A non-resident has no payroll — which simplifies things
Paying people is usually framed as a choice between an employee and a contractor. For a domestic business that's true, and the IRS draws the line using the common-law control test — across three groups of factors: behavioral control, financial control, and the type of relationship (see the IRS page "Independent contractor (self-employed) or employee?"). No single factor decides it; the whole relationship is weighed.
But for a non-resident founder, one half of that choice effectively drops out. An employee means US payroll: Form W-2, state registrations, wage withholding, and employer taxes. A non-resident owner cannot put themselves on a W-2 from their own company: when an LLC has a single owner, it is by default "disregarded" for tax purposes, and money paid to the owner is a draw of their own funds, not a wage. So in a non-resident's real practice, everyone paid for work is a contractor, not an employee.
That leaves one question that decides all the paperwork that follows: is your contractor a US person or a foreign person? And for a foreign contractor, one clarifier — where the work is physically performed. We'll walk through both, using the IRS's own language.
A US contractor: Form W-9 and the 1099-NEC
If the contractor is a US taxpayer (a citizen, a green-card holder, or a US company), the sequence is short.
Before paying, you request Form W-9. It is an internal document: the contractor gives their name and taxpayer number (SSN or EIN) and certifies US taxpayer status. You do not send it to the IRS — you keep it on file.
After year-end, payments for services are reported on Form 1099-NEC (nonemployee compensation), with a copy to the IRS. The reporting threshold recently changed: under the IRS Instructions for Forms 1099-MISC and 1099-NEC it has been raised to $2,000 per year (previously $600) and is indexed going forward. You do not withhold tax for the contractor — they compute and pay it themselves. Your job is to collect the W-9 up front and issue the 1099-NEC on time.
A foreign contractor: Form W-8BEN
This is where non-residents get confused most often, because much of the advice online is written for US payees and does not apply to a foreign one.
From a foreign contractor you request not a W-9 but Form W-8BEN — for an individual — or W-8BEN-E — for a foreign company. As the IRS describes it ("About Form W-8BEN"), a foreign beneficial owner of the income gives this form to the payer or withholding agent, and it establishes their status as a foreign person. Like the W-9, you keep it on file rather than filing it with the IRS.
Then the source-of-income rule kicks in, and it is the key to everything. The IRS states it plainly in "Source of Income — Personal Service Income": the source of personal-services income is generally determined by where the services are performed — regardless of where the contract was made, where the payer is, or where payment comes from. The consequence: if a foreign contractor performs the work physically outside the US, the pay is foreign-source income, US withholding at source generally does not apply, and no 1099 is issued. Form W-8BEN is what documents why the payment legitimately goes out without withholding and without a 1099.
In short. US contractor → request W-9, issue 1099-NEC after year-end ($2,000 threshold per the IRS instructions). Foreign contractor working abroad → request W-8BEN (or W-8BEN-E for a company); no withholding and no 1099. An employee on W-2 and payroll is not a non-resident's path. This is general information; the exact set of forms and obligations depends on your situation and is confirmed case by case.
The exception: a foreign contractor who worked inside the US
The source-of-income rule cuts both ways. If a foreign contractor performed services physically on US soil, that portion of the pay becomes US-source income. Such income is subject to withholding at source: under Chapter 3 rules (IRC §§1441–1443, see IRS Publication 515, "Withholding of Tax on Nonresident Aliens and Foreign Entities"), FDAP-type payments of US-source income to foreign persons are withheld at a default 30%, which a tax treaty with the contractor's country may reduce. These payments are reported not on a 1099 but on Form 1042-S ("Foreign Person's U.S. Source Income Subject to Withholding").
The "worked abroad vs. worked in the US" boundary is where most mistakes happen: nothing is withheld on a payment where part of the work happened on US soil; or, the reverse, tax is withheld from a contractor who was never in the US. For mixed cases the IRS allocates by time — by the share of days worked in the US. So "where the work was physically performed" is not a formality but the first question for every foreign contractor.
Where non-residents get it wrong most often
Issuing a 1099 to a foreign person. The 1099 is a reporting tool for US taxpayers; a foreign recipient is documented with a W-8BEN and, where there is US-source income, Form 1042-S.
Paying with no documentation. With a single contractor it feels unnecessary; once there are several payees and money moves from personal accounts, there is nothing to substantiate the nature of each payment.
Mistaking the recipient's status. The same freelancer, if they have a US LLC, is a US contractor on a W-9 — not a foreign person on a W-8BEN. That changes both the form and whether a report is due.
How Edeal helps
The logic above is simple right up to the point where there are several payees in different countries with different statuses. Then the "simple rule" fragments into many small decisions — and that is the part Edeal takes on.
We map the real picture: who the payees are, where they physically work, whether they are US or foreign, and whether any of them has their own US company. For each, the correct form is identified, documents are collected before payment, payouts are run from the company's business account rather than a personal card, and year-end reporting (including the 1099-NEC and, where required, the 1042-S) is closed on time. The company, the EIN, the account, and the bookkeeping run as a single line. Edeal offers no workarounds — the goal is that each contractor is documented as exactly what they are, and that payments hold up under any later review.
Growing a team and paying contractors abroad?
On a consultation we'll sort out which of your payees is a US contractor and which is foreign, and which form each one needs. If it makes sense, we'll set up the company, EIN, and payouts end to end and take the bookkeeping onto ongoing support, so reporting never arrives as a surprise.
Frequently asked questions
Can a non-resident put an employee on payroll from their LLC?
A non-resident owner does not put themselves on a W-2 from their own company: with a single owner, an LLC is by default a disregarded entity, and money paid to the owner is a draw, not a wage. In practice a non-resident pays people through contractor arrangements, so the question comes down to the contractor's status — US or foreign.
Which form do you request from a foreign contractor?
From an individual, a W-8BEN; from a foreign company, a W-8BEN-E. Per the IRS, it establishes the foreign beneficial owner's status and is kept on file by the payer. If the contractor works outside the US, the income is foreign-source (IRS, "Source of Income — Personal Service Income"), and there is generally no withholding and no 1099.
Do you issue a 1099 to a freelancer in another country?
Generally no: the 1099 is meant for US taxpayers. A foreign contractor is documented with a W-8BEN, and where there is US-source income, with withholding and Form 1042-S (IRS Publication 515). The exact treatment depends on where the work was performed and is determined case by case.