How to pay contractors in the United States

How to choose: five questions before you pay a US contractor

1. Which state does the contractor work from? Federal law uses the IRS common-law test; three states start from a presumption of employment.

• California. A worker is an employee unless the hiring entity proves all three ABC prongs. Prong B, work outside the usual course of your business, is the one a developer building your product fails. A contractor operating as a business entity can qualify for the business-to-business exception and the older Borello test (dir.ca.gov, checked 2026-09-29).
• New Jersey. New rules on the statutory ABC test apply from 1 October 2026. Prong B there can also be met by work done “outside of all the places of business of the enterprise” (nj.gov, checked 2026-09-29).
• Massachusetts. The same three prongs, with the burden on the hiring party (umassp.edu, checked 2026-09-29).

If the contractor is in a common-law state, or in California as an LLC or corporation with other clients: a standard B2B contract and any rail below. If an individual in California does core work for you: go to question 5.

2. Who handles the W-9 and the 1099 question? Collect a Form W-9, which a US person uses to give their taxpayer identification number to a payer that must file an information return (irs.gov, checked 2026-09-29). Whether your company must file a 1099-NEC is not settled by the published exemption: it 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, checked 2026-09-29). The threshold is $2,000 a year, and the form is due 31 January (irs.gov, checked 2026-09-29).

If you pay one contractor and your adviser says no filing is needed: keep the W-9 on file and pay by any rail. If you would rather not own the question: a platform that files 1099s, or a Contractor of Record, which contracts with and pays the contractor itself. Ask the provider whether it collects the W-9 and issues the 1099-NEC.

3. Which currency do you hold? If you hold dollars, a provider pays them domestically by ACH with no conversion. If you hold euros, the conversion is your cost: Wise quoted EUR 5.67 per EUR 1,000 from a Wise balance and EUR 8.05 funded by bank transfer (wise.com, checked 2026-09-29). A 3% platform fee is EUR 30 on the same amount; a monthly seat costs $29–49 whatever the invoice.

Small or irregular invoices: a converter or a percentage-based platform. A team on large monthly invoices: compare a seat against the percentage, and check the FX margin.

4. How fast must the money land? Through Wise, ACH usually takes 0–3 working days and a wire arrives the same or the next working day (wise.com, checked 2026-09-29). RTP and FedNow settle in seconds, but only a US bank or provider can send, and the contractor’s bank must be on the network: more than 1,100 institutions were live on RTP in February 2026 (theclearinghouse.org, checked 2026-09-29).

If a few days are fine: ACH. If an invoice is overdue or large: a wire, or a provider offering instant payouts.

5. Does the engagement look like employment? The IRS looks at behavioral control, financial control and the type of relationship, including whether the work is a key aspect of your business (irs.gov, checked 2026-09-29). California fines willful misclassification $5,000 to $25,000 per violation (dir.ca.gov). See contractor misclassification.

If the contractor sets their own hours and serves other clients: a transfer rail or a contractor management platform. If you want another party to hold the contract and reduce the classification risk: a Contractor of Record. 4dev acts as Contractor of Record, the contracting party for each contractor, which reduces reclassification risk. Read the liability clause in any COR contract, not the product name. If it is really a job: an Employer of Record such as Deel, Remote, Multiplier or Oyster, which puts the person on W-2 payroll.

Rule of thumb. One independent contractor: a provider paying by ACH, converting at a disclosed rate if you hold euros or pounds. A team, or a 1099 question you want off your desk: a contractor platform. Core-product work in an ABC-test state: a Contractor of Record or an EOR. Compare the field in the contractor payouts rating.

Payout rails into the United States in 2026

Sources: ACH and wire timing, limits and account details from Wise’s USD guide; Wise fees from wise.com; Same Day ACH limit and windows from nacha.org and the $10 million rule; Chase’s fee from its fee schedule effective 14 June 2026; RTP limit and reach from theclearinghouse.org; FedNow’s $10 million limit, in force since November 2025, from frbservices.org (all checked 2026-09-29).

The US has no IBAN. An account is identified by a 9-digit ABA routing number, an account number of 4–17 digits and the account type, and some banks use one routing number for ACH and another for wires (wise.com, checked 2026-09-29). Wise will not pay USD to a brokerage account or an intermediary bank, and does not support “For Further Credit” instructions.

What the US contractor needs to get paid

Sources: irs.gov self-employment tax, ssa.gov 2026 wage base, irs.gov single-member LLCs, irs.gov S corporation compensation, all checked 2026-09-29.

A further 0.9% Medicare tax applies above $200,000 of self-employment income for a single filer. With no employer withholding, the contractor pays tax in quarterly estimates due 15 April, 15 June, 15 September and 15 January (irs.gov, checked 2026-09-29).

Classification tests, state ABC rules and IP ownership are covered in our hiring guide.

Documents and tax on your side

Form W-9, not W-8BEN. A US contractor gives you a Form W-9 with their SSN or EIN. The W-8BEN is for foreign persons and is the wrong form here.

Withholding. None on a contractor who has given a correct TIN. Backup withholding at 24% applies when a payer that must file an information return has no correct TIN for the payee (irs.gov, checked 2026-09-29).

The 1099 question. Section 6041 applies to “all persons engaged in a trade or business” paying $2,000 or more in a year, the threshold for payments after 2025, indexed from 2027 (26 U.S.C. 6041, checked 2026-09-29). The exemption for non-US payers covers amounts from sources outside the US, paid and received outside the US (26 CFR 1.6041-4(a)(2)), and services are sourced where they are performed (irs.gov). Pay for work done in the US into a US account falls outside that exemption, so ask a US tax adviser whether your company must file a 1099-NEC, due 31 January. Filing needs a US TIN for your company.

Platform reporting. A payment app or marketplace issues a 1099-K when a payee receives more than $20,000 in more than 200 transactions a year (irs.gov, checked 2026-09-29). It does not replace your own 1099-NEC if one is due.

Permanent establishment. A US contractor who habitually exercises authority to conclude contracts binding on your company can give it a US permanent establishment under US treaties (US Model Convention, art. 5(5), checked 2026-09-29). Keep sales authority out of the contractor’s scope.

What to keep, per contractor:

1. The signed services contract with scope, rate, currency (USD) and a written IP assignment.
2. The Form W-9.
3. Each invoice, and proof of payment matching it.
4. Any 1099-NEC filed, or your adviser’s note on why none was.

Where payments to the US break

• Wrong routing number. A contractor who gives the ACH routing number for a wire, or the reverse, gets a returned or delayed payment. Ask which number goes with which rail.
• Short wires. Intermediary banks on a SWIFT route may deduct their charges before the money arrives, and the receiving bank takes its own fee: Chase’s schedule notes that financial institutions may deduct processing fees from incoming wires. A provider that pays out of its own US account avoids the intermediary chain.
• Asked for an IBAN. Payment forms that require an IBAN stall on US details. Use the routing number, the account number and, for a SWIFT wire, the BIC.
• Sanctions holds. US banks must block payments involving a sanctioned person and reject prohibited transactions, reporting both to OFAC within 10 days (ofac.treasury.gov, checked 2026-09-29). An ACH credit that is part of a payment from a bank outside the US is an IAT entry, which every bank in the chain must screen (nacha.org, checked 2026-09-29). A name close to a listed one can hold a payment while the bank reviews it.
• Accounts providers will not pay. Brokerage accounts and “For Further Credit” instructions are rejected by Wise. Ask for a checking account.
• No W-9 on file. Without a TIN, a payer that must report has to withhold 24%, and a missing form turns the 1099 question into a scramble in January. Collect the W-9 before the first invoice.