The Complete Guide to US Tax Compliance for International Contractor Payments

When we started paying international contractors, the tax side felt intimidating. FATCA, withholding requirements, W-8 forms with multiple variants. It sounded like we'd need an international tax attorney on retainer.

Turns out, it's simpler than it looks. We've been paying people in a dozen countries for years, and once you understand the basics, it's actually less paperwork than US contractors.

Here's everything we've learned.

The W-8BEN is your main document

For individual foreign contractors, you collect a W-8BEN. That's it. It's a one-page form where they certify they're not a US person and provide their foreign tax ID.

The form tells the IRS: this person is foreign, they're not subject to US tax withholding, here's their info if anyone needs to verify. It's your documentation that you did things correctly.

Collect it before you pay anyone. We learned this the hard way after chasing someone in Poland for two months post-project. Get the form, then send money.

W-8BEN vs W-8BEN-E

If your contractor is an individual freelancer, they fill out W-8BEN. If they're a foreign company or entity, they fill out W-8BEN-E. The E stands for entities.

Most of the time you're dealing with individuals, so W-8BEN is what you'll see. If someone has their own LLC or company overseas, ask them which form applies. They usually know.

One thing to watch: the forms expire after three years. If you've been working with someone for a while, you'll need a fresh one eventually. We put a reminder in the calendar.

No 1099s for foreign contractors

This is the good news. Unlike US contractors, you don't file 1099s for foreign workers. The W-8BEN is your documentation. You keep it on file, you pay them, that's it.

No January deadline panic. No mailing forms. No IRS filing. The compliance burden for international contractors is actually lighter than domestic ones, which feels backwards but is true.

What about withholding?

If you're paying for services performed outside the US (which is most remote contractor work), you generally don't need to withhold taxes. The W-8BEN documents this.

There's an exception for certain types of income — royalties, dividends, some interest payments. If you're just paying someone for software development or design work, withholding doesn't apply. You pay them the full amount.

If things get complicated — say you're paying a foreign company for licensing rights — talk to a tax professional. But for normal contractor work, it's straightforward.

Tax treaties sometimes matter

The US has tax treaties with a lot of countries. These can reduce or eliminate withholding on certain types of income. Your contractor might claim treaty benefits on their W-8BEN.

Honestly, for basic contractor payments, the treaty stuff rarely matters. It becomes relevant for royalties, large consulting fees to foreign companies, or other complex arrangements. For paying a developer in Ukraine $4,000 a month, you don't need to think about it.

The W-8BEN has space for treaty claims. If your contractor fills it out, great. If not, you're still fine for normal service payments.

FATCA sounds scary but probably doesn't apply

FATCA — the Foreign Account Tax Compliance Act — comes up in articles about international payments. It's mostly about financial institutions reporting foreign account holders to the IRS.

For normal contractor payments, FATCA isn't something you need to worry about directly. Your bank or payment provider handles their FATCA obligations. You're not a financial institution, you're just paying people for work.

I mention it because people see the acronym and panic. Don't. It's not your problem.

Keep records like you'll be audited

You probably won't be audited. But if you are, the IRS will want to see how you paid $50,000 to foreign contractors without withholding anything. Your answer is the stack of W-8BENs and your payment records.

Keep every W-8BEN. Keep a record of every payment: who, when, how much, what method. Export your Wise or payment provider history regularly.

This is also just good for your own accounting. International contractor payments are a business expense. Clean records mean clean deductions.

How we handle it now

After years of doing this manually, we built the compliance stuff into Grade. When someone joins, they fill out their tax form as part of onboarding. W-8BEN for international, W-9 for US. No form, no payment.

The system tracks when forms expire. It keeps all payment records in one place. At year end, or if you ever need to pull documentation, everything's there.

We built it because managing this across a dozen contractors in different countries was eating hours every month. Now it's automatic.

The short version

Collect W-8BEN from every international contractor before paying them. Keep the forms on file. You don't need to file 1099s or withhold taxes for services performed abroad.

Forms expire after three years, so refresh them for long-term relationships.

Keep records of every payment. Your future self during an audit will thank you.

That's really it. International contractor compliance sounds intimidating until you realize it's one form and good record-keeping. Get those right and you're covered.