Hiring Your First US Contractor: LLC Guide

Before payment: get W-9

Have the contractor complete IRS Form W-9 with their legal name, taxpayer ID (SSN or EIN), and address. Store the W-9 with your LLC records.

If contractor refuses W-9, you must withhold 24% backup withholding from payments. Most contractors complete W-9 without issue.

During the year: track payments

Track total payments to each contractor across the calendar year. Threshold for 1099-NEC: $600+ total. Below threshold: no 1099 required.

Use accounting software (QuickBooks, Xero) or simple spreadsheet to track.

After year-end: issue 1099-NEC

By January 31: issue Form 1099-NEC to each contractor paid $600+. Includes total paid and contractor's tax ID. File copies with the IRS (paper deadline February 28; electronic March 31).

Most accounting software issues 1099s automatically. Cost: $5-15 per 1099 issued.

Contractor versus employee: the classification line that matters most

Before you worry about any form, settle one question that drives every downstream obligation. Is the person you are paying a contractor or an employee?

A contractor controls how and when the work gets done, uses their own tools, can work for other clients, and is paid per project or per invoice.

An employee works under your direction during set hours, uses resources you provide, and depends on you as a primary income source. The label you write on an invoice does not decide this.

The IRS looks at the actual working relationship using behavioral control, financial control, and the nature of the relationship.

For a non-resident founder running a Delaware LLC, this distinction carries real weight. Hiring a genuine US contractor means a clean Form W-9 and a 1099-NEC at year end with no payroll system attached.

Misclassifying a true employee as a contractor exposes your LLC to back payroll taxes, penalties, and interest if the IRS or a state agency reclassifies them later.

Because you sit outside the US, you cannot rely on local instinct to read these situations, so when a worker starts looking like an employee, get a CPA opinion before the relationship deepens.

A practical safeguard is to write the contractor relationship into a short engagement agreement that states the contractor sets their own schedule, supplies their own equipment, and bears their own business expenses.

This document does not override reality, but paired with a real arms-length relationship it supports your classification if anyone ever asks.

Keep it filed alongside the W-9 you collected before the first payment.

Why a US contractor differs from a foreign one for your reporting

This post centers on a US-resident contractor, and that nationality detail changes your paperwork completely.

A US person, whether a citizen, green card holder, or resident for tax purposes, gives you Form W-9 and triggers 1099-NEC reporting at the $600 threshold.

A contractor who lives outside the US and performs all work outside the US is a different animal.

They complete Form W-8BEN instead of W-9, and you generally issue no 1099-NEC for services performed entirely abroad. The income is foreign-source and falls outside US information reporting.

The trap appears when a contractor sits in a gray zone.

Someone who is a US resident but travels, or a foreign person who performs part of the work while physically inside the US, can pull you into withholding and Form 1042-S territory.

As a non-resident founder you may never meet your contractors in person, so you cannot always see where they sit. Build the question into your onboarding.

Ask every new contractor for their tax residency and where the work is physically performed, then route them to W-9 or W-8BEN accordingly.

Getting this right protects your Delaware LLC from a quiet but real risk.

If you should have withheld on a foreign contractor working inside the US and you did not, the IRS can hold your LLC liable for the tax you failed to collect.

Sorting the W-9 path from the W-8BEN path at the start, before the first dollar moves, keeps you on the simple side of the rules and keeps the relationship friction free.

Setting up clean payment rails before the first invoice

The main post points to ACH from Mercury or Relay, and it is worth expanding on why that channel suits a non-resident founder.

ACH transfers between US bank accounts settle in one to three business days, cost little or nothing, and leave a clean record that ties each payment to a named contractor.

When you fund payments from your LLC business account at Mercury, Relay, or Lili, the transaction history doubles as your bookkeeping trail.

That trail is exactly what you need when you reconcile the $600 threshold at year end and when you defend an expense during any review.

If your contractor banks abroad or prefers a different method, the picture shifts.

Wise and Payoneer move money across borders and currencies, which helps when a US-resident contractor temporarily lives overseas or asks to receive funds in another currency.

Keep in mind that paying a US person through an international rail does not change their US status. They still complete Form W-9, and you still issue a 1099-NEC if you cross $600 in the calendar year.

The payment channel is a logistics choice, not a tax classification.

Whatever rail you choose, pay from the LLC account and never from a personal account.

Mixing personal and business money weakens the liability shield that motivated you to form a Delaware LLC in the first place.

Set up a dedicated vendor or recipient entry for each contractor inside your banking app, attach the W-9 to your records, and standardize on one primary rail so your payment history stays readable a year later when the 1099 work begins.

The contractor agreement clauses a non-resident founder should not skip

A written contractor agreement does more than confirm classification.

For a founder operating from outside the US, it is the document that assigns ownership of the work product, sets payment terms, and defines what happens if the relationship ends.

The clause that matters most for many founders is intellectual property assignment.

Without explicit language stating that all deliverables belong to your LLC, a US contractor may retain rights to code, designs, or written material they create.

That gap can surface painfully later when you raise money or sell the business and a buyer audits who owns what.

Payment terms deserve equal care. Spell out the rate, the invoicing cadence, the net payment window, and the currency.

A clear net-15 or net-30 term sets expectations and avoids the awkward cross-time-zone chase for an invoice.

Add a clause confirming the contractor is responsible for their own taxes, which reinforces the contractor classification and reminds the worker that no withholding happens on their US payments unless they fail to provide a W-9.

Round out the agreement with confidentiality, a defined term with a termination notice period, and a governing law clause. Delaware law is a sensible default given your LLC is formed there.

None of this requires an expensive custom contract for a first hire.

A solid template reviewed once by a US attorney covers most early contractor relationships, and you reuse it for each new person you bring on, swapping only the names, rates, and scope.

Collecting and validating the W-9 without errors

Collecting a W-9 sounds trivial until a contractor sends one with a mismatched name and tax ID, and your year-end 1099 filing bounces.

The IRS matches the name and taxpayer identification number on each 1099-NEC against its records.

A US contractor who operates as a sole proprietor should list their individual legal name on the first line, even if they invoice under a business name.

If they run a single-member LLC, the rules get fussy, and the name they enter must match how the IRS knows that entity. A small slip here causes a notice months later.

When you receive a W-9, check three things before you file it.

The legal name should read as a real personal or entity name, the TIN should be a nine-digit SSN or EIN with no obvious typo, and the form should be signed and dated.

Store the completed W-9 securely because it contains sensitive personal data.

Treat it the way you would treat any document with a Social Security number, with restricted access and encrypted storage rather than a shared folder anyone on your team can open.

You do not send the W-9 to the IRS. You keep it. Its only job is to feed the 1099-NEC you may issue later, so a clean W-9 collected before the first payment saves hours of correction work in January.

If a contractor balks at providing one, remember the consequence built into the rules.

You must apply 24% backup withholding on their payments, which means you hold back nearly a quarter of every dollar and remit it to the IRS until they comply.

Tracking the $600 threshold across mixed currencies and partial years

The $600 reporting threshold is per contractor, per calendar year, and it counts the total you paid for services during that year. This sounds simple until real life complicates it.

A contractor you start in October may stay under $600 in their first calendar year and then cross it the following year. Someone you pay in installments needs a running total, not a per-invoice check.

And a contractor you pay through Wise in a foreign currency forces you to convert each payment to US dollars at the rate on the payment date to know where the annual total stands.

Build a simple ledger per contractor from the day you onboard them. Each row records the date, the gross amount paid, the currency, and the US dollar equivalent.

A spreadsheet handles this fine for a first hire, and accounting tools like QuickBooks or Xero automate it once you have several.

The point is that you never want to reconstruct a year of payments from memory in January when the 1099 deadline is bearing down.

Keep the total live throughout the year so you always know who is approaching the threshold.

Note what does not count toward the 1099-NEC total.

Payments for goods rather than services, reimbursements of documented expenses, and payments you make through a third-party network that issues its own 1099-K can fall outside your 1099-NEC obligation.

Most first-time founders overcomplicate this. For a straightforward services contractor paid by ACH, the gross you sent during the year is the number you report, and a clean ledger makes that number obvious.

How contractor payments interact with Form 5472 and your annual filings

A foreign-owned single-member Delaware LLC files Form 5472 attached to a pro forma Form 1120 every year, reporting reportable transactions between the LLC and its foreign owner and related parties.

Many founders ask whether contractor payments belong on Form 5472.

Generally, arms-length payments to an unrelated US contractor for services are ordinary business expenses and are not the related-party transactions Form 5472 targets.

The form focuses on money flowing between your LLC and you or other entities you control, such as capital contributions, loans, and distributions.

That said, the existence of contractor expenses matters for the bigger compliance picture.

The $25,000 penalty attached to a missed or late Form 5472 is one of the harshest in the US system, and it applies regardless of whether your LLC owed any tax.

Running contractors and incurring real business expenses signals an active business, which makes timely and accurate annual filing even more important.

Keep your contractor records organized because they support the expense side of any return your CPA prepares and they substantiate the operating reality of your LLC.

The practical takeaway is to keep two streams clearly separated in your books. One stream is money between you and your own LLC, which feeds Form 5472.

The other stream is money out to unrelated vendors and contractors, which feeds your expense records and any 1099-NEC reporting.

When these stay distinct from the start, your CPA spends less time untangling transactions, and you reduce the chance of either a Form 5472 error or a contractor reporting miss.

Building a repeatable onboarding checklist for every future contractor

Your first US contractor is the moment to design a process you will run dozens of times. A repeatable checklist removes the scramble and the missed steps that cause problems at year end. The sequence is short.

Send the contractor agreement, collect the signed W-9 or W-8BEN depending on their status, confirm their tax residency and where the work is performed, set them up as a payee in your LLC bank account, and open a payment ledger entry for them.

Each step has a clear owner and a clear completion signal, so nothing slips.

Document the checklist in whatever tool you already use, whether that is a Notion page, a shared doc, or a project board.

The goal is that onboarding a new contractor never depends on you remembering the order from last time.

For a non-resident founder juggling time zones, this structure matters more than it would for a local employer who can lean on memory and a quick hallway conversation.

Your contractors may sit across three continents, and the checklist becomes the shared standard that keeps every relationship compliant.

Revisit the checklist once a year, ideally in late autumn before the 1099 season. Confirm the threshold logic, the W-9 storage practice, and the payment rail still match how you actually operate.

As your LLC grows from one contractor to five or ten, the same checklist scales without rewriting.

The discipline you build with your first hire pays off most when you are busy and tempted to cut corners, because the process catches what a rushed founder would otherwise forget.

State-level contractor rules and where your contractor sits

Federal 1099-NEC reporting is only one layer. Many US states run their own contractor reporting and have their own classification tests, some stricter than the federal one.

California, for example, applies the ABC test, which presumes a worker is an employee unless the hiring business proves all three prongs of independence.

A handful of states also require new-hire or independent-contractor reporting to a state agency.

Your Delaware LLC is formed in Delaware, but the state that matters for these rules is often the state where the contractor lives and works, not where your LLC sits.

For a non-resident founder this is reassuring in one way and a caution in another.

The reassuring part is that a pure online contractor relationship with no US office and no employees rarely creates state filing obligations for your LLC beyond Delaware.

The caution is that if a single contractor in a strict state starts to look like an employee under that state's test, you could face state-level exposure you never anticipated from Delaware.

Knowing each contractor's home state lets you flag the few states with aggressive rules before a relationship grows.

You do not need to become an expert in fifty states. You need to know where your contractors are based and to treat the genuinely employee-like relationships with extra care.

When a contractor in a strict-test state moves toward full-time, dedicated, you-directed work, that is the signal to get a US payroll provider or a state-specific opinion involved.

For everyone else, the standard W-9 and 1099-NEC process handles the obligation cleanly, and your Delaware formation keeps your own entity footprint small.

When a contractor outgrows the 1099 and becomes an employee

The day will come for some founders when a favorite contractor effectively becomes a full-time team member. They work set hours, take direction on how to do the job, and rely on your LLC as their main income.

At that point continuing to pay them as a 1099 contractor invites a reclassification problem.

The honest move is to convert them to an employee, which means running payroll, withholding income and employment taxes, and filing the quarterly and annual payroll forms.

This is a bigger lift than a 1099, and most non-resident founders use a payroll provider to handle it.

Running US payroll from outside the country is doable but requires the right tools.

Providers such as Gusto, Rippline-style platforms, or an employer-of-record service handle the withholding, the state registrations, and the filings your LLC would otherwise have to manage itself.

An employer-of-record route is popular for founders who want one worker on payroll without registering as an employer in that worker's state.

The trade-off is cost, since these services charge per employee, but they convert a daunting compliance burden into a monthly fee.

Plan the transition before you are forced into it. If you can see a contractor heading toward full-time dedicated work over the coming year, talk to a payroll provider early and budget for the change.

Converting cleanly protects your LLC from the back-tax and penalty exposure that comes with a late reclassification.

It also treats the worker fairly, since employee status brings protections and benefits eligibility that a 1099 relationship does not.

The goal is to make the switch on your timeline, not after a notice arrives.

Recordkeeping that survives an IRS notice years later

Contractor relationships generate documents you must keep long after the work is done.

The IRS can examine returns for several years after filing, and the records that defend your contractor expenses and your classification decisions need to exist when that happens.

The core set per contractor is the signed agreement, the W-9 or W-8BEN, the payment ledger, copies of invoices, and the 1099-NEC you issued.

Keep these for at least four years after the tax year, and longer is safer given how memory and access fade.

Storage method matters as much as retention. A W-9 holds a Social Security number, so it belongs in encrypted storage with limited access, not a casual shared drive.

As a founder who may work from a laptop in different countries, lean on a reputable cloud document system with strong access controls rather than scattered files on personal devices.

Name files consistently, such as contractor name plus document type plus year, so that retrieving a single document during a time-pressured notice response takes seconds rather than an afternoon.

Good records also smooth the work your CPA does each year.

When your contractor documentation is organized, the person preparing your Form 1120 and Form 5472 spends less time reconstructing what happened and more time getting the filing right.

That efficiency lowers your accounting bill and lowers the chance of an error in filings where a single Form 5472 miss carries a $25,000 penalty.

The few minutes you spend filing each document properly during the year buys you calm in January and confidence if the IRS ever asks.

A realistic first-year timeline and cost picture

It helps to see how contractor hiring fits into the wider rhythm of running a Delaware LLC as a non-resident founder.

Your LLC began with the $110 Delaware formation and a free EIN obtained by filing Form SS-4, which the IRS typically processes in roughly 8 to 10 business days for foreign applicants without a Social Security number.

With that EIN in hand and a US business bank account opened at Mercury, Relay, Wise, Lili, or Payoneer, you have the foundation needed to pay contractors cleanly from a US entity.

Layer the contractor activity onto your annual calendar. Through the year you collect W-9s, pay via ACH, and keep the per-contractor ledger current.

In late January you issue any 1099-NEC for contractors paid $600 or more, filing copies with the IRS on the paper or electronic deadlines.

Your annual Form 5472 and pro forma Form 1120 also come due, and the June 1 Delaware franchise tax of $300 sits on the same yearly map.

A formation or compliance package priced as a $297 one-time fee can bundle much of the setup so these pieces line up from the start.

On the BOI question that worried many founders, US-formed LLCs were exempted from beneficial ownership reporting under the FinCEN interim final rule issued March 26, 2025, so a Delaware LLC owned by non-US persons does not file a BOI report.

That removes one recurring task from your list and lets you focus your compliance energy on the filings that still apply.

Mapping the formation cost, the recurring franchise tax, the annual federal filings, and the contractor reporting onto one calendar turns a scattered set of obligations into a predictable yearly routine.

Common first-hire mistakes and how to avoid each one

Patterns repeat among founders hiring their first US contractor, and knowing them in advance saves money and stress. The most common mistake is paying before collecting the W-9.

Once money has moved, getting a contractor to complete the form becomes harder, and you lose the leverage that backup withholding gives you.

The fix is a hard rule that no payment leaves your LLC account until the signed W-9 sits in your records. Make it a non-negotiable step in your onboarding checklist so it never depends on goodwill or memory.

A second frequent error is treating the $600 threshold as per payment rather than per year.

A founder who pays a contractor four invoices of $200 each may assume no 1099 is due because each invoice sat under $600, when in fact the $800 annual total crosses the line.

The running ledger prevents this by surfacing the cumulative figure.

A related mistake is paying contractors from a personal account for convenience, which both muddies the books and chips at the liability protection your Delaware LLC was built to provide.

The final cluster of mistakes involves classification drift and silence with your CPA.

Founders let a contractor slide into employee-like work without revisiting status, or they wait until tax season to mention a new arrangement. Neither serves you.

A short mid-year check with your CPA about who you are paying and how flags issues while they are still cheap to fix.

Treating contractor compliance as a steady year-round habit rather than a January fire drill is the difference between a smooth first hire and an expensive lesson.