The short version
For US businesses hiring remote non-US contractors doing work outside the US:
- Collect W-8BEN before first payment
- Pay via Wise, PayPal, or bank wire
- Track payments on Schedule C Line 11
- Issue no 1099 and no 1042-S
- Contractor reports income in their own country
That's it for US tax compliance in the typical case.
The onboarding checklist
For each new international contractor:
- Contract/agreement — scope of work, payment terms, confirmation that work will be performed outside the US
- Form W-8BEN (or W-8BEN-E if entity) — signed and dated
- Payment details — Wise email, PayPal email, or bank account for wires
- ID verification — optional but protective; passport scan or government ID for high-value relationships
- Tax ID in their home country — optional; some countries issue TINs for cross-border invoicing
Why "work performed outside the US" matters
US tax law treats compensation for services based on where the service is physically performed, not where the payer is located. If a contractor never sets foot in the US while doing your work, their income is not US-source. No US tax, no US reporting requirements (beyond your own bookkeeping).
If they do come to the US — to visit for a project, attend a conference, meet you — any work performed here becomes US-source income. That's when 30% withholding and 1042-S filing enter the picture.
Add a line to contracts: "Contractor will perform all services while physically located outside the United States." Simple documentation that clarifies the tax treatment.
Payment methods compared
| Method | Fee to you | Fee to contractor | Speed | FX markup |
|---|---|---|---|---|
| Wise (business) | $0.50–$5 fixed | $0 | Minutes to hours | Mid-market + 0.4–0.6% |
| PayPal | ~4–5% + fixed fee | $0 if personal, ~3% business | Instant | +3–4% markup |
| Bank wire (SWIFT) | $15–45 | $10–30 | 1–5 business days | ~1–3% |
| Deel/Remote | $0 for contractors | $0 | Hours to days | Similar to Wise |
Full payment method comparison.
Country-specific notes
Thailand
- Thai contractors often have PromptPay (Thailand's ACH system)
- Wise supports direct transfers to Thai banks
- Popular for: design, marketing, admin, development
- Average hourly rate: $8–$25/hr
Philippines
- Long history of US outsourcing → very English-capable workforce
- Wise, PayPal, and Payoneer all common
- Popular for: customer support, virtual assistants, development, accounting
- Average hourly rate: $5–$30/hr depending on skill
Colombia
- Time zone overlap with US (Bogotá = Eastern Time)
- Growing tech and bilingual talent
- Wise supports Colombian pesos; bank wires common
- Popular for: development, design, marketing, product
- Average hourly rate: $15–$50/hr
Other common destinations
- India — developer/designer ecosystem, large English-speaking workforce
- Mexico — similar time zone, nearshore advantage
- Argentina — high-skill tech, currency arbitrage benefits
- Ukraine / Poland — European tech talent
- Vietnam / Indonesia — development, admin, design
Your books
Record each international contractor payment:
- Schedule C Line 11 — Contract labor
- Categorize internally as "Contractor - International" to separate from US contractors (for 1099 preparation purposes)
- Keep invoices or proof of payment in files
What about contractor classification?
US independent contractor vs employee rules generally don't apply to overseas workers. But the contractor's own country may have its own classification rules. If a Philippine contractor is effectively your full-time employee under Philippine labor law, there could be obligations you're unaware of. Typically not your problem (it's theirs), but for high-stakes long-term engagements, consider an Employer of Record (EOR) service like Deel or Remote.
State-level issues
Some states (notably California) have aggressive rules about classifying workers as employees (AB-5). These generally don't extend to non-US persons doing work outside the US — you're not "hiring" under state labor law. But if your contractor ever visits and works from California, rules can shift.
Annual close-out checklist (January)
- Total up payments to each international contractor for the year
- Confirm W-8BEN on file for each
- Verify no contractor performed work in the US
- Record Line 11 aggregate on Schedule C
- Do NOT issue 1099-NEC or 1042-S (unless US work was performed)
- If a contractor moved to the US mid-year, partial 1099 / 1042-S may apply — consult on specifics
We flag international contractor compliance gaps.
Upload your books. We verify W-8BEN coverage and flag any Schedule C Line 11 items that might need additional reporting.