According to the US Internal Revenue Service (IRS), your residency status and the location where you perform your work as a contractor determines the source of your income for tax filing and tax payment purposes.
Below, we explore the scenarios that will govern whether or not you need to pay US taxes as an international contractor and which tax return forms (if any) you’ll need to complete.
Scenario 1: You work outside of the US
If you’re a non-US citizen or non-US tax resident contracting outside of the US for a company engaged in a trade or business in the US, your work is not US-sourced income, and you will not owe any US taxes.
However, the IRS still requires your US client to report the money they pay you and share some details to prove that you have foreign status and that you’re not performing your work in the US.
Forms: Your client will ask you to complete form W-8BEN to inform the IRS that you’re not a US citizen/tax resident and that your income isn’t taxable in the US.
If you’re set up as a business entity, your US client will ask you to complete form W-8BEN-E. This form has the same purpose as form W-8BEN and is also used for individuals who are self-employed and living outside of the US while working for a US-based company or client.
The forms are valid for three years, and you need to submit a new one if any of the information changes or your collaboration with the client continues for longer than three years
Scenario 2: You work in the US, but the US client’s service or entity is maintained in a foreign country
If you’re a non-US citizen residing in the US under F, J, M, or Q nonimmigrant status (non-resident alien), and the compensation for services is paid by a nonresident alien individual, a foreign corporation, or a foreign partnership or the foreign office of a US citizen or resident alien individual, a US corporation, or a US partnership (including from within a US possession), your wages are not US-sourced; therefore, you do not need to pay US taxes.
See the IRC section 872(b)(3) for more information.
Forms: In most cases, the completion of US tax forms wouldn't be mandatory for a non-resident contractor due to the non-US source income and non-US payer. However, the payer's internal practices or the existence of a relevant tax treaty could make form W-8BEN relevant for documentation or treaty benefits.
Scenario 3: You have worked in the US and do not meet the US green card test or substantial presence test
If you’re a non-US citizen contracting from within the US for a company conducting trade or business in the US (US-sourced income) for under 31 days in a given year or under 183 days during a 3-year period that includes the current year and the two years immediately before that, and you have not been issued a permanent resident card (green card), you do not meet the substantial presence test.
In this scenario, the IRS considers you a non-resident alien for tax purposes, and you must pay tax on your US-sourced income at a fixed rate of 30% if you earn more than $600 in a calendar year.
The only exception to this is if a tax treaty exists between the US and your home country (see below).
Forms: Non-resident alien contractors will receive form 1042-S from their US clients to report their wages, which the client will then file with the IRS.
For more information on the US green card test and IRS substantial presence test, follow the links provided.
Automate your tax document collection
Focus on your business, not your taxes. Deel automatically collects and stores all your tax documents so you never have to worry whether you missed filing a form.
Scenario 4: You have worked in the US and meet the substantial presence test or US green card test
If you’re a non-US citizen contracting from within the US for over 31 days in a given year or over 183 days during a 3-year period that includes the current year and the two years immediately before that, or you have a permanent resident card (green card), you meet the substantial presence test.
In this scenario, the IRS considers you a resident alien for tax purposes, and you are subject to taxes on your worldwide income at the same rate as US residents (unless a tax treaty exists - see below).
For more information on the US green card test and IRS substantial presence test, follow the links provided.
Forms: Form 1040 is the main form for reporting your worldwide income, including business income from your contracting work.
Tax treaties: Does your original home country have a tax treaty with the US?
However, even if you meet the substantial presence test, you still could be treated as a nonresident alien and avoid paying taxes as a resident alien if you:
- Are present in the US for less than 183 days during the same year,
- Maintain a tax home in a foreign country during the year, and
- Have a closer connection during the year to one foreign country in which you have a tax home than to the US
The IRS considers you to have a closer connection to a country outside of the US if:
- You designate forms and documents to that country of residence
- The country is where:
- You have a permanent home;
- Your family resides;
- You have your personal belongings, such as cars, furniture, clothing, and jewelry;
Your current social, political, cultural, professional, or religious affiliations take place;
If you can prove that you have a closer connection to a country outside of the US, then you are considered a dual-resident taxpayer, and if a tax treaty exists, can claim the income tax treaty benefits, which means you could be exempt (or your US taxes will be lower than the general rate) from paying taxes on your US-sourced income or pay them at a reduced rate.
If you’re unsure whether your country has a treaty with the US, you can check the list on the official IRS website.
Forms: If a tax treaty exists, complete and file form 8233.
Simplify independent contractor bookkeeping with Deel
As an independent contractor, you operate similarly to a small business owner—which requires maintaining accurate financial records, keeping track of income statements, and properly preparing for tax season.
Whether you’re a part-time freelancer or full-time contractor, you can benefit from specialized contractor accounting services. With Deel’s all-in-one platform, you can access:
- Tax reporting advice
- Bookkeeping services
- Diverse payment and withdrawal methods
- Independent contractor agreements
- Invoice generators
- Expense trackers
- and more, all in one place
Sign up for the Deel platform today to simplify bookkeeping as a foreign taxpayer.
Disclaimer: This article serves for informational purposes only and is not intended as tax advice. IRS tax requirements can be subject to change, so before you complete any forms, please check for the newest updates on www.irs.gov. We also advise you to consult an official tax advisor before taking any action.
