No 1099 from a Foreign Client: Recording and Proving the Income

A foreign client says they don't owe me a 1099: do I still report the income?

Generally yes. A US citizen or resident reports business income from a client abroad on Schedule C, whether or not any form arrives. The IRS taxes the worldwide income of citizens and resident aliens wherever they live. Publication 334 says a business must report all its income, including income the payer never reported on a Form 1099, and the IRS gig-work page says the same in plain words. Some income can be excluded by law, such as part of foreign earned income for a person living abroad, but you claim it by attaching Form 2555 to the return, and only if you qualify (Publication 54).

The amount goes on Schedule C, line 1, as gross receipts, the total you received before expenses (Schedule C instructions). This page covers US citizens and resident aliens; a nonresident alien follows different rules. A non-citizen is a resident for tax if they pass the green card test or the substantial presence test (IRS: determining alien tax status).

A case is not simple when the payments span more than one year, the amount is large next to the rest of the return, the money sits in a foreign account, you live abroad, or the income was already left off a filed return. The sections below cover each one; if one applies, start with the last section. For a simple case, gather the contract, each invoice, the statement line showing each payment arriving, the exchange rate you used for each, and the expenses for the work.

Whose job is the 1099, and does a missing form change what I owe?

The payer files an information return (a form sent to the IRS, such as Form 1099-NEC), and the payee reports the income. A missing form does not change whether the income is taxable. Publication 334 describes information returns as something a business that makes payments may have to file, which the IRS then compares with each person's return. Whether a client abroad had to send a US form is a question about the payer's duties. This page does not decide it, and the answer does not change your reporting. If the client asks for a tax form, a US citizen or resident gives a Form W-9; Form W-8BEN is for foreign persons (Instructions for Form W-8BEN).

A payment app can still send a Form 1099-K when payments pass its dollar and transaction thresholds. It may not equal your income, and you report all of it either way (Understanding your Form 1099-K; Publication 334).

For the same payment on two forms, see a 1099-NEC and a 1099-K for the same payments. For US clients or platforms that send nothing, see income with no tax form.

Where does the income go, and do I owe self-employment tax?

Business income goes on Schedule C. The net profit after expenses carries to Schedule SE (the self-employment tax form) and Form 1040. Net earnings from self-employment are generally 92.35% of net profit, and self-employment tax applies once they reach $400. The rate is 15.3% while the Social Security part applies (Topic 554). That part stops at a yearly maximum, which wages you were paid as an employee use up first (26 U.S.C. 1402); all net earnings bear the Medicare part. Higher combined wages and self-employment income can also trigger Additional Medicare Tax, figured on Form 8959 (Schedule SE instructions). You can deduct half of the regular tax on Form 1040.

Schedule C is for a business: an activity done to earn income or profit, with continuity and regularity (Schedule C instructions). Payments for work you do for clients usually fit. Whether a one-off payment is a business or something else is a fact question for a preparer, and the income is reportable either way.

Living abroad generally leaves these steps the same. The self-employment tax rules are generally the same for a US citizen or resident abroad, and the foreign earned income exclusion, which may exclude part of foreign earnings from income, does not remove the tax (Publication 54). For totalization agreements, see self-employment tax abroad.

How do I convert euros, pounds or other currency into dollars?

Everything on the return is in US dollars, so translate each foreign-currency payment at the exchange rate prevailing when you receive it, or accrue it if you use the accrual method, which counts income when you earn it (IRS: foreign currency). The IRS has no official exchange rate. It generally accepts any posted rate that is used consistently. If a country has more than one rate, use the one that most properly reflects your income. This is the rule when the dollar is your functional currency, which it generally is. A business run abroad with its own books in the local currency can have a different functional currency and a different method; that is a preparer question.

Two traps. A single year-end rate is the least likely to match the rate when you received each payment, and the IRS page does not list it as an accepted shortcut. Switching methods payment by payment to find the better rate breaks the consistency the IRS expects. Expenses you pay in foreign currency convert the same way.

Whether a yearly average is acceptable for a particular pattern of payments is a judgment call, because the IRS's stated rule is the rate when you receive the item. Money you keep in a foreign-currency account after receiving it can also produce an exchange gain or loss. Both that and the functional-currency question are in foreign-currency accounts in US books.

What records prove the income if I have no form?

The invoice and the record of payment carry the proof. The IRS requires no particular system, only one that clearly shows income, and it lists invoices and bank deposit records among the documents that support gross receipts (Publication 583).

A year-end payment summary from the client, if they will give you one, is a useful second source.

No invoices? A statement line for each payment, plus the emails that show who paid and for what work, can stand in. Gather them now, before the account's history ages out. If several years or accounts are thin, see rebuilding books from bank statements.

Keep the records until the time to assess tax on that return ends. That is generally 3 years after you file, and longer in some cases (Topic 305).

The client paid through a foreign bank or a payment service: which statement proves it?

The statement for the account that first received the money is the main proof. A sole proprietor on the cash method, which counts income when received, reports income when it is credited to the account or made available without restriction, even if it is never withdrawn (Schedule C instructions). If you authorize someone to receive income for you, it counts when that agent receives it (Publication 538). So a service's receipt and payout dates both matter, and whether it acts as your agent depends on the arrangement. A later transfer of the same money to your bank is not new income.

Schedule C line 1 asks for gross receipts (Schedule C instructions), which generally means what the client paid, with a service's fee shown as an expense. If only the net amount shows, ask for the fee report before deciding which figure belongs on line 1.

Does the client's country tax or withhold something, and can I get credit for it?

Foreign income tax withheld from a payment may be claimed as a credit or an itemized deduction, but Schedule C line 1 still counts the full gross amount (IRS: Foreign Tax Credit). You can make or change that choice within 10 years of the return's regular due date (Publication 514). The client's country sets its own rules, so this page cannot say whether yours withholds. A payment that arrives short of the invoice by more than fees may mean tax was withheld. Ask the payer for a receipt or certificate showing the amount and date.

The credit has limits (Publication 514):

• It can only reduce US tax on foreign-source income, and pay for services you do is generally sourced to where you do the work. A freelancer working from the US for a client abroad may get little or no credit, unless a treaty changes the source.
• Generally only foreign income taxes qualify, and only the amount you were legally required to pay, so tax withheld above a treaty rate may not count.

No credit is allowed for tax on income you exclude under the foreign earned income exclusion. Which payments qualify, the conversion rate for foreign tax and the limit are in foreign tax credit limits and carryovers.

Do I owe estimated tax on it?

Estimated tax generally applies if you expect to owe $1,000 or more when you file, and sole proprietors are included (IRS: Estimated taxes). No US tax is withheld from a payment like this, so unless withholding or credits elsewhere on your return cover it, the income tax and self-employment tax on it are yours to pay, and the IRS says an independent contractor may have to pay estimated tax in four installments (gig-work page). The rule is the same for a US citizen or resident living abroad (Publication 54).

A first foreign payment late in the year can still trigger a payment. Due dates, the safe harbors and the penalty are in quarterly estimated tax payments.

Does the foreign account I'm paid into need an FBAR?

An FBAR is the Report of Foreign Bank and Financial Accounts. It is needed if the account is at a financial institution outside the United States and all your foreign financial accounts together exceeded $10,000 at any time in the calendar year (IRS: FBAR). The test is where the institution is located, not the currency, and the account counts whether or not it produced taxable income.

The FBAR is filed with the Treasury's Financial Crimes Enforcement Network (FinCEN), not with your tax return. It is due April 15, with an automatic extension to October 15. Keep the account records for 5 years. Form 8938 is a separate report to the IRS with its own thresholds (IRS comparison). The return itself also asks about foreign accounts on Schedule B, Part III, and the instructions say to check "Yes" even if you aren't required to file the FBAR (Schedule B instructions).

Payment-app balances and shared accounts are edge cases; see which accounts count on an FBAR. If you have missed an FBAR, the IRS says to file late reports as soon as possible when it has not contacted you and you are not under investigation; see catching up on missed foreign reporting.

I left this income off an earlier return: what now?

Reporting it late generally means an amended return on Form 1040-X (Instructions for Form 1040-X). Each year is its own return, so each year needs its own answer.

The IRS generally has 3 years from filing to assess more tax. That can be longer when a large share of gross income was left off or a required foreign-asset report such as Form 8938 was never filed, and there is no limit when no valid return was filed or a return was fraudulent (Topic 305; 26 U.S.C. 6501).

Which years to amend, in what order, and what penalties and interest follow are in amending for income left off past returns. If you filed no return for some years, see catching up on unfiled returns.

Example

All amounts are illustrative, in US dollars unless marked with another currency.

One payment from a UK client

A Portland designer is paid £3,000 in March by a UK client and gets no form. At an illustrative rate of US$1.30 per £1, the payment is US$3,900 and goes on Schedule C, line 1. With US$500 of related expenses, net profit is US$3,400. Self-employment tax is 15.3% of 92.35% of that, about US$480, and it applies because net earnings are well above US$400. This assumes it is the designer's only earnings. The designer keeps the invoice, the statement line and the rate source.

A year of payments from a German publisher

An Austin writer is paid €2,000 a month, €24,000 for the year, with no 1099. The invoices and bank statements prove it. Suppose six payments were received at US$1.05 per €1 and six at US$1.12, each rate taken from one consistent source for the day it arrived: US$12,600 plus US$13,440 is US$26,040. If the euros land in a German bank account, that account counts toward the FBAR total.

Income left off three years of returns

A Denver consultant was paid US$8,000 over three years by a Singapore firm and reported none of it.

Each year is a separate return with its own Schedule C and self-employment tax. Whether any year has a longer assessment period depends on what else the return shows. Which returns to amend, and in what order, is usually decided with a preparer.

Different for you?

• The income is large, spans more than one year, or was left off a filed return: each year has its own answer on what to report, how to prove it, and whether a late or amended return is needed. Cases like this usually need a preparer's review. See amending for income left off past returns; the late or amended returns are individual tax work, and bookkeeping help can rebuild thin or scattered records year by year.
• You live abroad or hold a foreign account: an FBAR, self-employment tax and foreign tax credit can all apply at once. See self-employment tax abroad and which accounts count on an FBAR; the report itself is FBAR filing.
• The client paid your corporation, a partnership or an LLC taxed as one: Schedule C fits a sole proprietor or a single-member LLC that has not elected corporate tax. Other entities report the income on their own return, from their own books. Get bookkeeping help to record it in the right entity.
• Foreign tax was withheld and you want credit for it: see foreign tax credit limits and carryovers.
• The IRS sent a notice saying your return does not match income reported to it: see responding to an underreporter notice.
• Your clients are in the US, or a platform paid you and sent no form: see income with no tax form.
• You are not a US citizen and have no green card: whether you count as a resident for tax depends on your days in the US (IRS: determining alien tax status). A nonresident follows a nonresident return for business income.