Paying a Foreign Contractor: 1042-S or 1099-NEC?

October 17, 2026 · 4 min read

General information, not tax, legal or financial advice. We are not the IRS. Check IRS.gov or a qualified tax professional. Sources read on October 17, 2026. Dates and amounts after 2026 are expected. Examples use made-up numbers. This page contains no affiliate links.

Short answer: The IRS page on reporting payments to independent contractors (last reviewed or updated May 22, 2026) says nonemployee compensation paid to nonresident aliens is reported on Form 1042-S, not Form 1099-NEC, and that withholding may be required. Form 1042 must be filed if a Form 1042-S is required. A separate IRS page (last reviewed March 14, 2026) says foreign-source income paid to a nonresident alien is normally not subject to U.S. tax under chapter 3 or 4, is exempt from NRA withholding under section 1441(a), and is normally not required to be reported on an information return; if you choose to report it on Form 1042-S, use Exemption Code 03. This page is general; the sourcing of the income decides which situation applies.

What the IRS pages say

• U.S.-source pay to nonresident aliens: Form 1042-S (and Form 1042); transmit paper 1042-S forms with Form 1042-T; withholding may apply (Pub. 515 and Pub. 901 for treaties).
• Foreign-source pay: normally exempt from withholding and not reported on an information return.
• The 1099-NEC instructions also say to use Form 1042-S for payments to nonresident aliens in the entertainer example, and that payments to foreign governments are an exception to 1099-NEC reporting.
• Source of income depends on where the services are performed, not on where the contractor lives or where you pay (IRS Pub. 515). Forms 1042-S for 2026 are due March 15, 2027 and must be e-filed through IRIS (IRS Pub. 515).
• E-file threshold: the 10-return threshold combines 1099 series, 1042-S and W-2 returns.

What to collect

A U.S. person gives you a Form W-9. A foreign individual normally gives a Form W-8 series form instead; foreign entities use Form W-8BEN-E. If a nonresident alien individual performs services in the United States and claims a tax treaty exemption from withholding, the IRS says the claim is made on Form 8233, not Form W-8BEN (IRS Pub. 515 and the Form W-8BEN instructions). Without an exemption, Pub. 515 says to withhold 30% on U.S.-source pay for personal services (W-9 page for U.S. persons).

Made-up example

A U.S. small business pays a freelancer based abroad for design work performed entirely outside the United States. Per the IRS page, that foreign-source pay is normally not reportable on an information return. If instead the freelancer worked on-site in the U.S., the pay could be U.S.-source and need a 1042-S, so keep records of where the work was done.

Related

Exceptions: who does not get a 1099-NEC · Employee or contractor? · E-file threshold

FAQ

Is a U.S. citizen living abroad a "foreign contractor"?

Not addressed here; the pages concern nonresident aliens.

Do I need a W-8BEN?

It depends on who you pay and where they work. A foreign individual doing the work outside the U.S. is generally documented with a Form W-8BEN; a foreign individual claiming a treaty exemption for work done in the U.S. uses Form 8233 instead (IRS Pub. 515). Check Pub. 515 and ask a tax professional.

What we could not verify