A Practical FAQ for Non-U.S. Citizens, Digital Nomads, and Former OPT/H-1B Workers
If you recently left the United States (or your U.S. work authorization is ending) and your U.S. employer wants to keep you on as an independent contractor—often through a U.S. single-member LLC—there are three big buckets to get right:
- Your U.S. tax residency for the year you left (resident vs nonresident vs dual-status)
- Whether the payments are U.S.-source or foreign-source (this drives U.S. tax + withholding)
- Which forms you and the payer should use (W-8BEN vs W-9, 1099 vs 1042-S, and LLC filings like 5472)
Educational only. Cross-border tax results depend on facts (visa history, day count, treaty position, where services are performed, and the payer’s compliance process).
FAQ 1) I left the U.S. mid-year. Am I still a “U.S. tax resident” for that year?
Maybe. U.S. tax residency is not the same thing as immigration status.
Key concept: the Substantial Presence Test (SPT)
- Many F-1 students are treated as “exempt individuals” for purposes of counting days, but that exemption is limited (commonly up to 5 calendar years for students), after which days can start counting toward SPT.
- Once you meet the SPT, you can be treated as a U.S. tax resident for that year unless a treaty/tie-breaker or another exception applies.
What if I left and worked remotely outside the U.S.?
That fact affects income sourcing (U.S.-source vs foreign-source), and it can affect whether you can support a dual-status position in the year of departure (resident for part of the year, nonresident for part). Dual-status is a recognized concept in the IRS “Tax Guide for Aliens.”
Practical note: If you cannot clearly support “residency termination” (treaty position, closer-connection facts, or other proof), many people keep the year simple as a resident year and treat the next full year as nonresident (assuming they’re not physically in the U.S.).
FAQ 2) If I work outside the U.S. as a contractor, is my pay still taxable in the U.S.?
Often no, if you are a nonresident alien and your services are performed entirely outside the United States.
A core sourcing rule: compensation for services is generally sourced where the services are performed—U.S. performance tends to be U.S.-source; outside-U.S. performance tends to be foreign-source.
So if:
- You’re a nonresident for U.S. tax purposes, and
- You are physically outside the U.S. when you do the work, and
- You do not have a U.S. office/agent situation creating a U.S. trade or business,
…then the payments are commonly treated as foreign-source services income, which generally is not subject to U.S. tax in the first place.
FAQ 3) Should I give my U.S. client a W-9 or a W-8BEN?
- W-9 is for U.S. persons (U.S. citizens/residents/entities).
- W-8BEN is commonly used by foreign individuals to document foreign status.
If you are a foreign individual (even if you still have a U.S. SSN), the client’s compliance team usually wants a W-8BEN on file to support “foreign payee / not a 1099 contractor” treatment.
About “country of residence” and foreign TIN fields: the W-8BEN instructions drive what is required depending on whether you’re claiming treaty benefits and your facts. (When in doubt, don’t guess—complete it based on your actual legal residency/treaty position.)
FAQ 4) Will my U.S. client have to withhold U.S. tax from my contractor payments?
For services performed outside the U.S.: often no
If the work is performed outside the U.S., the income is generally foreign-source, and the payer typically does not withhold U.S. tax on that payment.
For services performed in the U.S.: withholding can apply
The IRS specifically notes that payments for independent personal services to nonresident aliens may be subject to 30% withholding unless reduced by treaty or another rule applies.
Bottom line: the withholding answer depends heavily on where the services are physically performed (and whether the payer classifies the payment correctly).
FAQ 5) Will my U.S. client issue me a 1099-NEC?
Many companies’ AP systems default to “1099 everyone,” but technically:
- 1099 reporting is generally aimed at U.S. payees, while
- Form 1042-S is used for reportable payments to nonresident aliens in many cases (especially where withholding applies).
If you give a W-8BEN and the services are performed outside the U.S., many payers will issue no 1099 and also no 1042-S (because there’s no U.S. tax withholding event to report). If services are performed in the U.S. and withholding applies, you’ll more commonly see 1042-S reporting.
FAQ 6) I have a U.S. single-member LLC. If I’m a foreign person, do I still have to file anything with the IRS?
Yes—often even if you owe no U.S. income tax.
A foreign-owned U.S. disregarded entity (single-member LLC owned by a foreign person) is generally required to file a pro-forma Form 1120 with Form 5472 to report “reportable transactions” with its foreign owner.
This filing is about information reporting—not about saying you owe income tax.
FAQ 7) What counts as a “reportable transaction” for Form 5472?
Common examples that frequently trigger reporting include things like:
- Owner capital contributions/funding
- Owner reimbursements
- Distributions/withdrawals
- Intercompany/related-party payments
The exact rules are detailed in the Form 5472 instructions and should be mapped to your actual books/transactions.
FAQ 8) If I’m outside the U.S. all year, do I still need to file a U.S. personal tax return (Form 1040NR)?
Sometimes yes, sometimes no.
Common “yes” situations
- Was not properly withheld, or
- Requires a return to claim a treaty position or a refund
Common “no” situations
If you are a nonresident and all you have is foreign-source services income (services performed outside the U.S.) and you have no other U.S.-source tax items, you may not need a U.S. 1040NR—but your foreign-owned LLC may still need 5472 + pro-forma 1120.
FAQ 9) What if I still have U.S. bank/brokerage accounts paying dividends or other investment income?
That category is different from services. Many types of passive U.S.-source income paid to foreign persons can be withholdable and can trigger reporting and/or a personal filing depending on how it’s handled. The IRS has dedicated guidance on withholding and documentation for foreign payees.
FAQ 10) My client is in California. Does California create extra tax problems for foreign contractors?
California is a “special attention” state because it has:
- Separate withholding and sourcing compliance for nonresidents in some cases.
Practical takeaway: if the payer is CA-based, the payer’s payroll/AP tax team should confirm whether they have any CA nonresident withholding obligations and whether your services are considered CA-source under their facts.
FAQ 11) I left a U.S. state (e.g., Virginia). Can the state still treat me as a resident if I haven’t established a new home elsewhere?
Yes—state domicile disputes are real.
Virginia’s own rulings emphasize that changing domicile generally requires both:
- actual abandonment of the old domicile with intent not to return, and
- acquisition of a new domicile elsewhere formed by presence plus intent to remain permanently/indefinitely—and the burden of proof is on the taxpayer.
This is why “I left the U.S.” alone sometimes isn’t enough for certain states if you cannot show a new domicile.
Quick Checklist: Doing This the Clean Way
If you’re the contractor (foreign individual)
- Track your physical location (travel calendar) because it drives sourcing.
- Give the payer the correct documentation (often W-8BEN).
- Maintain clean LLC books and track owner transfers for 5472 reporting.
- If you receive U.S.-source passive income, make sure withholding/documentation is handled properly.
If you’re the U.S. company paying the contractor
- Collect W-8BEN and classify the payment correctly.
- Confirm whether the payment is U.S.-source or foreign-source (services performed where?).
- If withholding/reporting applies, use the proper framework (often 1042/1042-S, not a routine 1099).
Call to Action: Want a Clean, Audit-Defensible Setup?
If you want this structured correctly (W-8 documentation, withholding position, nonresident vs dual-status considerations, and foreign-owned LLC filings like 5472/1120), book a paid consultation here:
