It also includes questions regarding other withholding agreements and assets owned by the individual/entity that might be subject to different rates of taxation. Not surprisingly, filing the W8 Form is an important step in terms of tax compliance for foreign individuals looking to take advantage of tax treaty benefits. In fact, Form W-8 BEN is one of the very few non-resident alien tax forms that exist for individuals.
- Barbara has an MBA from The University of Texas and an active CPA license.
- This means that if an individual or entity wishes to maintain their foreign status with the IRS, they should ensure that they renew their forms before these timeframes are up.
- Our team serves individuals and businesses free of charge and without any obligation.
- The form also allows these entities to claim eligibility for reduced or exempt US withholding, which is deducted from various income types paid to nonresidents.
- But it’s used when the payee is an entity, such as a trust or corporation, rather than an individual.
How Does an IRS Form W-8 Work?
It demonstrates your due diligence in verifying the tax status of your international contractors and applying the correct withholding rates. The rate of withholding may be a special rate negotiated for the treaty country. Other persons may need to complete this line if they claim benefits that require them to meet conditions not addressed on W-8BEN. For the purposes of W-8BEN, this is your tax home, which is where you reside for income tax purposes. Form W-8BEN may also be used to claim an exception from domestic information reporting and backup withholding (at the backup withholding rate under section 3406) for certain types of income. The validity of Form W-8 depends on the type of form being filled out.
What is Form W-8BEN used for?
So think of it as a key to unlocking the potential of global work and income opportunities without the headache of extra taxes. If the applicable W8 form is not submitted to the payer or withholding agent beforehand, then you could be required to pay the 30% rate or a backup withholding rate. Submitting a Form W-8 to Bookkeeping for Veterinarians the paying entity—the employer—waives this withholding requirement for people who are not U.S. citizens.
FORM W8
- Another thing that trips people up is the tax treaty section in Part II.
- So, if you’re wondering whether you should complete and file a W8 or W9 form, it simply comes down to your residency status.
- Worker to ensure compliance with U.S. tax regulations regarding payments made to foreign individuals or entities.
- The W-8BEN is used by foreign individuals, while the W-8BEN-E is used by foreign entities.
- Due to agreements between the Canadian and US governments, account holders are required to file Form W-8BEN even if they do not hold any investments in the United States.
We’ll explore the definition and uses of Form W-8BEN-E, as well as the steps for filling it out to help you understand all your tax obligations relating to Form W-8BEN-E. If your Form W-8BEN expires and you do not file another, any U.S. source income you receive will be subject to a withholding tax rate of 30%. This is a significant advantage, as the withholding tax rate is normally 30%. By filing an updated Form W-8BEN, you could benefit from a reduced tax rate of either 15% on dividends or 0% on interest.
Types of W-8 Forms
Below are the step-by-step W8 BEN instructions for filling in and submitting the form. The CARES Act big difference between the W-8BEN and the W-8BEN-E is who the forms are used by. All versions of Form W-8 are available on the IRS website, including interactive ones. They can be completed online and printed out, or you can print out blank copies.
Which Countries Have Tax Treaties With the United States?
There are different types to consider that apply to foreign individuals, businesses, or other organizations with income-earning activities in the US. The five types are W8-BEN, W8-BEN-E, W8-ECI, W8-EXP, and W8-IMY. However, although they are issued by the IRS, W8 forms are only submitted to payers or withholding agents. When a US business makes a payment to a foreign individual or entity, such as service fees, royalties, or dividends, they are generally required to withhold US tax on this payment at a standard rate of 30%.
Why do I have to complete the W-8BEN form?
But while choosing to pay someone as a contractor rather than an employee does eliminate a lot of paperwork, it does not eliminate the need for forms altogether. But it’s used when the payee is an entity, such as a trust or corporation, rather than an individual. Andy Smith is a Certified Financial Planner (CFP®), licensed realtor and educator what does w8 mean with over 35 years of diverse financial management experience. He is an expert on personal finance, corporate finance and real estate and has assisted thousands of clients in meeting their financial goals over his career.
