K-1 and 1099 - Americans overseas (2024)

FAQs

Does a US citizen living abroad get a 1099? ›

If you are a US contractor living overseas, you will not have to file Form 1099. Instead, you may receive a completed Form 1099 from clients who paid you at least $600 over the course of a year. You will then use these forms to report your worldwide income on your US tax return.

In other words, 1099 forms are relevant for reporting the income of the partnership as a whole. Schedule K-1 is relevant to the individuals of the partnership when reporting their share of the profit or loss on their income tax return. A partner will almost never receive a 1099 from the partnership that they own.

Generally, a 1099 is not required to be issued for international vendors who are foreign vendors. Individuals living outside the United States who qualify to file an IRS Form W-8BEN as foreign persons/foreign contractors and don't perform services in the United States, don't get a Form 1099-NEC.

The 183 Day Rule

The most general rule is the 183 Day Rule. As per this Rule, if the employee is residing in a country for a period of more than 183 days in one financial year, then they will be considered a resident of that country for tax purposes.

Form 1099-NEC and 1099-MISC:

Businesses must file either Form 1099-NEC or Form 1099-MISC when payments of $600 or more are made to foreign contractors who are not U.S. citizens but have conducted some of their services within the United States.

To help avoid this negative consequence, the US tax code contains a provision called the Foreign Earned Income Exclusion (FEIE). Expats can exclude up to $120,000 of foreign income from US taxes under the 2023 FEIE policy. This amount has been increased to $126,500 for the 2024 tax year.

So 1099s are generally only used for single ownership tax reporting, whereas a K1 form is used when you have at least two owners of a business or an investment fund that must file a partnership tax return.

The partnership uses Schedule K-1 to report your share of the partnership's income, deductions, credits, etc. Keep it for your records. Don't file it with your tax return unless you're specifically required to do so.

Is Schedule K-1 considered income? A Schedule K-1 lists taxable income, similar to a W2 or a Form 1099, but only for the particular types of business entities outlined above. As far as K-1 distributions are concerned, they are generally not considered taxable income.

Yes, you can hire international contractors and build a remote workforce. It's common practice for businesses around the world to work with contractors in other countries. That said, doing so is not free of risks. Each country has unique employment laws full of nuance.

How do I pay an overseas contractor? ›

Key Takeaways

Freelancers and Independent contractors must file a US tax return even when working overseas. The IRS provides a variety of tax benefits for Americans living abroad. Using these expat tax benefits, many overseas contractors can reduce their US tax bill significantly.

Individuals who meet the 'substantial presence test'. An individual meets this test if present in the United States for at least 31 days in the current year and a combined total of 183 equivalent days during the current year and prior two years.

The IRS considers you a U.S. resident if you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period. The three-year period consists of the current year and the prior two years.

If you're a citizen of the United States working remotely from another country, you may need to fill out some forms, but usually, you only owe taxes in the country where you live and work.

Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.

U.S. citizens living abroad typically use Form 1040, the same form used by taxpayers in the United States. However, there are additional forms and schedules that may apply, such as Form 2555 (for claiming the Foreign Earned Income Exclusion) and Form 1116 (for claiming the Foreign Tax Credit).

In some cases, you may receive a Form 1099 (DIV, G, INT, or MISC). Generally, Nonresident Aliens should not receive such forms; however, if you do, you may use the information on the form to complete GTP – you do not need to request a new form from the payor.

The US is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live or earn their income. This means that American expats are potentially subject to double taxation – once by the country where they earn their income, and again by the United States.