All About the W-8 BEN Form: What It’s For and How to Request It
When you find that perfect international contractor, it's important to know the ins and outs of the W-8 form. Learn what Forms W-8 BEN and W-8 BEN-E are for and how to request and collect them.
Published on January 7, 2022
What are Form W-8 BEN and Form W-8 BEN-E?Form W-8 BEN and W-8 BEN-E are used for collecting information necessary for tax purposes from a foreign party contracted or paid by a U.S.-based company. This data helps the employer know how much tax they need to withhold from any paychecks. Also known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting,” Form W-8 BEN and W-8 BEN-E both serve the same purpose: identifying foreign parties who receive U.S.-based income and determining how much tax to withhold from payments made.To put it another way, Form W-9 is for collecting info from U.S.-based contractors, while Form W-8 BEN is its equivalent for foreign individuals and non-resident aliens. Form W-8 BEN is for people who don’t live in the U.S., aren’t U.S. citizens, and don’t have a green card, but benefit from certain types of income earned from U.S.-based sources. Form W-8 BEN-E does the same thing as W-8 BEN, but for foreign entities like businesses, companies, and organizations. These forms are critical in getting businesses the information they need in order to accurately calculate tax withholding obligations — that’s why businesses that hire or work with foreign workers or companies need to request those parties fill out a Form W-8 BEN or Form W-8 BEN-E before paying them. According to the IRS, foreign individuals and entities owe 30% tax on certain types of U.S.-sourced income — known as FDAP (Fixed, Determinable, Annual, Periodical) income. FDAP income includes:
- Compensation for personal services rendered (the most common situation for those filing Form W-8 BEN or W-8 BEN-E)
- Pensions and annuities
- Scholarships, prizes, and grants
How to Request and Collect Form W-8 BENYou, as the U.S.-based employer, are responsible for sending Form W-8 BEN or Form W-8 BEN-E — whichever is applicable — to non-resident contractors and companies you’re going to pay. You must request the foreign individual or entity fill out the form and return it to you. How often should you request one? Once every three years from the date signed, unless changes occur, such as a change in residence or tax situation. In those circumstances, the party who originally signed Form W-8 BEN must fill out and submit a new one within 30 days of the change.The person filling out the form should submit it to you, the employer or company requesting it, not the IRS. You then use the form and its information to determine the amount of taxes to withhold for remittance to the IRS when you pay them. Here are some best practices for requesting Form W-8 BEN:
- Request Form W-8 BEN or Form W-8 BEN-E at the start of your professional relationship before any work is done or paid for.
- Collect all tax forms digitally (vs. manually or by mail) to enable speed, efficiency, and organization.
Consequences for Not Filling Out Form W-8 BENIf you don’t request your international workers or partners fill out a Form W-8 BEN or Form W-8 BEN-E, you could run into issues with improper compensation and tax compliance. Tax law says you have to withhold 30% federal tax from the foreign individual or company unless they’re eligible for lower taxation rates. You could experience issues with compliance if you don’t withhold the right amounts based on where your foreign workers and partners live, accidentally overtaxing them. Without a Form W-8 BEN to tell you otherwise, you risk withholding too much from workers covered by international tax treaties, which leads to your workers and clients not receiving proper compensation.
The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Leave Tax Compliance to the ProsInternational tax compliance can be a nightmare, especially when hiring and paying internationally at scale. Making sure to request and keep on file a Form W-8 BEN or Form W-8 BEN-E from every foreign person or entity you work with can make that nightmare even worse. When you enlist our services at Pilot, you earn the peace of mind that we’ve got you covered when it comes to tax withholding and legal compliance. We request and collect Form W-8 BEN and Form W-8 BEN-E from international contractors on our clients’ behalf, helping them stay organized during tax season. Let’s talk about your international tax concerns — and solutions. Try Pilot out today!
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