What Is a W-8BEN Form? Complete Guide for U.S. Employers

SS-4.

4506-T.

C-3PO.

W-8BEN.

It might come as a surprise that only one of those is a droid from Star Wars-the rest are legitimate U.S. tax forms.

Hiring international talent is the standard these days, but doing so means more administrative burden.If you are a U.S. employer, and you pay foreign employees and contractors outside the U.S., Form W-8BEN is required-so you'd better learn about it.

What is Form W-8BEN?

A W-8BEN is a tax form that classifies a foreign worker's status as a non-U.S. citizen and determines proper tax reporting and withholdings for the entity providing them income.

Formally, it is the IRS's Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).

A U.S. employer should request a W-8BEN from non-U.S. citizen employees or international contractors before putting them on the payroll.

What is aW-8BEN used for?

Form W-8BEN is primarily used to claim beneficial tax treaty benefits or establish eligibility for exemption from U.S. withholding tax on certain types of income sourced in the U.S.

Foreign individuals working for a U.S. business and receiving U.S. income are subject to a 30% tax withholding rate. However, the U.S. has an income tax treaty with numerous countries that protects individuals from being taxed by both the U.S. government and the government of their country of residence. A W-8BEN form ensures individuals are not double taxed and determines a reduced withholding rate or exemption, if applicable.

Read also: How to Pay International Employees: A Guide for U.S. Employers

When not to use a W-8BEN form

It's essential for U.S. companies wanting to hire internationally to recognize instances where a W-8BEN form may not be appropriate. Below are certain cases where a W-8BEN form may not be appropriate or necessary:

• U.S. persons. U.S. citizens, resident aliens, or domestic entities do not need a W-8BEN form. Instead, they should use the appropriate tax forms, such as Form W-9 for individuals or Form W-8 for entities.
• Entities subject to U.S. taxation. Certain foreign entities may be subject to U.S. taxation and should not use a W-8BEN form. Alternatively, they should use other forms, such as Form W-8ECI or Form W-8IMY.
• Payments not subject to non-resident alien (NRA) withholding. If income received from U.S. sources isn't subject to NRA withholding, a W-8BEN form may not be necessary. For example, if an individual receives income connected with a U.S. trade or business, they would use a different form to declare that income.
• Domestic transactions. Employees engaged in purely domestic transactions within their own country and do not receive income from U.S. sources do not need a W-8BEN Form.
• Incorrect situations for treaty benefits. If employees are not eligible for treaty benefits or their income does not qualify for treaty benefits under a tax treaty between their country and the U.S., they should not use a W-8BEN form to claim those benefits.

Who provides the W-8BEN form?

An employer must provide a W-8BEN to their international employee or contractor. This usually happens during the onboarding process or when the terms of employment are determined. The employer should request the completed W-8BEN form from the non-U.S. worker to ensure compliance with U.S. tax regulations regarding payments made to foreign individuals or entities.

It is the employee's responsibility to complete the W-8BEN and submit it back to their employer before they receive payroll. The form is collected by the withholding agent or payer (typically the employer) or when requested by a Foreign Financial Institution (FFI).

Read more: Can a U.S. Company Hire a Foreign Employee in Another Country?

Who needs to fill out Form W-8BEN?

An employee or contractor must fill out a W-8BEN form if they meet any of the following criteria:

• They are not a U.S. citizen
• They are not a U.S. resident
• They do not have a green card
• They performed the work outside of the U.S.
• They are the beneficial owner of the income provided

How to fill out a W-8BEN form

Form W-8BEN requires a lot of information. Once the employee has completed it, they should review it for accuracy before submitting it. Mistakes can lead to large issues. The form requires:

• Personal information. Provide your full name, country of citizenship, and permanent residence address. This should be your legal address outside of the U.S.
• Mailing address. If your mailing address differs from your permanent residence address, state it here.
• U.S. Taxpayer Identification Number (TIN). If you have a TIN in your home country, enter it here. Otherwise, leave this section blank unless you're claiming treaty benefits.
• Foreign Tax Identification Number. If you have one, share your foreign TIN in your country.
• References to U.S. income tax treaties. If you're claiming treaty benefits, check the appropriate box, and enter the country where you claim benefits. Also, provide the article number of the tax treaty and a brief description of the type of income for which you're claiming benefits.
• Special rates and conditions. If you're claiming special rates or conditions, check the box and provide a brief description.
• Certification. Sign and date the form. By signing, you're certifying that the information is accurate and that you're not a U.S. citizen.
• Date of birth. Provide your date of birth to help confirm your identity.
• Capacity in which acting. If you're acting as an intermediary or flow-through entity, provide the capacity in which you act.
• Permanent residence address in a foreign country. If your permanent residence address in your foreign country differs from the address you stated earlier, fill it out here.
• Explanation of change. If there has been a change in your circumstances that impacts your tax status or information provided on the form, give an explanation here.

FAQs

What's the difference between a W-8 form and a W-8BEN form?

The W-8BEN form specifically targets foreign individuals receiving income from U.S. sources and declares their non-U.S. status for tax purposes.

W-8 refers to a series of IRS tax forms that foreign individuals or entities fill out to establish their non-U.S. status and claim exemptions.

In summary, while the W-8 form encompasses various versions for different entities and income types, the W-8BEN form specifically targets foreign individuals receiving income from U.S. sources. It serves as a declaration of their non-U.S. status for tax purposes.

Including the W-8BEN form, there are five W-8 forms for different entities and income types. The other four include:

• Form W-8BEN-E. The Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), utilized by foreign entities such as corporations, partnerships, or trusts receiving income from U.S. sources, is used to gather details about the entity's status, claiming tax treaty benefits, and establishing eligibility for exemption from U.S. withholding tax on specific income sourced in the United States.
• Form W-8ECI. The Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States is used by foreign entities to claim exemption from U.S. withholding tax on income connected with a U.S. trade or business.
• Form W-8EXP. The Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting Form W-8EXP is used by foreign governments, international organizations, and foreign tax-exempt organizations to claim an exemption or reduced withholding on income from U.S. sources.
• Form W-8IMY. The Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting is used by foreign intermediaries or flow-through entities to certify their status for tax purposes and claim treaty benefits.

What happens if a W-8BEN form is not collected?

If the withholding agent does not collect a W-8BEN form from the foreign employee or contractor, the worker will be subject to the full 30% tax withholding rate on their U.S. income.

When does the W-8BEN Form expire?

A W-8BEN form is valid for three years. Specifically, it remains in effect from the date it is signed until the last day of the third succeeding calendar year if no change in circumstances has occurred. (For example, a W-8BEN signed on August 1, 2024, is valid until December 31, 2027.)

However, if anything reported on the W-8BEN form changes, such as permanent address or tax status, the employee or contractor must let the employer or withholding agent know within 30 days and fill out a new form.

Does the W-8BEN form need to be submitted to the IRS?

A W-8BEN form is not sent directly to the IRS by the employee or contractor. Instead, the W-8BEN should be filled out and signed by the employee and given to the employer or entity allocating payment. An FFI may also request this form to document the non-U.S. account.

Cut through the complexity with Pebl

For global businesses, sometimes it can feel like you're always one step away from a costly mistake. If you report this incorrectly, or forget to report that… well, it can lead to costly issues (and not just fines). You can't be an expert in everything all the time.

But Pebl can.

With our Employer of Record service, we operate as the legal employer for your foreign talent. That means we handle onboarding, payroll, benefits, and every single one of those required tax forms. How can we be experts in everything all the time? Because we have people in 185+ countries worldwide that make it their mission to know a W-8EN from a W8-IMY-and just what to do with both.

Contact us today to learn how to quickly and compliantly hire, pay, and manage talent anywhere.

Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.

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