US Company Paying Foreign Contractor: Taxes, Payments, and More

Many US companies are expanding their services. They may need to hire foreign contractors for various specialized tasks. They can help with all kinds of work they do. But it's a big choice to hire and pay these international contractors.

With so many ways to pay these days, how do you decide what’s best for you? Don’t worry - we’re here to help.
In this article, we'll explain how US companies can pay international independent contractors and also talk about how Wise Business could be a good option for you.

Looking to send and receive business payments at low cost?

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Table of contents

How US Companies Can Pay Foreign Contractors Make Sure The Foreign Contractor Fills Out The Relevant Tax Paperwork 1. Wise Business For Paying Foreign Contractors 2. Wire Transfer To Pay Foreign Contractors 3. International Money Order For Paying Foreign Contractors 4. Paypal To Pay Foreign Contractors Abroad⁴ 5. Payoneer To Pay Foreign Contractors Abroad 6. Freelance Sites To Pay Foreign Contractors Abroad 7. Payroll, Accounting, and Other Mass Payment Software

How US Companies Can Pay Foreign Contractors

There are many different ways to pay foreign contractors. These include mass payment software, wire transfers, freelance sites, and business accounts like Wise Business.

But first, we need to talk through a tedious but critical aspect of payment: taxes. Taxes and other deductions must be withheld from all foreign contractors. The same goes for US contractors. It doesn’t matter which service you choose - you must take taxes into account. Otherwise, you could be subject to IRS penalties like steep fines and interest.

Make Sure The Foreign Contractor Fills Out The Relevant Tax Paperwork

Most foreign contractors will be required to fill out the following two forms. Let's get into what these need and how you can fill them out.

IRS Form W-8BEN or IRS Form W-8BEN-E

Form W-8BEN is for individual contractors¹, while Form W-8BEN-E is for entities². Both forms need the foreign contractor’s personal information. This includes their name, address, and home country. They also ask them to attest that they are not a US citizen or resident alien. They need the contractor’s tax ID number in their home country.

You can learn more about both forms at the links below:

• About Form W-8 BEN
  • Form W-8 BEN
  • Instructions for Form W-8 BEN
• About Form W-8 BEN-E
  • Form W-8 BEN-E
  • Instructions for Form W-8 BEN-E

IRS Form 1099-NEC

Form 1099-NEC is a general form used “to report nonemployee compensation”³. It’s used when the payments made to a contractor exceed $600. This form is filled out by the US-based company that hired the foreign contractor.

You can learn more about this form at the links below:

• About Form 1099-NEC
• Form 1099-NEC
• Instructions for Form 1099-MISC and Form 1099-NEC

Now that all that is out of the way, let’s get into your payment options.

1. Wise Business For Paying Foreign Contractors

Wise business offers low-cost options to companies sending payments domestically or internationally.

Since payments often contain hidden fees, Wise Business offers transparent pricing that can help businesses know exactly how much they will spend on their payments to contractors abroad.

Wise customers can hold 40+ currencies and use their account like many other business accounts.

Types Of Cross And Same Currency Transfers When Paying Foreign Contractors

• Credit Card
• Debit Card
• Bank Debit (ACH)
• Wise Account Transfer
• Wire Transfer
• Bill Payment

The Pros Of Paying Foreign Contractors Via Wise Business

Some features Wise Business users love
Receive Payments like a local: Businesses can pay a one-time fee for accounts details in global currencies, such as USD, EUR, GBP, CAD, so they can receive money without any additional fees
Account Software Integration: QuickBooks, Xero, Sage, and Wave
Batch Payment Tools: Pay up to 1,000 invoices in one instance
An International Account: Hold 40+ currencies at once
Transparency: Wise Business is trying to get rid of all your business account fees

See how much you could save here:

2. Wire Transfer To Pay Foreign Contractors

The most common way for US companies to pay foreign contractors is through wire transfer. This involves transferring money from one bank account to another. This could look like transferring from your company's account to your contractor's account.

The Pros Of Paying Via International Wire

• Fast: International wire transfers are quick and can take as little as 1-3 business days.
• Secure: Wire transfers are backed up by the security of banks.
• Reliable: Banks have systems in place that ensure money is transferred well and on time.

The Cons Of Paying Via International Wire

• Expensive: International wire transfers are more expensive than other payment methods. Fees can range from $20 to over $100 depending on the bank and the amount being transferred.
• Slow: International wire transfers may take several days or weeks to complete. It all depends on the destination country.
• Complex: Setting up a wire transfer is often complicate. It requires extra paperwork for both you and your contractor.

See the Best Banks for Small Businesses >>

3. International Money Order For Paying Foreign Contractors

An international money order is a payment instrument that is sent online or through the mail. It’s like a check. The recipient of an international money order can cash it at any bank in their home country.

The Pros Of Paying Via International Money Order

• Affordable: International money orders are usually cheaper than other payment methods.
• Secure: Money orders are secure. They can only be cashed by the recipient or someone with their authorization.
• Easy To Use: Sending an international money order is simple. It requires minimal paperwork.

The Cons Of Paying Via International Money Order

• Slow: International money orders can take a few days or weeks to arrive at their destination.
• Limited Amounts: Money orders are usually limited to $1000 or less. If you need to send larger amounts, you may need to use another payment method.
• Risk of Loss: Sending through the mail carries the risk of it being lost in transit. It’s important to keep track of when and where they were sent.

4. Paypal To Pay Foreign Contractors Abroad⁴

PayPal currently offers a service called Xoom. This allows users to send money to over 200 countries. You can deliver the money using one of their delivery options and use their app to track your payments.

The Pros Of Paying Via PayPal

• Tracking: See where your money is from when it’s sent to when it’s received.
• Cross-Platform: Send money to recipients without PayPal or Xoom.
• Transparency: Fees and rates are upfront and exact. They make sure you know currency conversion and how much your recipient will receive.

The Cons Of Paying Via PayPal

• Potential Issues: All transfers have the potential to be stopped or delayed. This is because of PayPal’s transfer review.
• Slow: Many factors can make for a slower payment process. These include time zone differences, their anti-fraud verification system, etc.
• Limitations: PayPal makes it clear that its services come with limitations. These include daily transaction limits and country-specific services.

Looking to send and receive business payments at low cost?

Pay your contractor
with Wise Business >>

Wise Trustpilot Score: Great ⁶
No minimum balance required and no monthly fees

5. Payoneer To Pay Foreign Contractors Abroad

Payoneer is a payment platform that offers cross-border payments to contractors and suppliers. They boast services for over 190 countries and in over 70 currencies.

The Pros Of Paying Via Payoneer

• Payment Flexibility: Send payments around the world by credit card or ACH bank debit.
• Payoneer Balance: You can pay to bank accounts or other Payoneer accounts. You can even make batch payments. And you can do it all using the funds in your Payoneer account.
• Multi-lingual Support: Payoneer’s support team speaks over 22 languages. They're sure to get you the help you need.

The Cons Of Paying Via Payoneer

• No Direct Bank Payments: Direct bank payments from Payoneer are only available in the UK.
• Slow: Payoneer’s payments can take around 5 days via credit card with no instant options.
• Fees: Payoneer takes a percentage or set fee for every transaction. The amount and type depend on currency and account type. This is only not true if the recipient uses Payoneer.

6. Freelance Sites To Pay Foreign Contractors Abroad

Freelance sites like Upwork, Fiverr, and Freelancer are popular options for US companies. With these sites, you can search for and hire a contractor from another country. Plus, you don’t have to worry about the legal or financial aspects of international hiring.

The Pros Of Paying Via Freelancer Sites

• Easy: Freelance sites are easy to use and make it simple to search for, hire, and pay foreign contractors.
• Cost-effective: Fees are lower than other payment methods.
• Secure: Payments are processed through secure systems that help protect your data.

The Cons Of Paying Via Freelancer Sites

• Fees: Freelance sites typically charge a fee for all payments, which can add up.
• Limited Options: You may not be able to find the exact contractor you’re looking for on these sites.
• Quality: The quality of work from foreign contractors on freelance sites can vary

7. Payroll, Accounting, and Other Mass Payment Software

Software is a great option for paying many contractors. These services make it easy for US companies to send payments in several currencies. They also offer extra features like automatic tax withholding and currency exchange. Some popular options include Gusto, Wave Accounting, and QuickBooks Payroll.

The Pros Of Paying Via Payroll, Accounting, And Other Mass Payment Software

• Easy: Payroll and accounting software make it easy to track payments and withhold taxes. You can also exchange currencies.
• Fast: Most services offer faster payment options that can take as little as 1-2 business days.
• Safe & Secure: Payment software is secure and offers fraud protection features.

The Cons Of Paying Via Payroll, Accounting, And Other Mass Payment Software

• Expensive: Many services have monthly fees and transaction costs that can add up.
• Complicated: Setting up payment software is complicated and time-consuming.
• Limited Payment Options: Mass payment software may not offer the same range of payment options as other methods. ACH transfers in particular are difficult to come by.

Looking to send and receive business payments at low cost?

Pay your contractor
with Wise Business >>

Wise Trustpilot Score: Great ⁶
No minimum balance required and no monthly fees

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Sources:

1. IRS; About Form W-8 BEN
2. IRS; About Form W-8 BEN-E
3. IRS; About Form 1099-NEC
4. PayPal; Send Money Internationally
5. Payoneer; Contractors, Vendors & Supplies Payments Platform
6. Wise Trustpilot