Paying a US contractor from abroad is easy: USD into a US bank account, no conversion on their side, no US tax withheld from a contractor who gives you a Form W-9. The difficulty is the law behind the payment. Classification is decided federally and again by each state, three large states presume employment, and US copyright law leaves the code with the contractor unless the contract assigns it.
Contractor forms: sole proprietor, LLC, S corporation
| Form | How it is taxed | What it means for you |
|---|---|---|
| Sole proprietor | Profit reported on Schedule C of the personal return; self-employment tax on net earnings | Contract with the individual; W-9 with an SSN or EIN |
| Single-member LLC | Disregarded by default: taxed exactly like a sole proprietor, including self-employment tax, unless it elects corporate treatment | Contract with the LLC; for tax it is the owner’s business |
| S corporation | Owner takes a salary at reasonable compensation with payroll taxes; the rest can be distributed without employment tax | Contract with the corporation; a business entity for California’s B2B exception, if its other conditions are met |
Sources: irs.gov single-member LLCs, irs.gov S corporation compensation, checked 2026-09-29.
An LLC or corporation does not change the federal classification analysis, which looks at the relationship, not the invoice. It does matter in California, where the business-to-business exception is open only to a service provider that is a business entity (dir.ca.gov, checked 2026-09-29).
Taxes and paperwork
The contractor’s side. Self-employment tax is 15.3%: 12.4% for Social Security and 2.9% for Medicare, with half deductible (irs.gov, checked 2026-09-29). The Social Security part stops at $184,500 of earnings in 2026 (ssa.gov, checked 2026-09-29), and a further 0.9% Medicare tax applies above $200,000 for a single filer. Federal and most state income tax come on top, paid in quarterly estimates.
The client’s side. Collect a Form W-9; the W-8BEN is for foreign persons. Nothing is withheld from a contractor who gives a correct TIN; a payer that must report and has no TIN withholds 24% (irs.gov, checked 2026-09-29). A US business files a 1099-NEC for $2,000 or more a year, the threshold for payments after 2025, by 31 January (irs.gov, checked 2026-09-29). For a foreign company the answer is less clear: the exemption for non-US payers covers only foreign-source pay received outside the US (26 CFR 1.6041-4(a)(2)), and work done in the US is US-source (irs.gov). Get a US tax adviser’s view before the first January.
Permanent establishment. A contractor who habitually exercises authority to conclude contracts binding on your company can give it a US permanent establishment (US Model Convention, art. 5(5), checked 2026-09-29). Keep signing authority out of the scope of work.
How the US decides who is an employee
Federal tax. The IRS weighs behavioral control (whether you control how the work is done), financial control (how the worker is paid, who bears expenses and provides tools) and the type of relationship (benefits, permanence, whether the work is a key aspect of your business). Either party can ask the IRS for a ruling on Form SS-8, which takes at least six months (irs.gov, checked 2026-09-29).
Federal wage law. The Department of Labor proposed a new “economic reality” rule on 26 February 2026, centred on control and opportunity for profit or loss, and has stopped applying its 2024 rule in investigations. The proposal is not yet final (dol.gov, checked 2026-09-29).
State ABC tests. These are stricter, and they are where foreign clients get caught.
- California presumes employment unless all three prongs hold: the worker is free from your control, the work is outside the usual course of your business, and the worker runs an independently established business of the same kind. Willful misclassification costs $5,000 to $25,000 per violation (dir.ca.gov, checked 2026-09-29). A developer building your core product fails prong B however independent the rest of the arrangement is.
- New Jersey applies the ABC test to its unemployment, wage and hour and wage payment laws, and adopted rules on it that apply from 1 October 2026. Its prong B can also be met when work is done outside all of your places of business (nj.gov, checked 2026-09-29).
- Massachusetts uses the same three prongs, with the burden on the hiring party (umassp.edu, checked 2026-09-29).
Reclassification brings back payroll taxes, state unemployment contributions and wage claims such as overtime, none of it limited by what the contract says. See contractor misclassification.
Contract and IP
- A written services agreement with deliverables, rate in USD, term, and the contractor’s right to set hours, use their own tools and serve other clients.
- Assignment, not work made for hire. Commissioned work is a work made for hire only if it falls into one of nine categories, such as a contribution to a collective work or part of an audiovisual work, and both parties sign a written agreement saying so (copyright.gov Circular 30, checked 2026-09-29). Standalone software is not on the list, so code stays with the contractor unless they assign it. A transfer of copyright needs a writing signed by the owner (17 U.S.C. 204).
- California’s work-for-hire trap. A person engaged under a signed work-made-for-hire agreement, where the commissioning party takes all the copyright, counts as an employee for workers’ compensation (Cal. Labor Code 3351.5(c), checked 2026-09-29), and the commissioning party becomes an employer for unemployment insurance (Cal. Unemployment Insurance Code 686). With a California contractor, rely on a present assignment of rights instead.
- Invoice-based payment, no benefits, no performance reviews.
How to pay contractors in the United States
| Method | What the contractor sees | Notes |
|---|---|---|
| ACH via a provider | USD in 0–3 working days | The cheap default; needs the ACH routing number |
| Domestic or SWIFT wire | USD the same or next day | A foreign bank’s wire can lose intermediary fees; receiving fees apply (Chase: $15) |
| RTP / FedNow via a provider | USD in seconds | Only if the contractor’s bank is on the network |
| Contractor platform or COR | USD to a bank account | Contract, W-9 and invoices in one place |
Sources: Wise’s USD guide; Chase fee schedule effective 14 June 2026 (checked 2026-09-29). Fees, rails and platforms are compared in detail on how to pay contractors in the United States.
Contractor of Record in the United States
4dev acts as Contractor of Record, the contracting party for each contractor, which reduces reclassification risk. A Contractor of Record signs with the contractor itself and bills you, so the contract and the payment run through the provider; ask whether it also collects the W-9 and files the 1099-NEC. It does not change the facts of the work: core-product work in California still has to be judged against the ABC test, so read the liability clause in the COR contract, not the product name. For roles that are really jobs, use an Employer of Record. Providers are compared in our COR rating.