Running a US-based company as a non-resident founder comes with a set of tax and compliance responsibilities that may not exist in your home country. One of the most common areas of confusion involves Form 1099, the IRS form used to report payments made to certain individuals and businesses. Even if you operate your company entirely from abroad, you might still be required to issue 1099s. Here’s what you need to know.
What is Form 1099?
Form 1099 is an information return that tells the IRS (and the recipient) how much your company paid to a particular person or entity during the tax year. It ensures transparency around non-employee compensation, meaning payments to freelancers, contractors, and other service providers who are not your employees.
It tells the IRS how much you have paid to a specific person. Then the IRS matches your report to what that person has reported to them.
The most relevant version for startups and small businesses is Form 1099-NEC, which reports payments for services performed by independent contractors totaling $600 or more per year.
When a US Company Must File a 1099
If your US company (for example, a Wyoming or Delaware LLC) pays a US person or US-based entity for services, you generally must issue a 1099-NEC.
Key points:
- Applies to US citizens, residents, or US-registered companies.
- Applies to services, not goods.
- Threshold: $600 or more during the year (no need to issue one for less than $600)
- The form must be filed with the IRS and a copy sent to the recipient by January 31 each year.
When a 1099 Is Not Required
If you hire foreign contractors, such as individuals or entities based outside the US who perform their work entirely outside the United States, their income is foreign-source income. That means it is not reportable on Form 1099 and not subject to US withholding.
However, you must still document this status properly. To do so, request the contractor to complete a Form W-8BEN (for individuals) or Form W-8BEN-E (for companies).
Keep this form in your records. It proves to the IRS that the contractor is foreign and that you were not required to issue a 1099.
When a 1099 May Be Required for a Foreign Contractor
There are limited cases where you may still need to report or withhold:
- The contractor is a US citizen or green card holder, even if living abroad.
- The contractor performs any part of the service while physically in the United States.
- The payment is tied to US-source income, such as rent, royalties, or other US property.
In such cases, you might need to issue a Form 1099-NEC or a Form 1042-S (for foreign recipients subject to withholding).
Why This Matters
Failing to issue 1099s when required can result in IRS penalties ranging from $60 to $310 per form, depending on how late you file. More importantly, it can trigger audits or questions about the legitimacy of your deductions.
Keeping proper W-8BEN forms for foreign contractors and filing 1099s for US contractors helps your company maintain clean compliance records, making tax season and potential due diligence much smoother.
Summary for Non-US Founders
For non-resident founders, the key takeaway is simple: 1099s are only for US-source payments to US persons.
For everyone else, keep proper W-8 documentation, and you’re safe.
