Every US business knows the 1099 drill: pay a contractor above the reporting threshold, collect a W-9, send a 1099-NEC in January. (That threshold is $2,000 for payments made in 2026, raised from the long-standing $600, and it adjusts for inflation beginning in 2027.) So when the contractor is foreign, the natural question is the one payors actually type into Google: do I issue a 1099 to a foreign contractor? The answer is no, and the form that replaces it runs on entirely different rules.
- Form 1099-NEC reports payments to US persons: citizens, resident aliens, and US entities, documented with a W-9.
- Form 1042-S reports US-source payments to foreign persons, documented with a W-8, and it travels with its own annual return, Form 1042.
The two forms belong to two separate reporting regimes with different withholding rules, different deadlines, and different failure modes. Putting a foreign contractor into the 1099 system is not a harmless label swap. It misses a filing the IRS expects, and in the worst case it applies the wrong withholding at the wrong rate. This guide draws the line, walks the trap that catches the most payors (reporting when the withholding is zero), and shows when a foreign contractor gets neither form.
The IRS says it in one sentence, in the 1099-NEC instructions themselves: "Use Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for payments to nonresident aliens." Deadlines differ too: 1099-NEC is due January 31, Form 1042-S is due March 15.
The core distinction: which regime the payee is in
The dividing line is not the kind of work or the size of the payment. The line is who the payee is, and the certificate you collected decides it.
A payee who gives you a W-9 has certified they are a US person, and US persons live in the 1099 world: no withholding by default, backup withholding at 24% only if the TIN is missing or wrong, and a 1099-NEC at the current $2,000 reporting threshold.
A payee who gives you a W-8BEN or W-8BEN-E has certified they are foreign, and foreign payees live in the other world. There, US-source payments face 30% withholding (IRC §1441) unless a treaty or the Code reduces it, the amounts and the withholding are reported on Form 1042-S, and the 1042-S is summarized on Form 1042, the annual return. The 1042-S instructions put the duty on every withholding agent, defined as "any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding under chapter 3 who can disburse or make payments of an amount subject to withholding, or who makes a withholdable payment under chapter 4." If you are paying, that is you.
One payee is in exactly one regime for a given payment. There is no payment that gets both a 1099-NEC and a 1042-S, and there is no foreign contractor who belongs on a 1099-NEC.
The trap that catches the most payors: 0% withheld still means a filing
Payors who learn that a treaty (or the sourcing rules) reduces the withholding to nothing often conclude the paperwork disappears with the tax. For US-source payments, it does not. The 1042-S instructions are explicit: "You must file a Form 1042-S even if you did not withhold tax under chapter 3 because the income was exempt from tax under a U.S. tax treaty or the Internal Revenue Code."
So a UK company's US-source royalty at a treaty rate of 0% still generates a 1042-S showing the gross amount, the exemption, and zero tax. The reporting duty tracks the payment, not the withholding. A payor who withheld nothing and filed nothing has not made one mistake but two.
When your foreign contractor gets neither form
Here the sourcing rule does real work. Compensation for services is US-source only when the work is physically performed in the United States. A foreign contractor doing the entire engagement from their home country is earning foreign-source income, and foreign-source income paid to a foreign person is outside the 1042-S reporting regime entirely. No 1099-NEC, because the payee is not a US person. No 1042-S, because nothing US-source was paid.
What remains is the certificate. You should still collect the W-8BEN (or W-8BEN-E) and keep it on file, because it is the document that proves the payee is foreign and supports the no-reporting outcome. Without it, you are holding an undocumented payee and a presumption problem instead of a clean file.
Two boundary notes. Days the contractor works while physically in the US make that portion US-source, and the analysis changes. And purchases of goods are not withholdable payments at all, whoever the seller is: a foreign artist selling you a finished painting is outside both regimes.
Three more places the regimes get crossed
1. A 1099-NEC issued to a documented foreign person
It happens constantly: the bookkeeping system defaults every contractor into the 1099 pipeline, and a foreign contractor with a valid W-8BEN on file receives a 1099-NEC in January. The form is wrong, it confuses the payee into a filing posture that does not apply to them, and it does not satisfy any 1042-S duty that exists. The W-8 should route the payee out of the 1099 system the day it is collected.
2. "They refused the W-8, so I backup withheld 24%"
Backup withholding at 24% is a 1099-regime tool. A payee you know or presume to be foreign who refuses documentation is not a backup-withholding case. The undocumented-foreign default is 30%, reported on 1042-S. Applying 24% to a foreign payee both under-withholds and misfiles.
3. Filing the 1042-S without the 1042
The 1042-S is not a standalone form. The instructions pair them: "If you file Form 1042-S, you must also file Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons." The 1042 is the annual return that totals the year's withholding and reconciles the deposits. A payor who sends recipient copies but never files the annual return has left the job half done.
Comparison table
| Form 1099-NEC | Form 1042-S | |
|---|---|---|
| Payee | US person (citizen, resident alien, US entity) | Foreign person (individual or entity) |
| Certificate on file | W-9 | W-8BEN / W-8BEN-E (or other W-8) |
| Default withholding | None (24% backup withholding only on TIN failure) | 30% on US-source amounts (IRC §1441), reduced by treaty or Code |
| Report even at 0% withheld? | n/a | Yes, if the amount is US-source and reportable |
| Annual return pairing | None (Form 1096 transmittal for paper) | Form 1042 required |
| Deadline | January 31 | March 15 (IRS and recipient) |
| Foreign contractor working entirely abroad | Never | Not required (foreign-source), keep the W-8 on file |
Worked example: one agency, three contractors
Halstead Creative, a US design agency, pays three contractors $20,000 each in the same year:
- Priya, in Austin (US person). She gave a W-9. No withholding, and a 1099-NEC in January. The familiar case.
- Marco, in Brazil, working entirely from Brazil. He gave a W-8BEN. His services income is foreign-source because the work is performed outside the US, so there is no withholding and no form at all. The W-8BEN stays in the file as the proof.
- Elena, a UK photographer flown to New York for a shoot. Her fee is US-source because the work happened in the US. Absent a valid treaty claim on services (a Form 8233 matter, with its own mechanics), Halstead withholds 30% and reports the payment and the tax on a 1042-S, then files Form 1042 for the year. If a treaty exemption did apply, the withholding could fall to zero and the 1042-S would still be required.
Same payor, same amount, three different outcomes, because the regime follows the payee's status and the place of the work.
Why it matters
The 1099 question is usually the first tax question a payor asks about a foreign contractor, and both available wrong answers are expensive:
- Treating them as a 1099 case → wrong form, no 1042-S, and if withholding was due, the 30% liability sits with you as the withholding agent.
- Treating 0% as no-paperwork → an unfiled 1042-S and 1042 for a payment the IRS considers reportable.
- Skipping the W-8 because "nothing is due anyway" → an undocumented payee and no proof of the foreign status the whole no-withholding position rests on.
The certificate picks the regime, the regime picks the form, and the sourcing rule decides whether a form is due at all. Collect the right certificate first and the reporting follows.
This article is general information for US withholding agents, not legal or tax advice. Treaty positions turn on the payee's specific facts and the current treaty text. Confirm the analysis for your situation with a qualified tax advisor before relying on it.
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This article is for general educational purposes and is not legal or tax advice. Withholding outcomes depend on the specific facts of each payment. Consult a qualified tax professional before making withholding decisions.