Foreign companies almost never issue 1099s to the US contractors, freelancers, or investors they pay. A company with no US office, no US bank account, and no US employees has little practical reason to file American information returns, and the IRS has no realistic way to make it. That silence changes nothing about your tax bill. Every dollar you receive from a foreign payer is reportable on your federal return, and because nobody withheld anything, the job of tracking, converting, and paying falls entirely on you.
The Narrow Cases Where a Foreign Entity Must File
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 practice, the rule bites only when a foreign entity has enough US connection to be treated as a US payer: a controlled foreign corporation, a foreign partnership where US partners hold more than half the gross income from a US trade or business, a foreign person deriving 50% or more of gross income effectively connected with a US trade or business, or a US branch of a foreign financial institution.1Internal Revenue Service. General Instructions for Certain Information Returns (2025)
The most common real-world version is a foreign parent that pays you through a US subsidiary. That subsidiary is a US corporation and files a 1099-NEC for nonemployee compensation of $600 or more, exactly like any other domestic business. If your payer is genuinely offshore, though, expect nothing in the mail. Report the income anyway.
Reporting Service Income From a Foreign Client
Payments you earn as an independent contractor for a foreign client are self-employment income. Report gross receipts on Schedule C (Form 1040), 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 gets taxed twice: once at your ordinary income rate, and again by self-employment tax on Schedule SE.
Self-employment tax is 15.3% combined. The 12.4% Social Security portion applies to net earnings up to $184,500 in 2026; the 2.9% Medicare portion has no cap.3Internal Revenue Service. Self-employment Tax4Social Security Administration. Contribution and Benefit Base Keep contracts, invoices, and bank statements for every payment. Without a 1099 to corroborate the number, your records are the whole audit trail.
If you’re working for a company in a country that also charges social security on your earnings, check whether the US has a totalization agreement with that country. These agreements assign you to one system so you’re not paying both, and a certificate of coverage from the foreign social security agency is what documents an exemption from US self-employment tax.5Social Security Administration. U.S. International Social Security Agreements
Reporting Passive Income From Foreign Sources
Interest and dividends from foreign sources go on Schedule B (Form 1040) if your total taxable interest or ordinary dividends exceed $1,500, or if you have a financial interest in a foreign account.6Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends Royalties from foreign use of your intellectual property go on Schedule E.7Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss Getting the category right matters because it drives which foreign tax credit basket the income sits in and whether a treaty applies.
Quarterly Estimated Taxes: The Biggest Trap
A US employer withholds income tax and FICA from every paycheck. A foreign payer does neither. 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 in the prior 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 fluctuates, the annualized-income method on Form 2210, Schedule AI, lets you match payments to the quarters you actually earned the money instead of spreading them evenly. The first year you take on foreign work is the riskiest: no prior-year tax to anchor a safe harbor, and no withholding on anything coming in.
Converting Foreign Currency
All income on your US return must be in dollars. The IRS requires you to convert each payment using the spot rate on the date you received it.10Internal Revenue Service. Foreign Currency and Currency Exchange Rates If you receive many small payments through the year, a consistent yearly average rate is acceptable. The IRS publishes yearly average rates but does not mandate a specific source; it accepts any posted rate applied 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 draws audit adjustments. Document the rate source you used for every transaction.
Claiming a Credit When the Foreign Country Withheld Tax
Many foreign countries withhold tax on payments leaving their borders. When that happens, report the gross amount (the full payment before the foreign government’s cut) on your US return and claim a foreign tax credit for what you paid abroad. The credit offsets your US tax dollar-for-dollar, up to a limit.12Internal Revenue Service. Foreign Tax Credit
That limit is your total US tax liability multiplied by foreign-source taxable income over worldwide taxable income. It stops you from using taxes paid on high-taxed foreign income to erase US tax on your domestic earnings.13Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit
The normal route is Form 1116. A simplified election lets you skip it if all three of these are true: all your foreign-source income was passive, all of it was reported on payee statements such as a 1099-DIV or 1099-INT, and your total creditable foreign taxes were $300 or less ($600 on a joint return). If you qualify, enter the credit directly on Schedule 3 of your 1040.14Internal Revenue Service. Instructions for Form 1116 (2025)
If a US tax treaty is what’s reducing or eliminating tax on your foreign income, you may also need to disclose that position on Form 8833. Missing it when required carries a separate penalty per undisclosed position.15Internal Revenue Service. About Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
Foreign Account Disclosures: FBAR and Form 8938
Getting paid by a foreign company often means holding a foreign bank account, and that triggers reporting duties 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 15.16FinCEN.gov. Report Foreign Bank and Financial Accounts The $10,000 is an aggregate across all accounts, not a per-account figure. A checking account with $6,000 and a savings account with $5,000 crosses the line.
FBAR penalties are steep. Non-willful violations run up to $10,000 per account per year. Willful violations jump to the greater of $100,000 or 50% of the account balance, and courts have held that reckless disregard qualifies as willful.
Form 8938 (FATCA)
FATCA imposes a separate requirement for “specified foreign financial assets,” including bank accounts, foreign stocks, partnership interests, and financial instruments with foreign counterparties. Thresholds depend on where you live and your filing status:17Internal 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 during the year.
- Living in the US, married filing jointly: total over $100,000 on the last day or $150,000 at any point.
- Living abroad, unmarried: total over $200,000 on the last day or $300,000 at any point.
- Living abroad, married filing jointly: total over $400,000 on the last day or $600,000 at any point.
FBAR and Form 8938 are not interchangeable. You may need to file both. They cover overlapping but distinct assets, go to different agencies, and carry independent penalties.18Internal Revenue Service. Basic Questions and Answers on Form 8938
What Happens If You Don’t Report
The missing 1099 sometimes creates the impression that nobody is watching. That has gotten less true. FATCA requires foreign financial institutions in participating countries to report US account holders directly to the IRS, so the agency may already know about your account before you file.
Failing to report foreign income exposes you to accuracy-related penalties (typically 20% of the underpayment), potential fraud penalties (up to 75% in extreme cases), plus the FBAR and FATCA penalties above and interest running from the original due date. Taxpayers who come forward voluntarily before an audit begins have historically received better terms than those caught first. If you’ve fallen behind, getting current earlier is always cheaper than waiting.