If you paid a non-US citizen for work or other income, you generally do not issue a Form 1099. Payments to foreign persons are reported on Form 1042-S instead, and before you pay anything you are required to withhold 30% of most US-source payments unless a tax treaty or other exemption applies. The 1099 for non-US citizens is, in nearly every situation, the wrong form entirely, and using it does not satisfy your obligations as the payer.
The reason this matters is not just paperwork. If you fail to withhold correctly, federal law makes you personally liable for the tax that should have been withheld, plus interest and penalties on top.1Office of the Law Revision Counsel. 26 US Code 1461 – Liability for Withheld Tax
When a 1099 Is Still the Right Form
The 1099 series is for payments to US persons. A US person includes US citizens, resident aliens, and domestic entities. If your payee holds a green card or meets the substantial presence test, they are a resident alien for tax purposes, and they get a W-9 and a 1099 like any other US payee. Immigration status and tax residency are not the same thing, so ask the question in tax terms before you decide which form applies.
A foreign person is anyone who doesn’t fit those categories: nonresident alien individuals, foreign corporations, and foreign partnerships. For these payees, the IRS instructions for Form 1099-NEC explicitly redirect you to Form 1042-S.2Internal Revenue Service. Reporting Payments to Independent Contractors The same redirection applies across the 1099 family.
There is one narrow exception. If you pay an H-2A agricultural visa worker $600 or more and that worker hasn’t given you a valid taxpayer identification number, you report the payment in Box 3 of Form 1099-MISC and apply backup withholding.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) Outside that specific situation, do not reach for a 1099 to report a foreign payee.
Confirm the Payee’s Status Before You Pay
Documentation decides everything that follows, and it needs to be in your hands before the payment goes out. Collecting it afterward leaves a gap in which you are technically liable for the full 30% withholding.
Request Form W-9 from any US payee. The W-9 provides their taxpayer identification number and certifies they aren’t subject to backup withholding. If a US payee refuses or fails to return a completed W-9, you must withhold 24% as backup withholding and still report the payment on the appropriate 1099.4Internal Revenue Service. Instructions for the Requester of Form W-9 (03/2024)
For a foreign payee, request the appropriate Form W-8. The W-8 establishes foreign status, identifies the country of residence, and lets the payee claim any applicable treaty benefits. If you cannot obtain any documentation at all, the IRS presumption rules treat the payee as foreign, and you must withhold 30% with no ability to apply a treaty reduction after the fact.5Internal Revenue Service. Instructions for Form W-8BEN (Rev. October 2021)
Which W-8 to Collect
Using the wrong version of the W-8 can invalidate the documentation entirely, so match the form to the payee.
- Form W-8BEN is for nonresident alien individuals certifying foreign status and claiming treaty benefits on US-source income such as royalties, interest, or service fees.
- Form W-8BEN-E is for foreign entities, including corporations, partnerships, and trusts. It also captures the entity’s status under the Foreign Account Tax Compliance Act.6Internal Revenue Service. Instructions for Form W-8BEN-E
- Form W-8ECI is for income effectively connected with a US trade or business. The payee certifies they will pay tax at graduated rates on their own return, which generally relieves you of the flat-rate withholding.
A W-8BEN remains valid from the date it’s signed through the end of the third following calendar year. A form signed in June 2026 stays good through December 31, 2029.5Internal Revenue Service. Instructions for Form W-8BEN (Rev. October 2021) If something changes that makes the form inaccurate, such as the payee moving to the United States or becoming a US resident, they must notify you within 30 days and provide a new W-8.7Internal Revenue Service. Instructions for Form W-8BEN You keep the completed W-8 in your own records. It is not sent to the IRS, but you need to retain it for as long as your withholding liability remains open to examination.8Internal Revenue Service. Instructions for the Requester of Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY
Check Whether the Income Is Even US-Source
Withholding and 1042-S reporting only apply to US-source income. Foreign-source income paid to a foreign person is outside the system entirely, and payers lose money and goodwill by withholding when they shouldn’t.
Sourcing follows the type of income:
- Personal services are sourced where the work is physically performed, regardless of where the contract was signed or where payment originates. A freelancer working entirely from London for a US company is earning foreign-source income.9Internal Revenue Service. Source of Income – Personal Service Income
- Interest is generally sourced to the residence of the payer. Interest from a US corporation or a US bank deposit is US-source.
- Dividends are sourced by the payer’s country of incorporation.
- Rents and royalties are sourced where the property is located or used.10Office of the Law Revision Counsel. 26 US Code 861 – Income From Sources Within the United States
When services are performed partly in the United States and partly abroad, allocate on a time basis. Divide days worked in the US by total days of service, multiply by total compensation, and withhold only on the US-allocated portion.9Internal Revenue Service. Source of Income – Personal Service Income
Withhold 30 Percent, or the Treaty Rate
Federal law requires every person who pays US-source income to a nonresident alien to withhold 30% of the payment.11Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens This applies to fixed, determinable, annual, or periodical income (FDAP), which covers most passive payments: interest, dividends, rents, royalties, and many service fees.12Internal Revenue Service. Withholding on Specific Income Withhold at the time of payment, not later.
Tax treaties can reduce that rate. Some treaties bring withholding on interest or royalties to zero. Dividend rates commonly drop to 15%, though the exact figure depends on the specific treaty and the relationship between the parties. The payee has to cite the relevant treaty article on their W-8, and you should confirm the treaty exists and covers the specific income type before applying anything less than 30%.13Internal Revenue Service. Federal Income Tax Withholding and Reporting on Other Kinds of US Source Income Paid to Nonresident Aliens
Income effectively connected with a US trade or business follows different rules. It is taxed at graduated rates on a net basis, so the foreign person can deduct business expenses before computing tax. A valid W-8ECI generally relieves you of the FDAP withholding obligation, because the payee will handle the tax directly on their own US return.
File Form 1042-S and Form 1042
Every payment of US-source income to a foreign person that is subject to withholding requires a Form 1042-S, even when a treaty reduced the withholding rate to zero. The form captures the income type using a two-digit income code, the gross amount paid, the payee’s country of residence, and the total tax withheld. If you paid more than one type of income to the same payee, file a separate 1042-S for each income type.14Internal Revenue Service. 2026 Instructions for Form 1042-S
Alongside your 1042-S forms, file Form 1042, the annual withholding tax return. The total on Form 1042 must match the sum of withholding reported across all your individual 1042-S forms.15Internal Revenue Service. Instructions for Form 1042-S (2026) Both forms are due by March 15 of the year following payment, and you must furnish a copy of each 1042-S to the foreign payee by that same date so they can claim credit for the withheld tax on their own return.
If you file 10 or more information returns of any type during the calendar year, you must file them electronically. The 10-return threshold is counted across return types combined, including 1042-S, 1099, and W-2 forms.16Internal Revenue Service. Topic No. 801, Who Must File Information Returns Electronically For filing season 2027 (tax year 2026), the IRS is retiring the legacy FIRE system and making the Information Returns Intake System (IRIS) the sole electronic filing platform.17Internal Revenue Service. Filing Information Returns Electronically (FIRE) If you have been using FIRE, set up your IRIS account well before the filing deadline.
What Happens if You Get It Wrong
Penalties come from two directions. The first is the withholding itself. You are liable for every dollar you should have withheld but didn’t, plus interest and additional penalties. Using a payroll service or an agent does not shield you; if they fail to withhold, the IRS treats it as your failure.1Office of the Law Revision Counsel. 26 US Code 1461 – Liability for Withheld Tax
The second is per-form reporting penalties under Section 6721, which are tiered by how quickly you correct the problem:18Office of the Law Revision Counsel. 26 USC 6721 – Failure to File Correct Information Returns
- Corrected within 30 days: $50 per return, up to $500,000 per year.
- Corrected by August 1: $100 per return, up to $1,500,000 per year.
- Not corrected or never filed: $250 per return, up to $3,000,000 per year.
These are statutory base amounts that the IRS adjusts annually for inflation. For returns due in calendar year 2027 (tax year 2026), the adjusted general penalty is $340 per return, and separate penalties in the same dollar range apply for failing to furnish a correct 1042-S to the payee. If the IRS determines you intentionally disregarded the filing requirements, the penalty jumps to $630 per form or 10% of the total amount that should have been reported, whichever is greater, with no annual cap.19Internal Revenue Service. Penalties Related to Form 1042-S
The practical takeaway is simple. Decide the payee’s tax status before any money moves. Collect a W-9 or the right W-8. Check whether the income is US-source. Withhold at 30% or the treaty rate. Report on Form 1042-S and Form 1042 by March 15. The 1099 almost never belongs in that sequence.