If you paid a non-US citizen for work, royalties, interest, or most other US-source income, you generally do not issue a 1099. A 1099 for non-US citizens is the wrong form in almost every situation. The IRS runs a separate reporting track for foreign payees: you collect a W-8 before paying, withhold 30% at the source (or a lower treaty rate if the payee qualifies), and report the payment on Form 1042-S rather than any form in the 1099 series.1Internal Revenue Service. Reporting Payments to Independent Contractors Get it wrong and you become personally liable for the tax you should have withheld, plus interest and penalties.2Office of the Law Revision Counsel. 26 US Code 1461 – Liability for Withheld Tax
Who Actually Counts as a Non-US Citizen Here
The 1099-versus-1042-S question turns on the tax category “US person” or “foreign person,” not on citizenship alone. A US person includes US citizens, resident aliens, and domestic entities. A foreign person is a nonresident alien individual, a foreign corporation, or a foreign partnership.
Resident aliens are the trap. A green card holder or someone who meets the substantial presence test is treated like a US citizen for tax purposes. They give you a W-9 and receive a 1099 like any other domestic payee. Only truly foreign payees move to the 1042-S track.
There is one narrow situation where a 1099 does go to a foreign worker. If you pay an H-2A visa agricultural worker $600 or more and that worker has not 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 case, assume the 1099 series does not apply.
Collect a W-8 Before You Pay
Documentation is the piece that protects you. Before making any payment to a foreign person, collect the appropriate W-8 form. If you can’t determine the payee’s status because they’ve given you nothing, the presumption rules treat them as foreign, and you must withhold the full 30%, with no way to apply a treaty rate after the fact.4Internal Revenue Service. Instructions for Form W-8BEN (Rev. October 2021)
You keep the completed W-8 in your own records. It is not sent to the IRS. Retain it as long as it may be relevant to your withholding liability.5Internal Revenue Service. Instructions for the Requester of Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY A W-8BEN stays valid from signing through the end of the third following calendar year, and the payee must give you a new form within 30 days if anything on it becomes inaccurate.4Internal Revenue Service. Instructions for Form W-8BEN (Rev. October 2021)
Which W-8 Version Applies
- W-8BEN is used by nonresident alien individuals to certify foreign status and claim treaty benefits on US-source income like royalties, interest, or service fees.
- W-8BEN-E is used by foreign entities such as corporations, partnerships, and trusts, and also captures the entity’s FATCA classification.6Internal Revenue Service. Instructions for Form W-8BEN-E
- W-8ECI is used when the income is effectively connected with a US trade or business. A valid W-8ECI relieves you of the flat-rate withholding because the payee will report and pay tax on the income directly through a US return.
To claim a treaty rate, the payee must include a US taxpayer identification number on the form. If they don’t have one, they can apply for an ITIN using Form W-7. That’s their step to take, not yours, but it can hold up the paperwork, so raise it early.
Check Whether the Income Is Even US-Source
None of this applies if the income is foreign-source. No withholding, no 1042-S. This is where payers make expensive mistakes in both directions.
The sourcing rules run by income type:
- Personal services are sourced where the work is physically performed, regardless of where the contract was signed or where payment originates. A foreign freelancer doing all their work from London is earning foreign-source income even though a US company sent the money.7Internal Revenue Service. Source of Income – Personal Service Income
- Interest is generally sourced to the residence of the payer. Interest from a US corporation or on a US bank deposit is US-source.
- Dividends are sourced to the payer’s country of incorporation. A US corporation’s dividends are US-source.
- Rents and royalties are sourced where the property is located or used. Royalties for a patent used in the United States are US-source.8Office of the Law Revision Counsel. 26 US Code 861 – Income From Sources Within the United States
When services are performed partly in the US and partly abroad, allocate by time. Divide days worked in the US by total days of service, multiply by total compensation, and withhold only on the US portion.7Internal Revenue Service. Source of Income – Personal Service Income
How Much to Withhold
Federal law requires you to withhold 30% of any US-source payment to a nonresident alien.9Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens This applies to what the IRS calls “fixed, determinable, annual, or periodical” (FDAP) income, which covers most passive payments and many service fees: interest, dividends, rents, royalties, and payments for services rendered.10Internal Revenue Service. Withholding on Specific Income Withhold at the time of payment, not later.
Tax treaties between the US and the payee’s home country can reduce that rate, sometimes to zero for interest and royalties, commonly to 15% for dividends. The exact reduction depends on the specific treaty and the type of income. The payee must cite the relevant treaty article on their W-8, and you should confirm the treaty exists and covers that income type before applying anything below 30%.11Internal Revenue Service. Federal Income Tax Withholding and Reporting on Other Kinds of US Source Income Paid to Nonresident Aliens
Report on Form 1042-S, Not a 1099
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 type of income (identified by 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.12Internal Revenue Service. 2026 Instructions for Form 1042-S
Alongside the 1042-S forms, file Form 1042, the annual withholding tax return that reconciles all foreign-payee withholding for the year. The total on Form 1042 must match the sum of withholding reported across all your 1042-S forms.13Internal Revenue Service. Instructions for Form 1042-S (2026)
Form 1042 and all Forms 1042-S are due by March 15 of the year following payment. You must also furnish each payee their copy of the 1042-S by that same date so they can claim credit for the withheld tax on their own return.13Internal Revenue Service. Instructions for Form 1042-S (2026)
If you file 10 or more information returns of any kind during the calendar year, you must file electronically. The threshold is an aggregate count across return types, including 1042-S, 1099, and W-2 forms.14Internal Revenue Service. Topic No. 801, Who Must File Information Returns Electronically Starting with filing season 2027 (tax year 2026), the IRS is retiring the legacy FIRE system, and the Information Returns Intake System (IRIS) becomes the sole electronic filing platform.15Internal Revenue Service. Filing Information Returns Electronically (FIRE) If you have been using FIRE, set up an IRIS account well before the deadline.
What It Costs You to Get This Wrong
Penalties hit from two directions.
First, if you failed to withhold, you owe the tax yourself. Section 1461 makes the withholding agent personally liable for every dollar that should have been withheld, plus interest and penalties. Using a payroll service or agent does not shield you; their failure is treated as yours.2Office of the Law Revision Counsel. 26 US Code 1461 – Liability for Withheld Tax Even if the foreign payee later files a US return and pays the tax themselves, you remain on the hook for interest and penalties tied to the original failure. This is the single biggest reason to collect the W-8 before you pay.
Second, per-form penalties apply for late, incorrect, or missing 1042-S filings, tiered by how fast you fix the problem:16Office of the Law Revision Counsel. 26 USC 6721 – Failure to File Correct Information Returns
- Corrected within 30 days: $50 per return, capped at $500,000 per year.
- Corrected by August 1: $100 per return, capped at $1,500,000 per year.
- Not corrected or never filed: $250 per return, capped at $3,000,000 per year.
These are statutory base amounts and the IRS adjusts them annually for inflation. For returns due in calendar year 2027 (covering tax year 2026), the adjusted general penalty is $340 per return, and separate penalties in the same range apply for failing to furnish a correct 1042-S to the payee.17Internal Revenue Service. Penalties Related to Form 1042-S
If the IRS determines you intentionally disregarded the filing requirements, the penalty jumps to $630 per form or 10% of the amount that should have been reported, whichever is greater, with no annual cap.17Internal Revenue Service. Penalties Related to Form 1042-S
The practical workflow that keeps you out of trouble is short: verify the payee’s status before the first payment, get the right W-8 on file, confirm whether the income is US-source, apply the correct treaty rate or the default 30%, and file the 1042 and 1042-S set by March 15. A 1099 belongs in this process only if you’re dealing with the H-2A exception or you’ve confirmed the payee is actually a US person.