A Foreign Contractor Received a U.S. Form 1099-NEC. Did They Actually Owe U.S. Tax?

She had never lived in the United States. A U.S. agency she worked for remotely had issued the form.

The client's situation

The client is a graphic designer living in Latin America. For most of the year she designed marketing materials for a U.S. agency, working entirely from her home office. She is not a U.S. citizen, does not hold a green card and did not travel to the United States during the year. At onboarding, the agency asked her to fill in a Form W-9, which she did, leaving the taxpayer ID line blank.

What went wrong

Form W-9 is meant for U.S. persons. Because the agency had a W-9 on file, its system treated her as a U.S. contractor and issued a Form 1099-NEC at year-end. The paperwork suggested U.S.-taxable income that, under her facts, likely did not exist.

The tax or reporting requirement

A nonresident alien is generally taxed in the United States only on U.S.-source income and income connected with a U.S. business. Compensation for services is generally sourced where the services are performed. Work performed entirely outside the United States is generally foreign-source income, which is not subject to U.S. income tax for a nonresident, and U.S. self-employment tax generally does not apply to nonresident aliens.

The correct form for a foreign contractor to give a U.S. payer is generally Form W-8BEN, which certifies foreign status. Payments to a nonresident for services performed outside the United States are generally not reported on Form 1099-NEC.

The potential IRS exposure

The risk here was mostly confusion, not tax. Left alone, the 1099-NEC could lead to IRS correspondence or to the client filing a U.S. return she did not need. In other situations — for example, if a nonresident performs part of the work while physically in the United States — some of the income can be U.S.-taxable, so the facts must be checked rather than assumed.

How Chirino USA analyzed the situation

We confirmed three facts: that she was a nonresident alien (no green card and no days in the United States, so the substantial presence test was not met), that every hour of work was performed outside the United States, and that she had no U.S. office or agent. Under those facts, the payments were foreign-source and she had no U.S. income tax filing requirement for that income.

How we addressed the issue

We prepared a short letter for the agency explaining the error and asked her to provide a completed Form W-8BEN. The agency then corrected its information return filing and updated her vendor profile so it would not issue a 1099-NEC in future years. We also reminded her that the income is still taxable in her country of residence and should be reported there.

The result

The agency corrected its records, she keeps a copy of the W-8BEN and our letter in her files, and no U.S. return was needed for the year. If she ever plans to work while visiting the United States, we will review that period separately.

What other taxpayers in similar situations should know

• Receiving a 1099-NEC does not by itself mean you owe U.S. tax.
• Foreign contractors should generally give U.S. clients a Form W-8BEN, not a W-9.
• Where the work is physically performed matters a great deal.
• Any IRS letter that does arrive should be answered, not ignored.

How Chirino USA can help

Chirino USA Accountants & Advisors specializes in U.S. international tax matters for foreign individuals, foreign-owned U.S. businesses, and Americans in the U.S. and abroad. If your situation sounds similar, we can review what was filed, identify any exposure, and help you decide on the appropriate next step. You can email us or message us on WhatsApp, in English or Spanish.

Sources and official references

• IRS — Taxation of Nonresident Aliens
• IRS — About Form W-8BEN
• IRS — Substantial Presence Test