Foreign remote workers are individuals who work remotely for companies or clients in countries other than their own.
Such foreign remote workers working for U.S. companies or clients have specific U.S. tax obligations. A foreign remote worker is liable for U.S. income tax only on performance of services within the United States.
According to the IRS, payments for services performed within the U.S. by a foreign national are classified as U.S.-source income. Therefore, if a Foreign remote worker provides services inside the U.S., any payment received from a U.S. company is considered U.S.-source income.
The critical factor is where the services are performed, not where the payment comes from or where the payor is located. This applies to both employees and contractors, covering all types of income.
Example: Sarah is a freelance graphic designer living in France. She works remotely for a tech company based in San Francisco. Since Sarah is not a U.S. citizen and has never travelled to the United States, she is considered a foreign worker.
Although Sarah receives her payments in U.S. dollars from a U.S. bank, her income is not classified as U.S.-source income. This is because she performs all of her work from France, which is outside the U.S. The principle applies equally whether Sarah is a full-time remote employee, a contractor billing for specific projects, or a consultant charging hourly rates.
The key point is simple: Sarah’s income from the U.S. company is not U.S. source income. This is because she physically performs all work outside the U.S., regardless of who pays her or how she receives payment.