IRS Form 1099 for Americans overseas and Foreign Contractors

Are you a freelancer staying overseas or an expat business individual? You have to deal with IRS Form 1099. This is an important tax document that is used to report payments. To get all the insightful updates on IRS Form 1099, stay tuned at USTAXFiling and continue to read till last so that you don’t miss out on anything!

As a freelancer staying overseas or an expat business individual, you might have to deal with the IRS Form 1099.

Form IRS 1099 is a vital tax document used to report payments that are made to independent contractors. If you are an individual contractor, your payer might fill out and send you a copy of this document, which you might use to report your self-employment income on your income tax return.

If it sounds complex, you don’t worry at all. We at USTAXFiling are here to clear up any confusion you might have. Here is what you must understand about 1099s for US citizens staying overseas.

Major facts

  • IRS Form 1099 is mainly used to report payments that are made to an individual contractor
  • Failing to file IRS Form 1099 as required might result in charges
  • Expat business individuals might have to file IRS Form 1099 when working with contractors overseas

Independent contractors and IRS Form 1099 NEC

There are many versions of IRS Form 1099, and each is used to report a different income type. In this scenario, we are referring to IRS Form 1099-NEC, which means Non-employee compensation. That is what individuals mean when they refer to IRS Form 1099.

IRS Form 1099- Non-employee compensation is primarily used to report payments that are made to an individual contractor. Individual contractors are self-employed workers who provide expert services to customers. They are not at all employees. Other terms that are related to individual contractors are:

  • Self-employed worker
  • Freelancer
  • 1099 contractor

Do you have to send IRS Form 1099 to a foreign contractor?

You might have to issue IRS Form 1099 to an individual contractor if you have paid them at least $600 in a single year and one of the following is true:

  • The individual contractor is considered a United States individual
  • The individual contractor is not a US individual but has performed at least part of their services within the United States.

If the individual contractor is not a US individual and did not carry out any of their services within the United States, you have to issue IRS Form 1099. Also, the foreign contractor might have to file and complete Form W-8 BEN.

1099s for US contractors overseas

If you are a US contractor staying abroad, you might not have to file IRS Form 1099. Also, you might receive a completed IRS Form 1099 from customers who paid you at least $600 with time. You might even use these IRS Forms to report your income across the globe on your US income tax return.

Foreign customers don’t need to send you an IRS Form 1099. In such a scenario, you are responsible for tracking your own income so you may report it correctly on your US income taxes.

As a US expat, it is necessary to remember that the Internal Revenue Service offers many tax advantages for US citizens staying overseas, such as:

  • Foreign tax credit
  • Foreign housing deduction
  • Foreign earned income exclusion

Using these income tax breaks, you may reduce what you owe in US income taxes or remove your US tax bill completely.

Form 1099 Penalties and Deadlines

If you have to file IRS Form 1099, you have to send it to an individual contractor and the Internal Revenue Service by 31st January. When you fail to file IRS Form 1099 on time, it might result in severe charges.

  • If you file within a month after the deadline, the standard charges are $50 for every late form. The maximum charges are $588,500 ($206,000 for small businesses)
  • If you file later after 1 August, the standard charge is $280 for every form. The maximum charges are $3,532,500 and $1,177,500 for small businesses.
  • If you file after 30 days after the deadline but before 1 August, the standard deadline is $110 for every late form. The maximum charges are $1,766,00 ($588,500 for every small business)

Important note

The Social Security Administration (SSA) determines a small business to be any business that has made $5 million or even less in average annual revenue for the last three financial years.

The above charges are applicable only to unintentional failure to file IRS Form 1099. If the Internal Revenue Service thinks that you refused to file purposely, the charge is $570 for every form with no maximum charges.

Employees vs. contractors overseas

As per the Internal Revenue Service, The general regulation is that a person is an individual contractor if the payer has the right to direct or control only the result of the work and not how it will be done and what might be done. This is in contrast to the workforce, who work under the complete direction and control of their employer.

There are some differences between the income tax obligations of an employer versus a prospect working with an individual contractor. Also, an employer should file an IRS Form W-2. Most importantly, employers do not have to file IRS Form 1099 to report payments that are made to a workforce.

Individual contractors should pay the US self-employment tax and should report their self-employment income. There are also necessary distinctions between how employees and individual contractors file income taxes while staying abroad. The workforce might report their salary and may have to pay only part of the workforce of the US Medicare tax and Social Security income tax on their business profits. 

Let us take a look at a few examples of employee income taxes and contractors for Americans staying overseas.

Example 1: Paying US Expat income taxes as a Contractor overseas

Employees vs. contractors overseas

US expats might have to be compliant with the country’s income tax and also US income tax as the US taxes all Green Card holders or US citizens (legal permanent residents) on income across the globe. For instance, let us say Ken expat contracts abroad and earns $60,000 of net self-employment income during the financial year. Ken is a Dubai resident from 1 January to 31 July of the financial year and in Singapore from 1 August to 31 December of the financial year.

For the $60,000*7/12 ($35000) earned while staying in Dubai, Ken is subject to no income tax in Dubai. Since Ken is staying in Singapore for less than 183 days in the year, $60,000*5/12 earned while in Singapore is only subject to a flat 15 percent non-resident income tax rate. So, the income tax payable in Singapore is $3750.

Using the foreign-earned income exclusion, Ken may exclude the complete $60,000 of net self-employment income from taxation. Also, Ken’s self-employment income is also subject to the self-employment US tax. This is due to the fact that the FEIE (Foreign earned income exclusion) is used to exclude income from income tax and cannot exclude income from the self-employment tax.

The self-employment tax formula is 15.3% of 92.35% of an individual’s income. In Ken’s case, he might pay 15.3% of ($60,000*92.35 percent). It comes to a total amount of $8478. So, Ken has a total income tax liability for the year that might be $12,228 ($8478 of self-employment US tax and $3750 of Singapore tax)

Example 2: Paying expat income taxes as an employee overseas

You must consider the similar example as above, but now, Ken is an employee of a foreign organization. In such a scenario, Ken might exclude the complete $60,000 of his salary from taxation of the US using the FEIE (Foreign earned income exclusion). And as he is an employee, he will not be subject to the self-employment US tax.

Expats who are employed by a foreign employer are not subject to Medicare taxes and US Social Security income. So, Ken has no income tax liability and only owes the Singaporean income tax of $3750

How to file IRS Form 1099

To file IRS Form 1099, you may start by collecting the details that you might have to fill in. It might include:

  • The individual contractor’s TIN (Taxpayer identification number)
  • Your address, phone number, and name
  • Your TIN (Taxpayer identification number) 
  • The independent contractor’s address, phone number and name
  • Any income taxes withheld from your payments
  • The complete amount that you paid to the individual contractor during the financial year.

Fill out IRS Form 1099

Once you have the complete details that you need at your fingertips, it is time to fill out the complete form. There are two copies of every Form 1099-NEC: it includes Copy A and Copy B. You have to fill both the entire copies with the same details.

Submit IRS Form 1099

Once you complete both copies of IRS Form 1099, you must submit Copy A to the Internal Revenue Service and Copy B to the individual contractor. When you submit Copy A to the Internal Revenue Service, you may file by mail or electronically. Both copies A and B are due by 31 January, regardless of whichever method you use. Electronic filing is recommended.

Pro tip

If you cannot make the 31 January deadline for IRS Form 1099, you might request a month extension by filing IRS Form 8809. Also, the extension is not at all automatic. You might have to explain why you cannot file on time.

Submit Form 1096 (If applicable).

When you file a physical copy of IRS Form 1099 with the Internal Revenue Service, you might also file and complete Form 1096. The Internal Revenue Service uses the form to track any physical 1099s you must file in a given financial year.

Repeat (If required)

If you have several individual contractors who meet the standards for IRS Form 1099, you have to complete and file a separate IRS Form 1099 for each one. To get more details, you may see the Form 1099-NEC offered on the IRS site.

Get Expert Assistance with your IRS Form 1099 as a US Citizen Overseas

In this article, we have discussed IRS Form 1099 as a US citizen overseas. Do you have any doubts? We at USTAXFiling have all the answers to your questions. In fact, we at USTAXFiling will prepare and make sure to file your US expat income taxes on your behalf. Our USTAXFiling experts are highly qualified and skilled to help you with income tax filing. Our USTAXFiling is available for you anytime to help you with income tax filing. If you need tax assistance, connect with us right away! Our USTAXFiling expert will take care of everything while you sit and enjoy doing your work without any worries!

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