Paying Indian Contractors from a US LLC: W-8BEN, 1099 and Withholding (2027)

Paying Indian contractors from a US LLC is simpler than most owners expect, as long as you collect the right form and understand where the work is done. If an Indian designer, developer or assistant does all of their work from India, you usually do not issue a 1099 and do not withhold US tax. The rules change when the work happens in the US or the contractor is a US person. This guide explains the forms, the rules and the records to keep.

Paying Indian contractors: the short answer

• Collect a W-8BEN (individual) or W-8BEN-E (company) before you pay.
• No 1099-NEC is generally needed for a foreign contractor who does all the work outside the US.
• No US withholding or Form 1042-S is generally needed on that foreign-source income.
• The rules change if the contractor does any work physically in the US, or is a US citizen or resident, even if they live in India.

Tax rules change, so confirm your own situation with a tax professional.

Paying Indian contractors: which form to collect

A contractor who is not a US person gives you a Form W-8BEN instead of a W-9.

• W-8BEN: an Indian individual, for example a freelancer invoicing in their own name.
• W-8BEN-E: an Indian company or other business entity.
• W-9: a US person or US entity.

The W-8BEN is your evidence that the person is foreign. It is not a form you file with the IRS. You keep it with your records. Indian contractors normally use their PAN as the foreign tax ID. For the form details, read W-8BEN vs W-9 for foreign-owned LLCs. For the contractor's own perspective, see Upwork and Fiverr taxes with a US LLC.

Paying Indian contractors: why no 1099 is usually needed

Form 1099-NEC is an information return for payments to US persons. A foreign contractor who performs all services outside the United States earns foreign-source income, so a 1099 is generally not required, whatever the amount.

For example, a developer in Mumbai who codes remotely and never works in the US is paid for foreign-source services. You hold their W-8BEN, pay the invoice and file nothing with the IRS for that payment.

Paying Indian contractors: when 1042-S and withholding apply

The picture changes in these situations:

• The contractor does any work in the US. The US-source portion can be reported on Form 1042-S, with Form 1042 filed alongside it. Default withholding is 30% unless a tax treaty reduces it.
• There is no valid W-8BEN on file for a US-source payment. The default 30% rate applies.
• The payment is for something other than services, such as royalties or rent, where different source rules apply.
• The contractor is a US citizen or resident living in India. They are a US person, so you collect a W-9 and may need to issue a 1099-NEC.

For treaty relief on US-source personal services, a foreign individual may need another form, such as Form 8233. This is a specialist area, so get advice before you claim treaty benefits. Using the wrong form does not remove the tax obligation and can lead to penalties.

Contractor or employee?

Calling someone a contractor does not make them one. If you control their hours and methods, or they work only for you, they may look like an employee. Misclassification can raise questions under Indian employment and tax rules. If you plan to hire full-time staff in India, you may need an Indian entity or an employer-of-record service. Talk to an Indian CA or lawyer, and read US LLC vs Indian private limited company for the structure question.

Paying Indian contractors: step-by-step process

1. Confirm who you are paying. Is it an individual or a company? Are they a US person?
2. Confirm where the work happens. All in India, or partly in the US?
3. Collect the right form before the first payment: W-8BEN or W-8BEN-E.
4. Agree the terms in writing, including scope, price, currency, payment dates and who owns the work.
5. Pay from your LLC's business account, not from a personal account. See Mercury for non-residents.
6. Use a payment method with clear records. See Wise vs Payoneer for a US LLC.
7. Keep every invoice, form and receipt.
8. Review the form every few years. W-8BEN forms generally expire after three years.

Paying Indian contractors: records to keep

• The signed W-8BEN or W-8BEN-E for each contractor.
• A written agreement or statement of work.
• Invoices and proof of payment.
• A note of where the work was done, especially if the contractor ever travels to the US.
• Your bookkeeping entries, so expenses match your bank statements.

Good records protect you if the IRS ever asks why you did not file a 1099 or withhold tax.

What about paying yourself?

Paying a contractor is different from taking money out of your own LLC. If you are the owner and you live in India, transfers between you and your LLC may be reportable transactions on your annual federal return. Read 5472 and 1120 for foreign-owned LLCs and how to transfer money from a US LLC to India. Owning a foreign company also has Indian reporting effects. See ODI compliance for a US LLC from India.

Mistakes to avoid

• Paying before collecting a W-8BEN.
• Issuing a 1099 to a foreign contractor by mistake.
• Forgetting that a US citizen living in India is still a US person.
• Ignoring work the contractor does while visiting the US.
• Using a W-9 for an Indian contractor.
• Paying from a personal account and mixing records.
• Treating a full-time worker as a contractor without checking Indian rules.
• Not keeping the forms and invoices.

How FormLLC can help

FormLLC helps Indian founders form a US LLC, set up banking and stay compliant. If you have questions about paying Indian contractors from your LLC, book a free consultation and we will help you understand the next step. For tax advice, you should also speak to a qualified tax professional.

*This article is for general information only. Tax rules change. FormLLC is a business formation and compliance services provider, not a law firm, and does not provide legal or tax advice.*