Why US platforms withhold tax from non-US contractors
Overview · 1 week ago
Some non-US contractors see US tax withheld from AI training payments; many see none. How the IRS rules on withholding for foreign persons work, what decides whether income counts as US source, where the W-8BEN fits, and what the IRS says about services performed outside the United States.
The rule behind US tax withholding for AI training jobs
When a US company pays a non-US person, it may have to hold back tax before the money leaves. The IRS calls this NRA withholding, and describes it as "the withholding regime that requires 30% withholding on a payment of U.S. source income and the filing of Form 1042 and related Form 1042-S".
The same page puts the principle simply: "Generally, a foreign person is subject to U.S. tax on its U.S. source income." It adds that a reduced rate, including exemption, may apply under a provision of the Internal Revenue Code or under a tax treaty between the United States and the foreign person's country of residence.
The business that pays you is the withholding agent. The W-8BEN instructions define that as any person with control over a payment of US source income subject to withholding, which is why the platform, not you, is the one that would withhold.
The question that decides it: where the work happens
Withholding attaches to US source income, so the source of your pay is the deciding question. For pay for personal services, Publication 515 states the rule:
If the income is for personal services performed in the United States, it is from U.S. sources. The place where the services are performed determines the source of the income, regardless of where the contract was made, the place of payment, or the residence of the payer.
Publication 515 also says that when services are performed partly in the United States and partly outside, the income has to be allocated, in most cases on a time basis. The Form 1042-S instructions add that foreign source income is generally not required to be reported on that form.
That is how the IRS states it. Whether any particular payment you receive is US source is a question of facts for your own situation, which is where a tax professional comes in.
For contractors working in the US as nonresidents
Publication 515 covers independent contractors directly, under "independent personal services". Pay for those services performed in the United States is subject to withholding at the statutory 30% rate, unless a withholding agreement or the final payment exemption applies, or a treaty exemption is claimed. The document for claiming a treaty exemption on this kind of pay is Form 8233, not the W-8BEN.
Where the W-8BEN fits
The W-8BEN instructions warn that failing to provide the form when requested "may lead to withholding at the foreign-person withholding rate of 30% or the backup withholding rate". The IRS page on backup withholding gives that rate as 24 percent, applied when a payee fails to give a correct taxpayer identification number. So an unanswered form request can itself cause withholding. W-9 vs W-8BEN covers which form is yours.
What platforms say
Mercor states that it does not withhold taxes from contractor payments and that contractors are responsible for tax in their own country, as summarised in how you actually get paid. Most platforms behind the listings on this site do not publish a withholding policy.
Everything here describes how the IRS explains these rules; it is not tax advice. Check your own situation with a tax professional who knows both US rules and those of the country you live in.
Labeling Jobs does not give financial or tax advice.
Questions
- Why would a US platform withhold tax from a non-US contractor?
- Under the IRS NRA withholding rules, a US payer generally withholds 30% on US source income paid to a foreign person, unless a lower rate or exemption applies under the tax code or a tax treaty. The payer is the withholding agent.
- Is pay for remote work done outside the US US-source income?
- IRS Publication 515 says the place where personal services are performed determines the source of the income, regardless of where the contract was made, where payment is made or where the payer lives. How that applies to your own payments depends on your facts, so check with a tax professional.
- Can skipping the W-8BEN cause withholding?
- Yes. The IRS W-8BEN instructions say that failing to provide the form when requested may lead to withholding at the 30% foreign-person rate or at the backup withholding rate, which the IRS backup withholding page gives as 24 percent.
Platforms covered here
Put this into practice
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