What is a 1099 employee?

What is a 1099 employee? Our quick guide gives you the clarity you need to hire internationally and tap into global talent with confidence.

what is a 1099 employee

Over the last few years, business owners in the U.S. have increasingly turned to overseas hiring following the proliferation of remote work to access a broader talent pool while maintaining cost efficiency through flexible, contract-based work. 

This makes correct employment classification more important than ever.

As a result, thereโ€™s often confusion around employment classification, especially when it comes to 1099 employees, who are sometimes mistakenly lumped in with all remote workers.

If youโ€™re asking, โ€œWhat is a 1099 employee?โ€โ€”youโ€™re not alone. Itโ€™s a common question and one that comes up frequently as businesses scale and tap into global talent. 

First off, 1099 employees arenโ€™t technically employees at allโ€“this term is used informally to refer to independent contractors who are paid for their services without being on the companyโ€™s payroll.

What is a 1099 Employee?

โœ… Self-employed (whether they be a freelancer, contractor, consultant, etc.)
โœ… In control of how, when, and where they work
โœ… Responsible for their own taxes (there are no withholdings such as Social Security or Medicare from the payer)
โœ… Not entitled to employee benefits such as health insurance, paid time off (PTO), or unemployment benefits. 

At Payoneer WFM, we understand how important it is to build your team with the right people from the start. Thatโ€™s why weโ€™ve created this comprehensive guide for 1099 employeesโ€”to help you navigate the classification process with clarity and confidence.

What is a 1099 Employee? (Cont.)

The โ€œ1099โ€ in the term 1099 employee comes from the IRS Form 1099, a series of tax documents used to report various types of non-employee income.

Independent contractorsโ€”often referred to as 1099 employeesโ€”donโ€™t have taxes withheld by an employer. Instead, they use these forms to report the income theyโ€™ve earned throughout the year when filing their taxes.

The counterpart to a 1099 employee is a W-2 employee, named after IRS Form W-2, which employers issue to report wages, salaries, and tax withholdings for traditional employees.

In contrast to 1099 contractors, W-2 employees have their income tax, Social Security, and Medicare contributions automatically deducted from their paychecks by their employer.

The other aspect that makes it difficult to answer the question โ€œWhat is a 1099 employeeโ€ is that there are several types of 1099 forms that may be used to report different kinds of income, including:

Common types of IRS 1099 forms and what they report

1099-NECUsed to report payments to independent contractors (the primary form for 1099 workers)
1099-MISCReports miscellaneous income (e.g., rent, prizes, royalties)
1099-KReports payments received via third-party platforms (e.g., PayPal, Stripe)
1099-INTReports interest income (from banks, etc.)
1099-DIVReports dividends and distributions
1099-BReports income from broker or barter exchanges (stocks, trades)
1099-RReports retirement account distributions
1099-GReports government payments (e.g., unemployment compensation)
1099-CReports canceled debts
1099-QReports distributions from education savings accounts
1099-SReports proceeds from real estate transactions

1099 employees vs W-2 employees

1099 Employees vs W-2 Employees

Can I hire 1099 employees overseas?

No, anyone hired remotely to work for you overseas, even if they are independent contractors or freelancers, will not receive a Form 1099.

This is because IRS Form 1099 is specifically designed for U.S. freelancers or contractors. Instead, they will receive a form W-8BEN to confirm their foreign tax status.

The IRS takes this route for reporting overseas workers because no U.S. taxes are withheld from overseas pay. Instead, they will be beholden to their own countryโ€™s tax laws and regulations.

However, companies hiring overseas also need to be aware of these unique tax laws in addition to their own.

How do I pay my overseas workers?

If youโ€™re one of the many businesses looking to tap into the growing labor markets across borders, youโ€™ll need to be aware of the challenges associated with sending international payments, such as:

  • Currency exchange rates
  • Banking fees
  • Potential delays
  • Cultural differences
  • Local and provincial labor and tax laws
The smart way to hire overseas workers for many businesses is by partnering with an Employer of Record (EOR) like Payoneer Workforce Management. 
Why? Because Payoneer WFM takes care of the backendโ€”local compliance, tax paperwork, payroll, and even benefitsโ€”so you donโ€™t have to spin up a foreign entity just to build your global team. Itโ€™s a cleaner, faster way to stay focused on growth while staying fully above board.
Why businesses choose Payoneer as their EOR

Hire globally with Payoneer WFM

When asking, โ€œWhat is a 1099 employee?โ€ itโ€™s important to understand how classification impacts your hiring strategy, especially when it comes to building an international team.

Since overseas workers typically canโ€™t be classified as 1099 employees under U.S. tax law, choosing the right path forward is essential. Thatโ€™s where many businesses turn to an EOR.

At Payoneer WFM, we help businesses expand their talent pool, boost productivity, and protect their bottom line – all while handling the compliance, tax, and administrative work that comes with international hiring with our suite of contract management services

So you can stay focused on growth, not paperwork.

Ready to hire globally?


Effortlessly manage and pay teams across 160+ countries and 70 currencies.

FAQs

1. Does an employer withhold taxes for a 1099 worker?

No, employers do not withhold taxes for 1099 workers. Independent contractors are responsible for paying their own income and self-employment taxes.

2. Is it better to have 1099 or W-2 employees?

It depends on your business needs. 1099 workers offer flexibility and lower costs, but canโ€™t be closely managed like employees. W-2 employees provide more control and stability but come with higher costs and more compliance requirements.

3. What type of worker qualifies to receive a 1099?

A worker qualifies for a 1099 if they are an independent contractor who controls how and when they work, uses their own tools, and works with multiple clients. They are not considered employees under IRS guidelines.

Disclaimer 

Nothing herein should be construed as if Payoneer Inc. or its affiliates are soliciting or inviting any person outside the jurisdiction where it operates/is licensed to engage in payment services provided by Payoneer Inc. or its affiliates, unless permitted by applicable laws. Any products/services availability are subject to customerโ€™s eligibility. The availability of this product is not guaranteed and may vary. Not all products/services are available in all jurisdictions in the same manner.

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