What Is Form 1099-NR for Reporting Nonresident Payments?

When making payments to individuals who are not U.S. citizens or residents, many payers search for a specific tax form to report these transactions, often looking for a “Form 1099-NR.” However, no such form is issued by the Internal Revenue Service (IRS). The Form 1099 series is used to report various types of non-employee income to U.S. persons. The process for nonresidents is different and involves a distinct set of documentation and reporting forms designed to address international tax withholding and treaty obligations.

Determining Payee Status and Required Documentation

Before a payer can determine their reporting obligations, they must establish the tax status of the person or entity they are paying. For U.S. tax purposes, an individual is considered a nonresident alien (NRA) unless they are a U.S. citizen or meet residency criteria like the “green card test” or the “substantial presence test.” The substantial presence test counts the number of days an individual is physically present in the United States over a three-year period.

The primary tool to confirm a payee’s foreign status is the Form W-8 series. The most common is Form W-8BEN, which is provided by the payee to the payer to certify they are not a U.S. person. It contains the payee’s name, country of citizenship, address, and foreign tax identifying number. A similar form, Form W-8BEN-E, is used for foreign entities.

A part of Form W-8BEN allows payees to claim benefits under an income tax treaty between their country of residence and the United States. If a treaty provides for a lower rate of tax withholding, the payee must specify the relevant treaty article and the reduced rate. Without a properly completed W-8BEN, the payer must withhold tax at the default rate.

Form W-9, Request for Taxpayer Identification Number and Certification, is used for U.S. persons and entities. Receiving a W-9 confirms the payee’s U.S. status and provides their Taxpayer Identification Number (TIN), meaning the payer will use a Form 1099-NEC or 1099-MISC.

Selecting the Correct Reporting Form

Once a payer has received a valid Form W-8BEN and confirmed the payee is a nonresident alien, they must use Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. This form is used to report a wide range of payments to NRAs, including royalties, dividends, interest, and rents from U.S. sources. It is also the correct form for reporting compensation for personal services performed by an NRA within the United States.

Form 1042-S must be filed even if no tax was withheld from the payment due to a tax treaty benefit. Payments to NRAs for services performed entirely outside the United States are not reported to the IRS as they are not U.S. source income.

The Filing and Withholding Process for Payers

For payments made to nonresident aliens, U.S. law requires the payer to act as a withholding agent. The default rule is to withhold a flat 30% from the gross amount of the payment. This rate applies to most types of U.S. source income paid to foreign persons, such as interest, dividends, and royalties. The withholding rate can be adjusted if the nonresident payee has provided a valid Form W-8BEN claiming benefits under a tax treaty.

Once the payment and any required withholding are made, the payer must file the information return with the IRS and furnish a copy to the payee. Form 1042-S must be filed with the IRS and sent to the recipient by March 15 of the year following the payment. For comparison, Form 1099-NEC for U.S. persons must be filed and furnished by January 31.

Guidance for Nonresident Payees

Receiving a Form 1042-S indicates that the payer has reported income and any withheld taxes to the IRS. The form details the gross income paid and the amount of U.S. tax withheld at the source.

The receipt of this form may trigger a requirement for the nonresident to file a U.S. tax return. An NRA must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, if they were engaged in a trade or business in the United States. A return is also required if they received U.S. source income from which not enough tax was withheld.

A primary reason for an NRA to file a Form 1040-NR is to claim a refund. If the 30% default tax rate was applied when the payee was eligible for a lower treaty rate, they may have had too much tax withheld. By filing a tax return, the nonresident can claim the treaty benefit and request a refund of the over-withheld amount. The information from Form 1042-S is used on the Form 1040-NR to report the income and claim the withheld tax.