An affiliate or creator network paying people in other countries has two questions, and they are answered in order. First, where is the work performed: a commission or fee for work done entirely outside the US is foreign-source, nothing is withheld, and no Form 1042-S is filed. Second, what is the payment for: a fee for the use of a work with a US audience is a royalty sourced in the US, 30% by default, reduced only by a treaty claim on a valid W-8. Collect the W-8 from every foreign payee either way. The payor keeps it on file; it is never sent to the IRS.
- Foreign individual: W-8BEN. Foreign company or other entity: W-8BEN-E. US person, wherever they live: W-9.
- Services are sourced where performed (IRC §861(a)(3), §862(a)(3)). Publication 515 puts it in one sentence: a payment is not subject to withholding if it is compensation for personal services performed outside the United States.
- Royalties are sourced where the work is used (IRC §861(a)(4)): US-source when the audience is in the US.
- Paying through a processor, or from a US LLC owned abroad, does not change who the withholding agent is (Treas. Reg. §1.1441-7(a)(1)).
A network that pays affiliates, or an agency that pays creators, hits the same wall the first time a payee lives outside the United States. The onboarding form asks for a W-9, and the payee cannot complete one. The questions that follow are the same in every thread: which W-8, whether to withhold 30% from the payout, whether the payee should leave the treaty section blank, and whether paying through a payment processor changes any of it. This guide answers them in the order the rules actually run.
1099 for foreign contractors: why the W-9 fork comes first
The 1099 is a US-person form. A payee who is a US citizen, a US resident, or a US entity gives you a W-9 and lives in the 1099 world: no withholding by default, a 1099-NEC when the year's payments reach the reporting threshold. That is true of a US citizen living in Lisbon. A US LLC is not an automatic W-9 case. A single-member LLC that has not elected corporate treatment is disregarded, so the certificate follows its owner, and a foreign owner gives a W-8BEN or W-8BEN-E instead. A multi-member LLC, or one taxed as a corporation, is a US entity in its own right and gives the W-9. Which LLC you are paying is worth settling before the first payout, and W-9 or W-8BEN walks the test.
A foreign payee cannot certify US status, so there is no 1099 for a foreign contractor, affiliate, or creator. The foreign payee gives you a W-8, and the payment moves into a different regime: a possible 30% withholding on US-source amounts (IRC §§1441–1442), and reporting on Form 1042-S rather than a 1099. Which W-8 is the easy part. A foreign individual, including a sole proprietor who invoices under a trade name, gives a W-8BEN. A foreign company, partnership, or other entity gives a W-8BEN-E. The other W-8 forms (W-8ECI, W-8IMY, W-8EXP) are not the forms an affiliate or creator network ordinarily collects.
Do I need to withhold taxes for foreign contractors: the source rule decides
Here is the order the rules run. The 30% default under sections 1441 and 1442 applies only to US-source amounts. Whether an amount is US-source depends on what it pays for.
A commission for referrals, or a fee for making content, is compensation for services. Services are sourced where the work is performed (IRC §861(a)(3)), and services performed outside the United States produce foreign-source income (IRC §862(a)(3)). Publication 515 states the consequence in one sentence: a payment is not subject to withholding if it is compensation for independent personal services performed outside the United States. An affiliate in Brazil who places links on a site she runs from Brazil, or a creator in Manila who films and edits at home, is performing the work where they sit. The commission or fee is foreign-source. Nothing is withheld, and because no US-source amount was paid, no Form 1042-S is filed.
Two facts change that answer, and the file should record which one applies.
- Work performed in the US. Days an affiliate or creator spends working in the United States produce US-source income for those days. A creator flown to a US shoot, a speaker at a US event, or an affiliate who runs a US pop-up has US-source income for that share, allocated by days or by contract, withheld at 30% unless a treaty exemption is claimed on Form 8233 (individuals) or the W-8BEN-E's Business Profits claim (entities). The rest stays foreign-source.
- Payment for the use of a work, not for the work. A fee for the right to run a creator's video in US advertising, to license their content or likeness, or to boost their post to a US audience is a royalty, and royalties are sourced where the work is used (IRC §861(a)(4)). A US audience makes the fee US-source even though the creator never left home: 30% by default, or the treaty royalty rate, often 0%, if the W-8 claims it. The same contract frequently carries both a production fee (services, foreign-source) and a usage-rights fee (royalty, US-source), and they take different answers. The label on the invoice does not decide which is which. A network that pays a creator a monthly "commission" while its US merchants run that creator's videos as paid ads under the creator's own handle is paying for whitelisting, which is the use of the creator's content and likeness with a US audience. That is a royalty sourced in the US however the line item is named, and it carries the 30% default and the 1042-S. The worked example below has one of these.
Some large platforms withhold on every payout to a foreign affiliate unless a treaty claim is on file. That is a conservative operating choice, and a payor may make it, but it is not what the source rule requires for work performed abroad. A payor who withholds 30% from a Brazilian affiliate's commission for Brazilian work has over-withheld, and the affiliate recovers it only by filing a US return.
What the W-8 does when nothing is withheld
The W-8 stays in the payor's file and is never sent to the IRS. Part I certifies foreign status, which keeps the payee out of the 1099 and backup-withholding rules and supports every no-withholding position if the file is examined.
Part II is the treaty claim, and it has a job only when there is a US-source amount for a treaty to reduce. For a foreign-source commission, Part II does nothing, and a payee who leaves it blank has made no error. For a US-source usage-rights fee, Part II is where the payee names the treaty country, the article, and the rate, and the reduced rate exists only if that claim is made. An affiliate who asks whether to "leave Part II blank and receive the full payout" has the order backwards: whether the payout is US-source comes first, and the facts above decide that, not the form.
Alongside the W-8, keep a one-line record of where the work is performed. The W-8 proves who the payee is. The location record proves why nothing was withheld. A file with neither is an undocumented payee, and an undocumented payee of a US-source amount is withheld at 30% under the presumption rules (Treas. Reg. §1.1441-1(b)(3)). The examination day itself, and what the file has to hold, are walked through in what the W-8 does in the file.
Paying through a processor does not move the obligation
A network that pays its affiliates through a payment processor, a payouts platform, or a wallet service is still the withholding agent: it decides who gets paid and how much and funds the payout, and the regulation attaches the obligation to that control, not to the account the money leaves from (Treas. Reg. §1.1441-7(a)(1)). Some payout platforms do collect W-8s and file the 1042-S as part of their service. Many move money and nothing else. Read the agreement, and if the platform is not doing it, you are. The same rule reaches a payout made from a US LLC owned by a foreign person. The obligation attaches to the person with control of the payment, and a single-member LLC that has not elected corporate treatment is disregarded rather than a person separate from its owner, so the duty sits with that owner and does not disappear into the wrapper. The rule also makes an agency paying creators on a client's behalf a withholding agent alongside the client. The regulation and the shared-liability point are set out in who the withholding agent is when you pay on a client's behalf.
The same payout, payment by payment
| Payment | Payee gives | Source rule | Withholding | Form 1042-S |
|---|---|---|---|---|
| Referral commission to an affiliate working from Brazil | W-8BEN | Where performed: foreign | None | Not required |
| Content fee to a creator who filmed and edited at home abroad | W-8BEN (or W-8BEN-E for a company) | Where performed: foreign | None | Not required |
| Usage-rights or whitelisting fee for a US audience | W-8BEN / W-8BEN-E with Part II | Where used: US | 30%, or the treaty royalty rate claimed | Required, even at 0% |
| Creator's fee for a shoot or appearance in the US | Form 8233 (individual) or W-8BEN-E Business Profits (entity) | Where performed: US share | 30% on the US share unless exempt | Required for the US share |
| Commission or fee to a US citizen living abroad | W-9 | n/a: US person | None (1099 regime) | No; 1099-NEC at the threshold |
| Commission or fee to a US LLC with one foreign owner and no corporate election | The owner's W-8BEN or W-8BEN-E: the LLC is disregarded | The owner's rule, as in the rows above | As in the rows above, by income type | As in the rows above |
| Commission or fee to a US LLC that is multi-member or taxed as a corporation | W-9 (it is a US entity) | n/a: US person | None (1099 regime) | No; 1099-NEC at the threshold |
For a specific payout, the tool walks this table's rows in order and returns which one applies, with the citation.
Worked example: one network, five payees
Kestrel Partners, a US affiliate network, runs a month-end payout of commissions and content fees.
- Luisa, in São Paulo, earned $2,400 in referral commissions from links on a site she runs from Brazil. Services performed outside the US. Foreign-source, no withholding, no 1042-S. Kestrel has her W-8BEN and a line in its records that her work is performed in Brazil.
- Dayo, in Lagos, is paid $1,500 for three product videos made at home. Same analysis: foreign-source services, nothing withheld, W-8BEN on file. Nigeria has no income tax treaty with the United States, and it does not matter, because a treaty reduces US-source withholding and there is no US-source amount here to reduce.
- Dayo is also paid $900 so the network's US merchants can run his videos in their US ads for six months. A royalty for use in the US. US-source. With no treaty, 30%: $270 withheld, reported on a 1042-S. The two Dayo payments sit side by side in the same payout with opposite answers.
- Mireille, in Lyon, operates through her own SARL and earned $3,100 in commissions. The payee is an entity: W-8BEN-E, not W-8BEN. Work performed in France: foreign-source, nothing withheld, no 1042-S.
- Ben, a US citizen living in Lisbon, earned $800. US person by citizenship wherever he lives: W-9, no withholding, and a 1099-NEC if his year's payments reach the reporting threshold.
- Priya, in Mumbai, is paid a flat $1,200 "commission" each month under a creator agreement, and the network's US merchants run her product videos as paid ads under her own handle. The invoice says commission, but she is not being paid for referrals she generated from India. She is being paid so the merchants can use her content and her name in front of a US audience, which is whitelisting, and whitelisting is a royalty sourced where the content is used. US-source. Default 30%: $360 withheld each month, or the US–India treaty royalty rate if her W-8BEN Part II claims it, reported on a 1042-S either way. If part of the $1,200 genuinely pays for referral activity she performs in India, the agreement should say how much, and that part is foreign-source services. An undivided "commission" that is mostly whitelisting takes the royalty answer in full.
Five payees, six payments, one payout run, and the withholding falls on the two payments that bought the use of something in the United States, including the one that was labelled a commission. Source first, then form: that is the sequence the tool runs for a payout like Kestrel's, and the rate, the form, and the citation come out the other end.
Why it matters
Networks and agencies pay many small amounts to many foreign people, so the mistakes compound. Issuing 1099s to foreign payees misfiles every one of them. Withholding 30% from commissions for work performed abroad over-withholds every month and sends every affiliate to a US refund claim. Collecting nothing because "they are abroad" leaves the file undefended on the day a merchant licenses a video for US ads, and the 30% not withheld on that US-source amount is the payor's liability (IRC §1461), with penalties on the unfiled 1042-S forms (IRC §§6721–6722). The discipline is small per payee: a W-8 from every foreign payee, a note of where the work is performed, and a split of any payment that buys the use of a work for a US audience. Run that split for a specific payout and the determination comes out with the source rule, the rate, and the citation attached.
Working out what to withhold on a real payment right now?
The tool runs this exact sequence for one payment: who the payee is, where the work was done, what the treaty says. It returns the rate, the form, and the citation for the file.
7 days free, no card, 5 determinations
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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Working out what to withhold on a real payment right now?
The tool runs this exact sequence for one payment: who the payee is, where the work was done, what the treaty says. It returns the rate, the form, and the citation for the file.
7 days free, no card, 5 determinations
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.