has a compliance obligation to issue them a Form 1099-NEC, Nonemployee Compensation?
Answer: No, Form 1099-NEC is not required to be issued to foreign contractors. First, the employer verifies the contractors are not U.S. citizens working outside the country. The foreign contractors will sign Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). By completing Part I and signing Form W-8BEN, the foreign contractors are certifying they are not U.S. persons. The foreign contractors do not need ITINs. Form 1099-NEC does not need to be filed [Reg.§1.6041-4(a)]. The Form W-8BEN is not filed with the IRS, however, the employer must keep it in the files just in the event of an audit.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.