Do I have to prepare a 1099-Misc for a foreign contractor who performed services related to a foreign rental property?

[view2 · Accepted solution]

As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required.

However (Treas. Reg. §1.1441-1(b)(3)), it is generally easier to  ask them to complete a Form W-8BEN.  By signing Form W-8BEN, the foreign contractor is certifying that he or she is not a U.S. person.

The Form W-8BEN is not filed with the I.R.S.  It is kept on file with the U.S. payor in case the U.S. payor is audited.  If audited, the Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.

[adamshrum]

ok, thanks for the great advice. I read somewhere that Elance/Odesk has the contractor fill out W-8BEN. I'm still confused though should I be reporting the expenses as contract labor or professional fees?

[goldenmodeling]

did you ever find this out?

[Anonymous]

also, interested in that follow-up. the W-8BEN and its instructions are also super confusing how is a contractor a beneficial owner?

[MusiCelt]

Would the same answer apply to a foreign freelancer hired to edit a manuscript? Thanks.

[drewja067]

This is from the IRS website:

“Nonemployee compensation paid to nonresident aliens is reported on Form 1042-S, Foreign Persons' U.S. Source Income Subject to Withholding (PDF), where some withholding may be required.

Similar to Form 1096, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (PDF), must be filed if Form 1042-S is required. For more information on withholding on payments to nonresident aliens, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities and Publication 901, U.S. Tax Treaties.”

There are links to these forms and more information the site. Link below.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/small-businesses-self-employed/reporting-payments-to-independent-cont...>

[sflybart]

Thanks 

[widjet]

This answer doesn't apply to the OP's question.  The OP's case involved a non-US person who performed services outside the US.  The forms you reference are only applicable when there is US sourced income.  It would appear in the OP's case that there is no US sourced income.