How to Pay International Contractors: Methods, Costs and US Tax Basics

The short answer

You can pay a contractor abroad in five broad ways: an international bank wire, a multi-currency or local-payout platform, a payroll or contractor-management platform, a wallet-style service, or a card or crypto payment. Each charges for the same things in different places: a sending fee, a currency conversion margin, possible deductions by banks along the route, and sometimes a fee at the receiving end. The right choice depends on how much you pay, how often, in which currency, and how much paperwork you want someone else to handle.

This guide is for US small-business owners. It shows what each method costs, works through one dated currency example, and covers the tax forms, sanctions checks and contract points around the payment. It names no providers in the body, because the fee that matters is the one on the schedule you are quoted.

Who counts as a contractor abroad

A contractor runs their own business and provides a service to yours, rather than working inside it under your direction. The distinction matters before you pick a payment method, because the tax paperwork and the contract follow from it.

For US federal tax purposes, the IRS looks at evidence of control and independence in three groups: behavioural control (does the business control what the worker does and how), financial control (are the business aspects of the job controlled by the payer, such as how the worker is paid and who provides tools), and the type of relationship (written contracts, employee-type benefits and whether the work continues indefinitely). That is the US test. The contractor's own country applies its own rules on whether the arrangement can be self-employment, and we do not summarise those here.

If one person works set hours, uses your systems all day and works only for you, the contract label may not protect either side. Our glossary explains misclassification and the independent contractor concept, and the misclassification risk tool lets you test your own situation.

The five ways to pay and what each really costs

The total cost of a payment is the sending fee, plus the gap between your exchange rate and a reference rate, plus any deductions along the route. Fee figures below come from published fee schedules. They are examples of what one schedule says, not a range for the whole market.

1. International bank wire (SWIFT)

A wire sends money from your bank account to the contractor's, usually through the SWIFT messaging network. The costs stack: a fee from your bank, possible fees from other banks on the route, a conversion margin if the currency changes, and sometimes a fee at the receiving account.

As one data point, a US bank's published business fee schedule effective 1 May 2026 lists an outgoing international USD wire at $50.00 online and $65.00 through a branch, and an incoming international USD wire at $16.00. Other banks list different figures, so read this as the form the fee takes: a fixed amount per payment.

Correspondent banks can deduct their own fees from the amount passing through them. One payments provider's help page says so, and adds that a sender can choose the "OUR" charge option so the sender covers all correspondent charges. A provider explainer describes international wires as usually taking one to five business days. Treat that as a description, not a promise.

2. Multi-currency or local-payout platform

These services hold balances in several currencies or pay out through local bank networks. One published business pricing page lists sending and converting "from 0.23%", with the fee varying by currency, and a one-time set-up fee. Your actual percentage depends on the currency pair and the amount.

Ask whether the quoted rate is a reference rate with a visible fee or a marked-up rate with no fee line, and whether the contractor pays to receive the money. The same pricing page lists a fixed fee for receiving a USD wire, so receiving fees exist.

3. Payroll or contractor-management platform

Some platforms handle contractor onboarding, collect tax forms, send payments and keep records for a monthly or per-contractor fee. The payment underneath still carries a conversion margin or network fee. Ask for the full schedule.

A platform does not change the legal nature of the relationship. If the person really works like an employee, a tidy payment process does not fix that.

4. Wallet-style payment service

Wallet services let you send money to an email address or phone number. One published wallet fee schedule (last updated 1 October 2026) lists international payouts at 2% of the amount, subject to a currency-dependent fee cap, and a currency conversion spread of 4.00% when the recipient is paid in a different currency, "or such other amount as may be disclosed to you during the transaction". It lists 3.00% for other conversions. Percentage charges rise in dollars with the amount.

5. Card or crypto

Paying by business card works only if the contractor can accept cards. Card fees vary by issuer; read your card's schedule first.

Contractors sometimes ask for crypto or stablecoins. The IRS says that for US tax purposes digital assets are property, not currency, and that exchanging a digital asset for goods or services is a digital asset transaction. You may have a gain or loss to calculate on the asset you hand over. Get tax advice before paying anyone this way.

A worked currency example

This example is illustrative. A US business owes a contractor an invoice of PHP 120,000. The reference rate is the open.er-api.com rate last updated at 00:02 UTC on 31 October 2026: 1 USD = 63.711946 PHP. A reference rate is not necessarily a rate you can get.

On this invoice, a 3.00% spread adds about $58.25 over the reference rate, before any sending fee or correspondent deduction. Ask each provider for the rate it will use today. To model the whole cost of an engagement, use the remote hiring cost calculator.

Choosing a method by amount and frequency

Fixed fees weigh heavily on small payments, and percentage fees on large ones. Using only the figures above, a fixed $50.00 wire fee is 10% of a $500 payment and 0.5% of a $10,000 payment, while a 2% payout fee is $10 on $500 and $200 on $10,000, before any cap. Neither includes currency conversion, which can be the larger item.

• Small, occasional payment: check the conversion spread and withdrawal fee, not only the headline fee.
• Regular payments to one or two people: price the same invoice on the same date through a multi-currency platform and through your bank.
• Many contractors in several countries: a contractor-management platform may justify its fee for forms, records and batch payments.
• Large, infrequent payment: get the exchange rate in writing and agree who pays correspondent charges.

Contracts and invoices: what to put in them

Payment friction usually starts with a vague agreement. A short written contract and a consistent invoice format remove most of it.

• Parties and status: legal names, country, and the real arrangement as independent services.
• Scope, deliverables and ownership of the work product.
• Currency: USD or local. If local, say which rate and date apply. Invoicing in USD puts exchange-rate risk on the contractor; local currency puts it on you.
• Fees: say who bears sending, intermediary and receiving fees. For a wire, decide who pays the correspondent charges.
• Payment terms: due date, route, and bank details confirmed on a second channel to reduce payment-redirection fraud.
• Invoice contents: number, date, description, amount, currency, names and addresses, and period covered.
• Termination, confidentiality, governing law and disputes. Have a lawyer review anything of large value.

Our remote hiring compliance guide and vendor due-diligence guide cover related checks if you use an agency or intermediary.

US tax forms and record-keeping

Collect the correct form before you pay. Which one depends on who the payee is.

Form W-9 for US persons, including US citizens abroad

A US-person contractor gives you Form W-9 with their taxpayer identification number. The IRS instructions for Form W-8BEN say a US citizen, even one living outside the United States, is a US person who should use Form W-9 rather than a W-8 form.

Form W-8BEN and W-8BEN-E for foreign contractors

A foreign individual gives the payer Form W-8BEN, and a foreign entity uses Form W-8BEN-E. It goes to the payer, not the IRS. The IRS says failing to provide it when requested may lead to withholding at 30% or at the backup withholding rate. Treat it as standard onboarding and keep it with the contract.

Form 1099-NEC and the $2,000 threshold

Form 1099-NEC reports nonemployee compensation paid in the course of your business. The IRS instructions state that for tax years beginning after 2025 the minimum reporting threshold for certain payments increased to $2,000, and may be adjusted for inflation beginning in calendar year 2027. Form 1099-NEC is due on 31 January. This is the form for US contractors paid at or above the threshold.

Foreign contractors working outside the United States

For a foreign contractor, the question is whether the income is from US sources. IRS Publication 515 says income for personal services performed in the United States is from US sources, and that the place where the services are performed determines the source, regardless of where the contract was made, where payment is made or where the payer lives. The IRS general information-return instructions point payments to foreign persons to the Form 1042-S rules for US-source income.

Read together, pay for work performed entirely outside the United States by a foreign contractor is generally not US-source income, and ordinarily does not call for a Form 1099-NEC or 30% US withholding. Work performed while the contractor is physically in the United States is different: Publication 515 states that withholding on independent personal services is at 30% unless an exemption applies. If a foreign contractor may work from US soil, ask a tax professional before paying.

Keep the signed contract, the dated tax form, each invoice and payment confirmation with the rate and fees, and your sanctions screening results.

Sanctions and know-your-customer checks

US sanctions apply to you as well as to your bank. OFAC states that all US persons must comply, including US citizens and permanent residents wherever they are located, all individuals and entities within the United States, and US-incorporated entities and their foreign branches. OFAC does not keep a single list of countries US persons may not deal with. Its programs differ: some are broad and target a whole jurisdiction, and others target named individuals and entities.

• Screen the contractor's name, business name and country against OFAC's Sanctions List Search before the first payment, and again if details change. The search covers the Specially Designated Nationals and Blocked Persons (SDN) List and other lists OFAC administers; the search page showed the SDN list last updated on 28 October 2026.
• Remember the 50 Percent Rule: OFAC says blocked persons include persons blocked under that rule, so ownership matters if the contractor is a company.
• If a payment involves a blocked person, OFAC says the property must be blocked (frozen, not seized) and reported to OFAC within 10 business days. Stop and get legal advice.

Your bank or platform will also run its own identity checks. They may ask questions on a first payment, so keep the contract and invoice ready. If a payment is held or returned, find out why before retrying through another route.

When to switch to an employer of record or agent of record

Contractors suit defined work performed independently. If the person works full time, only for you, in your tools and under your management, a better payment method will not fix a classification problem. An employer of record (EOR) becomes the legal employer in the worker's country, so the worker is treated as an employee under local law and the EOR runs local payroll and employment paperwork for a fee. Our comparison of EOR versus contractor sets out the trade-offs.

Some providers offer an agent-of-record (AOR) arrangement. The legal roles differ from an EOR, so read the agreement to see who is the legal employer and who carries payroll-tax liability. Signals that it is time to review the model:

• The contractor works set hours and takes day-to-day instructions from you.
• They work only for you, for a long period, and are paid like a salary each month.
• They need benefits or paid leave under local law.

Compare total cost, not the transfer fee. The remote staffing costs guide lists the components of the price of a remote hire.

Checklist before you send the first payment

1. Decide whether the person is genuinely a contractor, and record why.
2. Sign a written agreement stating currency, fee allocation and payment terms.
3. Collect Form W-9 (US person) or Form W-8BEN or W-8BEN-E (foreign person).
4. Screen the payee and the country against OFAC resources, and save the result.
5. Get payment details in writing and confirm them on a second channel.
6. Ask for the exchange rate, sending fee and any receiving fee in writing.
7. Record the amount, rate, fees and date, and file the confirmation with the invoice.
8. Diary 31 January for 1099-NEC filing for US contractors paid at or above $2,000, and review the model if the work starts to look like employment.

Sources

• IRS, Form W-8 BEN and W-8 BEN-E
• IRS, Instructions for Form W-8BEN and Form W-9 instructions
• IRS, Forms 1099-MISC and 1099-NEC instructions and About Form 1099-NEC
• IRS, General Instructions for Information Returns
• IRS, Publication 515
• IRS, Independent contractor or employee
• IRS, Digital assets
• OFAC FAQ topic 1501, FAQ 9 on blocked property and Sanctions List Search
• open.er-api.com USD rates
• Western Alliance Bank, business fee schedule, 1 May 2026 (bank wire fees)
• PayPal, Business fees (wallet fees, updated 1 October 2026)
• Wise, Business pricing and Swift receiving fees help article (platform fees)
• Payoneer, What is a wire transfer (wire timing)

References checked on 31 October 2026. Provider names appear in this list only to identify the pages read and are not recommendations. RemoteStaffingWiki is an educational resource, and this article is general information, not legal, tax or financial advice. Rules and fees change and depend on your facts, so confirm with a qualified US tax professional and, where needed, a lawyer in the contractor's country.