No, you generally do not issue a 1099 to a foreign contractor who does the work from outside the United States. The IRS sources service income by where the work is performed, so a developer coding from Bogota or Monterrey is earning foreign-source income, and the IRS says that kind of pay to a nonresident alien "is normally not required to be reported on an information return." What you should have is a signed W-8BEN in your files, because it is your evidence that the payee is foreign.
General information, not legal or tax advice. Talk to a CPA or attorney about your specific setup.
That answer covers most founders who ask me this. The ones who get into trouble missed one detail that changes the picture: the contractor flies in and works from your office, or the "foreign" contractor turns out to be a US person, or they invoice through an entity. Each of those changes the paperwork.
Key Takeaways
- Where the work is physically done decides the source of the income, not where you or your bank sit.
- A nonresident developer working entirely outside the US: no 1099-NEC, no withholding. Keep a W-8BEN (individual) or W-8BEN-E (entity) on file.
- If that same person works inside the US, 30% withholding can apply, reported on Form 1042-S, not a 1099.
- Paying a US staffing company instead means you collect a W-9, and if the company is taxed as a corporation, no 1099 at all.
The Rule That Decides Everything: Where the Work Happens
The IRS language is blunt. On its source of income page: "The place, where the personal services are performed, generally determines the source of the personal service income, regardless of where the contract was made, or the place of payment, or the residence of the payer."
So your Delaware C-corp, your US bank account, and your US-law contract do not matter for sourcing. The developer's chair does.
If part of the work happens in the US, the IRS splits the income on a time basis: US workdays over total workdays. A contractor in Lima who spends two weeks at your offsite in Austin has a small slice of US-source income for those days. Most founders never think about this, and it is the most common way a clean foreign-contractor setup gets messy.
So When Do You Issue a 1099 to a Foreign Contractor?
Almost never, if they are truly foreign. The IRS General Instructions for Certain Information Returns send "payments to foreign persons" to the Form 1042-S rules, which deal with "U.S. source income of foreign persons." And for foreign-source pay, even the 1042-S is normally not required.
Here is the map I give clients:
| Who you pay | Where the work happens | Form you collect | What you file |
|---|---|---|---|
| Nonresident individual | Outside the US | W-8BEN | Normally nothing |
| Foreign company or LLC | Outside the US | W-8BEN-E | Normally nothing |
| Nonresident individual | Inside the US | W-8BEN, or Form 8233 to claim a treaty exemption | 30% withholding unless exempt, Form 1042-S + 1042 |
| US person (citizen, green card, US resident) | Anywhere | W-9 | 1099-NEC if paid $2,000+ |
| US staffing company taxed as a corporation | Anywhere | W-9 | No 1099-NEC |
Two numbers to update in your head. First, the 1099-NEC threshold is now $2,000 for tax years beginning after 2025, up from the $600 everyone remembers, and it may be adjusted for inflation starting in 2027. Second, for work performed inside the US by a nonresident, the IRS requires withholding "at the 30 percent rate," reported on Form 1042-S plus an annual Form 1042 per Publication 515.
The Trap: Your "Foreign" Contractor Is a US Person
A US citizen living in Medellin is still a US person. So is a green-card holder who moved back to Buenos Aires. They should give you a W-9, and if you pay them $2,000 or more in a year, they get a 1099-NEC like any domestic contractor.
Get this wrong and the costs are real. If a US payee does not give you a valid TIN, payments "may be subject to backup withholding at a 24% rate," per the General Instructions for Certain Information Returns. Failing to file a correct return carries penalties that, under the 2025 instructions, run from $60 to $340 per return depending on how late you are. Those amounts get adjusted for inflation every year.
The fix is cheap. Ask every contractor for a W-8BEN or a W-9 before the first invoice. If they hesitate over which one, that tells you something.
A Concrete Version
Say you run a 12-person seed-stage startup and pay three LATAM contractors directly in 2026:
- Contractor A, Colombian citizen in Bogota, $60,000 for the year, all work done in Colombia. Collect a W-8BEN. No 1099. No withholding.
- Contractor B, Mexican developer who invoices through her own Mexican company, $72,000. Collect a W-8BEN-E. No 1099.
- Contractor C, a US citizen living in Buenos Aires, $54,000. Collect a W-9. Issue a 1099-NEC in January 2027, because $54,000 is well over the $2,000 threshold.
Now Contractor A flies to San Francisco and works 10 days on-site out of 230 total workdays. About 10/230, or 4.3%, of his $60,000 (roughly $2,600) is US-source pay for services performed in the US. That slice can trigger 30% withholding, about $780, reported on a 1042-S, unless he files a Form 8233 claiming a treaty exemption. Colombia has no US income tax treaty, so that route is closed for him. Most startups never catch this. If a contractor is coming on-site, talk to your CPA before the flight is booked, not after.
The Honest Counterpoint
The clean answer above assumes your contractor is really a contractor. If you set their hours, give them a company laptop and email, and they work only for you full-time for two years, the bigger question is classification, not forms. The IRS uses a behavioral, financial, and relationship test for that, and the contractor's home country has its own rules. In Mexico, for example, Baker McKenzie notes that since 2022 disguising an employee as an independent contractor is treated as tax fraud.
Getting the 1099 question right does nothing for you if the relationship looks like employment. That is the real risk, and it is why some companies move to an EOR or a staffing provider. We cover that tradeoff in how to pay overseas developers and contractor vs employer of record.
Frequently Asked Questions
Do I need to issue a 1099 to a foreign contractor paid through Payoneer or Wise?
No. The payment rail does not change the answer. What matters is whether the person is a US person and where they did the work. A nonresident working outside the US gets no 1099 regardless of how you send the money. Keep the W-8BEN.
What happens if a foreign contractor refuses to sign a W-8BEN?
I would hold payment until they sign one, or until they give you a W-9 because they are actually a US person. The W-8BEN is your evidence that the payee is foreign. Without it, you have no documentation if the IRS asks why you skipped the 1099.
Do I issue a 1099 to a US staffing company that employs the engineers?
Collect their W-9 first. If the company is a corporation, or an LLC taxed as a C or S corporation, payments are generally not reportable on a 1099-NEC. If it is a single-member or partnership LLC and you pay it $2,000 or more for services, it does get one. The W-9 tax classification box tells you which.
The Bottom Line
For a developer working outside the US, keep a signed W-8BEN on file and skip the 1099. Watch for US citizens abroad and for on-site visits, because those are the two cases that change the answer. Read W-8BEN vs W-8BEN-E if your contractor invoices through a company.
If you would rather not manage foreign paperwork at all, staff augmentation through a US company turns it into one W-9 and one monthly invoice. See how LATAM developers get paid by US companies, then request a shortlist of vetted senior engineers.
Roberto Espinoza is CEO of Ruzora, which helps US startups hire pre-vetted senior LATAM engineers, with a vetted shortlist in 72 hours. See available engineers.
