U.S. businesses sometimes pay independent contractors, vendors, or professionals in a currency other than U.S. dollars. If those payments are connected to a trade or business in the United States, they may still require Form 1099 reporting — even if the payment is made in foreign currency.
The IRS’s General Rule
The IRS requires 1099 reporting for certain payments of $600 or more made in the course of a trade or business to U.S. persons and reportable non-U.S. persons. The key factor is not the currency used, but:
- Who the payment is made to (U.S. or foreign payee)
- Where the services are performed (inside or outside the U.S.)
- What type of income is being paid (services, interest, rent, etc.)
When Foreign Currency Payments Require a 1099
You must generally issue a 1099 if:
- The recipient is a U.S. person or entity
- Even if you pay in euros, yen, or another currency, you must report the payment in U.S. dollars on the 1099.
- Example: You pay a U.S.-based consultant in British pounds for a project. This is reportable on Form 1099-NEC.
- The payment is for services performed in the United States
- Foreign vendors who perform work inside the U.S. may trigger reporting requirements.
- You may need Form W-8BEN or W-8BEN-E from the foreign payee to determine whether withholding and reporting apply.
Currency Conversion for 1099 Reporting
If you paid in a foreign currency, you must convert the amount to U.S. dollars for IRS reporting.
- Use the exchange rate in effect on the date of payment, or
- Use an IRS-accepted average annual rate if multiple payments are made over time.
- Keep documentation of the rate source (such as U.S. Treasury or Federal Reserve rates).
When a 1099 Is Not Required
A 1099 is typically not required when:
- Payments are made to a foreign person or entity for services performed entirely outside the United States.
- Payments are for goods, inventory, or merchandise only (no services).
Best Practices for Compliance
- Collect W-9s or W-8s – This determines the payee’s status and whether a 1099 applies.
- Track the Location of Work – Keep records showing whether services were performed inside or outside the U.S.
- Document Exchange Rates – Maintain proof of the rate used for conversion.
- Review Vendor Status Annually – Changes in tax residency or service location can alter reporting obligations.
Key Takeaway
The currency used for payment does not exempt you from 1099 obligations. If the payment meets IRS thresholds and is made to a U.S. person or a foreign person performing work in the U.S., it must be reported in U.S. dollars — with proper currency conversion and documentation.