Foreign companies generally do not issue 1099s to the US workers, contractors, or investors they pay, because the IRS has little practical ability to force a business with no US presence into the domestic information-reporting system. That silence changes nothing about what you owe. Every payment from a foreign source is reportable on your federal return, and because no one is withholding US tax, the job of tracking, converting, and paying falls entirely on you.
Why the 1099 Almost Never Arrives
The IRS’s General Instructions for Certain Information Returns state that non-US payers “generally have the same reporting obligations as U.S. payers.” In theory, a company in Berlin or Tokyo paying a US contractor should file a 1099-NEC the same way a domestic business would. In practice, a foreign company with no US office, bank account, or employees has little reason to engage with the US reporting system, and the IRS has no realistic way to make it do so.1Internal Revenue Service. General Instructions for Certain Information Returns (2025)
Don’t mistake that for invisibility. Under the Foreign Account Tax Compliance Act, foreign financial institutions in more than 100 participating countries report US account holders directly to the IRS. The agency can know about your foreign account before you file a return.
When a Foreign Entity Actually Has to File a 1099
The IRS definition of a “US payer” sweeps in several categories of foreign entity. Any of these must file 1099s on the same terms as a domestic business:1Internal Revenue Service. General Instructions for Certain Information Returns (2025)
- A controlled foreign corporation (one controlled by US shareholders).
- A foreign partnership whose US partners hold more than 50% of the gross income from a US trade or business.
- A foreign person who derives 50% or more of gross income effectively connected with a US trade or business.
- A US branch or territory financial institution of a foreign bank treated as a US person under Treasury regulations.
The most common scenario is a foreign parent operating through a US subsidiary. The subsidiary is a US corporation and must issue a 1099-NEC for nonemployee compensation of $600 or more, regardless of where the parent sits. If a check comes from the US sub, expect a 1099. If it comes from the foreign parent directly, don’t.
How to Report Service Income From a Foreign Client
Payments you earn as an independent contractor go on Schedule C (Form 1040). You list gross receipts, deduct ordinary business expenses, and carry the net profit to your 1040.2Internal Revenue Service. About Schedule C (Form 1040) – Profit or Loss from Business (Sole Proprietorship) That net figure then gets taxed twice: once by regular income tax, and once by self-employment tax.
Self-employment tax covers Social Security and Medicare at a combined 15.3%. The Social Security portion (12.4%) applies to net earnings up to $184,500 in 2026; the Medicare portion (2.9%) has no cap.3Internal Revenue Service. Self-employment Tax4Social Security Administration. Contribution and Benefit Base You calculate it on Schedule SE. Keep contracts, invoices, and bank statements for every foreign payment; in an audit, the burden of proof is yours.
Passive Income Goes Elsewhere
Interest and dividends from foreign sources go on Schedule B if your total taxable interest or ordinary dividends exceed $1,500, or if you have a financial interest in a foreign account.5Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends Royalties from foreign use of your intellectual property go on Schedule E.6Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss Getting the category right matters, because it determines how foreign tax credits are calculated and whether treaty rates apply.
Avoiding Double Social Security Tax
If the country you’re working for also charges social security contributions, you could end up paying into both systems. The United States has bilateral totalization agreements with dozens of countries to prevent that. Under these agreements, you pay into only one country’s system, based on factors like where you perform the work and how long the arrangement lasts.7Social Security Administration. U.S. International Social Security Agreements If an agreement exempts your earnings from US self-employment tax, request a certificate of coverage from the foreign country’s social security agency and keep it with your records.
Quarterly Estimated Taxes
This is where people paid by foreign companies get hit hardest. A domestic employer withholds income tax and FICA from every paycheck. A foreign payer withholds nothing. If you expect to owe $1,000 or more in federal tax after subtracting any withholding and credits, you must make quarterly estimated payments or face an underpayment penalty.8Internal Revenue Service. Estimated Taxes
Payments are due in April, June, September, and January of the following year. You avoid the penalty by paying at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is less. If your adjusted gross income exceeded $150,000 last year ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.9Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
If your foreign income is lumpy, the annualized-income method lets you match payments to the quarters when you actually earned the money instead of spreading them evenly. Use Form 2210, Schedule AI. The first year you earn foreign income is the most dangerous: no prior-year safe harbor to anchor the estimate, no withholding softening the blow.
Converting Foreign Currency
Every amount on your US return has to be in US dollars. The IRS wants each payment converted using the spot rate on the date you received it.10Internal Revenue Service. Foreign Currency and Currency Exchange Rates For many small payments across the year, a consistent yearly average rate is acceptable. The IRS publishes yearly averages but doesn’t require you to use them; any posted rate is fine if you apply it consistently.11Internal Revenue Service. Yearly Average Currency Exchange Rates
Pick one method and stay with it. Switching between spot and average rates mid-year to pick favorable conversions is the kind of inconsistency that invites an audit adjustment. Document the rate source for every transaction.
Credit for Foreign Taxes You Already Paid
Many countries withhold tax on payments crossing their borders. When they do, report the gross payment (before the foreign tax came out) on your US return and claim a credit for the foreign tax paid. The credit offsets your US tax dollar-for-dollar, up to a limit tied to the share of your worldwide income that came from foreign sources.12Internal Revenue Service. Foreign Tax Credit13Internal Revenue Service. 14Internal Revenue Service. Instructions for Form 1116 (2025)
Foreign Account Reporting: FBAR and FATCA
Getting paid by a foreign company often means holding a foreign bank account, and that triggers disclosure obligations separate from your income tax return.
FBAR (FinCEN Form 114)
If the combined balances of all your foreign financial accounts exceed $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts with FinCEN (not the IRS) by April 15, with an automatic extension to October 15.15FinCEN.gov. Report Foreign Bank and Financial Accounts The $10,000 threshold is aggregate, not per account. A $6,000 checking balance plus a $5,000 savings balance puts you over.
FBAR penalties are heavy. Non-willful violations run up to $10,000 per account per year. Willful violations go to the greater of $100,000 or 50% of the account balance. Courts have treated reckless disregard as willful, so lack of awareness is not the shield many assume.
FATCA (Form 8938)
FATCA imposes a separate reporting requirement on “specified foreign financial assets,” including bank accounts, foreign stocks, partnership interests, and financial instruments with foreign counterparties. The thresholds depend on where you live and how you file:16Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
- Living in the US, unmarried: total value over $50,000 on the last day of the year or $75,000 at any point.
- Living in the US, married filing jointly: over $100,000 on the last day or $150,000 at any point.
- Living abroad, unmarried: over $200,000 on the last day or $300,000 at any point.
- Living abroad, married filing jointly: over $400,000 on the last day or $600,000 at any point.
FBAR and Form 8938 are not interchangeable. You may need both. They cover overlapping but distinct assets, go to different agencies, and carry independent penalties.17Internal Revenue Service. Basic Questions and Answers on Form 8938
What Happens If You Don’t Report
Skipping foreign income exposes you to accuracy-related penalties (typically 20% of the underpayment), potential fraud penalties (up to 75% in extreme cases), and the FBAR and FATCA penalties above. Interest runs on unpaid tax from the original due date. The IRS has historically offered more favorable terms to taxpayers who come forward voluntarily before an audit opens than to those caught after. If you’ve fallen behind, getting current sooner is cheaper than waiting.