W-8 BEN Form: Definition and When To Use It

What is a W-8 BEN Form?

The W-8 BEN is a tax form by the Internal Revenue Service (IRS) in the United States to determine an employee's foreign status for income tax and tax withholding. It is used by individual Non-resident aliens (NRA), that is, employees in the US who are not citizens or permanent residents. Officially, Form W 8BEN is referred to as the Certificate of Foreign Status of Beneficial Worker for United States Tax Withholding & Reporting (Individuals).

What is a W-8 BEN Form Used For?

Form W 8BEN is not just another piece of paperwork; its purpose is multi-fold and extends to several aspects of taxation for non-U.S. residents. Below, we delve deeper into the form's various applications.

Certifying Foreign Status

The IRS confers different tax rates for US nationals, permanent residents (holders of the Green Card), and non-citizens working in a US organization but living outside the United States (NRAs). As a result, the form W 8BEN is used to certify their foreign person status.

Claiming Tax Treaty Benefits

Many foreign countries have an established income tax treaty with the US that makes it possible for their citizens to have a reduced tax rate when receiving salary or wages from sources in the United States. As a result, form W 8BEN uses the residency status to determine if the employee qualifies for reduced rates.

By filling out the tax form, the beneficial owner, employee or contractor can claim tax benefits from their country's income tax treaty with the US government. This information enables the withholding agent, organization or employer to use this rate for income tax withholding.

Providing a Foreign TIN

Another important use of the form W 8BEN is to provide a foreign Taxpayer Identification Number (TIN). A TIN is a unique identification number used for tax purposes, and the requirement to provide it helps the IRS maintain proper tax records.

This information is especially relevant when managing contractor payroll. Ensuring that all tax identification details are correct and up-to-date is important, and helping maintain seamless transactions and reducing the risk of compliance issues is essential for any growing organization.

When to Request a W-8 Form

A W 8BEN form should be requested and completed before a payment is made to a foreign person or foreign entity. Also, the withholding agent or employers must ensure W-8 BEN form is requested from employees and independent contractors who meet some criteria before they get paid for their services. The employees must not be citizens or residents of the United States. Also, the employee must be without a green card, that is not a permanent resident.

Filling Out Form W-8 BEN?

Non-U.S. citizens, who are receiving income from a U.S. source, must fill out Form W 8BEN. This form is primarily used to confirm the beneficial owner status under the United States tax withholding rules and regulations. This could include independent contractors, self-employed individuals, and digital nomads working for U.S. companies while living in a foreign country. Note that this form W 8BEN doesn't apply to corporations or partnerships; they should fill out Form W 8BEN E instead.

How to Fill Out a W-8 BEN Form

Filling out a W-8 BEN form issued by the Internal Revenue Service involves several steps:

• Provide your name, country of citizenship, permanent residence address, and mailing address (if different from the permanent residence). This information is required to identify the beneficial owner of the income.
• State whether you claim treaty benefits, and provide the specific treaty article and rate.
• If applicable, provide your U.S. TIN, foreign TIN, or date of birth. A beneficial owner, including foreign entities, must submit this information to validate their tax forms.
• Lastly, sign and date the form, certifying that the information is correct. This attestation solidifies the foreign organization or beneficial owner's status under tax law.

Remember to keep up to date with tax information, particularly tax deductions that can help reduce your overall tax liability. Withholding agents and a financial institution must keep track of this information to handle tax withholding accurately.

Information contained in a Form W-8BEN

The Form W-8BEN, a critical document for foreign entities and beneficial owners, might seem challenging initially, but it can be broken down into manageable steps. By understanding each component, tech talents and remote teams can confidently navigate this process, especially if they represent a foreign government or other tax exempt organizations.

1. Identifying Information

Start with the basics: your name as it appears on your income tax return and your country of citizenship. Provide your permanent residence address, not a P.O. Box or in-care-of address. If your mailing address is different, you must also include that.

2. Claiming Treaty Benefits

The U.S. has tax treaties with many federal governments that might reduce the tax rate you owe. If you're claiming treaty benefits, you must specify the treaty country and the article that provides these tax benefits. Remember to include the rate of withholding allowed by the treaty, which can be found on the IRS website.

This part can be beneficial for remote tech talents and digital nomads, as it allows them to take advantage of benefits they might not have known they were entitled to.

3. Taxpayer Identification Numbers

If you have been issued a U.S. taxpayer identification number (TIN), you must include it here. If you have a foreign TIN, provide it in line 6. For those who do not have a TIN, you may use your date of birth. Check the official IRS guidance or Skuad's glossary for more information on TIN.

4. Signature

Lastly, you need to sign and date the form, certifying that the information provided is correct to the best of your knowledge.

Filling out the W-8 BEN form accurately is critical to managing contractor payroll and keeping international operations running smoothly. Remember to stay up-to-date with tax information, particularly tax deductions, which could help reduce your overall tax liability.

Submitting a W-8 BEN Form

Once the form is completed, it should be given to the U.S. withholding agent, typically the employer or the company making the payment. The agent then retains the form for their records and may submit it to the IRS if requested.

File Taxes Compliantly With Skuad

As the modern work environment evolves with many remote workers and international collaborations, understanding tax forms like the W-8 BEN is increasingly crucial. This form is a vital cog in the machinery of global tax compliance, playing a significant role in managing contractor payroll, reducing legal risks, and ensuring smooth operational transitions across borders.

However, navigating the complexities of global tax laws and regulations can be daunting. This is where Skuad comes in. Skuad is an Employer of Record platform that enables organizations to hire, onboard, and manage contractors and employees across over 160 countries while ensuring full compliance with country-specific laws and regulations, including the United States. Skuad takes the hassle out of compliance, reducing your organization's exposure to legal risks and fines. With Skuad, your organization can achieve high tax and regulatory compliance as part of its corporate identity without the attendant complications of navigating diverse international legal frameworks.

To know more about Skuad, schedule a demo with Skuad experts today

FAQs

What is the difference between w8 and w8 BEN?

While W-8BEN is a form for workers earning from a US source to determine and establish their foreign status for the purpose of filing taxes, W-8 forms are a collection of forms for foreign persons to claim exemptions. In essence, a W-8 BEN form is a type of W-8 form.

What is the withholding rate for W8 Ben?

The withholding rate for W 8BEN is 30%.

Can a U.S. citizen fill out a W8?

No, the W-8 is particularly for foreign individuals, and every US citizen has no reason to use or fill out the form.