Whether you’re hiring remote employees from abroad or outsourcing work globally, understanding what tax forms you need to collect is crucial. You may be familiar with collecting a W-9 from your US-based contractors, but for most foreign-based workers, only one of the types of Form W-8 will do.
This article will explain what W-8BEN forms are, who needs to submit them, and which version is needed.
What Are W-8BEN Forms?
W-8BEN forms, usually referred to simply as a W-8, are IRS forms that foreign individuals or entities submit to the US business that is paying them. These forms certify a worker’s foreign status, which impacts their tax withholding rate or qualifies them for an exemption from tax withholding.
A W-8 verifies a foreign person’s country of residence by requiring them to provide things like:
- Foreign status
- Permanent address
- US tax identification number (if any)
- Foreign tax identification number
The forms also enable foreign workers to claim any tax treaty benefits—agreements between countries to help avoid double taxation.
Why Do You Need To Collect a W-8BEN From Workers Outside the US?
In general, W-8BEN forms are collected so your workers can qualify for lower tax withholding rates—or exemption from withholding for independent contractors. Foreign individuals or businesses earning income from a US source must complete a W-8 form to do this.
Under normal payroll circumstances, an employee would be subjected to standard federal income tax withholding from their paycheck. However, “non-resident aliens” and entities may have a different tax withholding rate on their US-sourced income. (A “non-resident alien” is someone who is not a US citizen and is not considered a resident of the US for tax purposes.)
Failure to provide a W-8 form can result in a 30% tax withholding rate on all US-sourced income, regardless of whether or not the worker is eligible for a lower rate.
W-8 forms also prevent a backup withholding, which is an additional 28% tax withheld from payments made if your worker fails to provide the correct taxpayer identification number (TIN). This applies even if the standard withholding was already greater than 28%.
Note that these forms do not act as income tax returns. They are also not filed with the IRS. They simply help your payroll department determine how much income tax to deduct from payments made to foreign individuals or entities—or whether to deduct any at all.
Which W-8BEN Tax Form Should You Collect From Your Foreign-Based Employees and Independent Contractors
It should be noted that specific situations may need consultation from a tax or payroll expert. But, in general, which W-8BEN form to request from your foreign contractors or employees is usually simple: for individuals, it’s Form W-8BEN, but if they are registered as a business, it’s Form W-8BEN-E.
The W-8BEN Form, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals),” is used by foreign individuals to:
- Verify their status as a non-resident alien or non-US citizen
- Claim that they are the beneficial owner of the income for which the form is being submitted
- Claim any applicable tax treaty benefits related to a reduced rate of, or exemption from, withholding
So, for example, if you hire a remote accountant from Argentina, you would ask them to fill out a W-8BEN before they start working for you.
This form is not for independent contractors who operate as a business; they should use the W-8BEN-E form, which we will cover next.
Form W-8BEN-E, “Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities),” is used by foreign “entities”—in other words, businesses—to:
- Certify that they are not a US entity
- Claim that they are the beneficial owner of the income for which the form is being submitted
- Claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the US has an income tax treaty
For example, if you outsource work to a contractor in Mexico who operates as a business, they would need to fill out and submit a W-8BEN-E rather than the W-8BEN, which is meant for individuals.
Where To Find W-8BEN Forms
W-8 forms can be obtained directly from the IRS website. Each form, along with its instructions, is available as a PDF file. Here are the direct links to the forms:
And their specific instructions:
What Is Included on a W-8BEN Form?
The information needed to complete a W-8 form generally includes:
- Identification information: This includes the contractor’s name, country of citizenship, permanent residence address, and mailing address.
- Tax Identification Number (TIN): A US TIN (if they have one, e.g., a Social Security number) or a foreign TIN (the tax identification number from their home country).
- Claim of tax treaty benefits: If they reside in a country with a tax treaty with the US, they will need to identify their country of residence for tax purposes in order to apply for any treaty benefits that may be available. Specific information about the type of income and the relevant treaty article may also be required.
- Type of beneficial owner: Employment status such as individual, corporation, complex trust, or simple trust.
Each type of W-8 form requests slightly different information, depending on the specific circumstances it covers. You can advise your workers to refer to the form instructions to ensure all necessary information is provided.
Navigating the intricacies of tax law, specifically when dealing with international remote workers, can feel daunting—but it doesn’t need to. And it shouldn’t put you off exploring remote hiring. The benefits of hiring international remote talent are too good to pass up!
If you are working with a hiring partner, like Near, to find your remote international workers, they will usually make sure the relevant W-8 forms are collected. We certainly remove that task from our clients’ plates.
If you would like to discuss how we make hiring remote workers from abroad as simple as hiring within the US—while saving 30–70% on salaries—book a free consultation call today.
Frequently Asked Questions About W-8 Forms
Do I need to submit the W-8 forms I collect to the IRS?
No. You don’t submit these forms to the IRS. They are for your purposes as the employer so that you have the information you need to withhold the correct amount of tax (which may be none at all) from your foreign workers and contractors.
Are W-8BEN forms mandatory?
W-8 forms are not universally mandatory, but if a foreign individual or entity is receiving income from a US source, it is generally necessary to fill out a W-8 form. The form is used to prove non-US status and can help a worker qualify for a reduced rate of, or exemption from, withholding taxes.
How long are W-8BEN forms valid?
W-8 BEN forms are typically valid for three years. However, if any information changes during that time, your worker should submit a new form.
What happens if a W-8BEN form is not submitted?
Without a W-8 form, a general 30% rate of withholding on US-sourced income may be applied. This can lead to more money being withheld for taxes than necessary.
What is the difference between a W-8BEN and a W-9 form?
W-8 forms are for non-US citizens who are not considered residents of the US for tax purposes and are earning income from a US source. It is used to declare their foreign status and claim any applicable treaty benefits. On the other hand, a W-9 form is used by US citizens and permanent US residents to provide their taxpayer identification number (TIN) to entities that pay them income.
Do dual citizens file a W-8 or W-9 form?
Dual citizens, since they are US citizens, generally need to file a W-9 form, not a W-8.
However, exceptional circumstances may exist, so it’s always a good idea to consult with a legal or tax professional for the best advice regarding each individual situation.
What are W-8ECI, W-8EXP, and W-8IMY forms?
In contrast to the more commonly used W-8BEN and W-8BEN-E forms, Form W-8ECI, Form W-8EXP, and Form W-8IMY are for specific situations that involve a closer connection to US commerce or specific entities with special tax treatment, for example, foreign governments. These are not forms that you would typically use when hiring individuals.
Here’s an overview of these three forms:
- Form W-8ECI – The “Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States” is used by foreign individuals or entities that are claiming that the income they receive from US sources is effectively connected with the conduct of a trade or business within the US. Effectively connected income (ECI) is generally subject to US taxation.
- Form W-8EXP – The “Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding” is used by foreign governments, international organizations, foreign central banks of issue, foreign tax-exempt organizations, and certain foreign private foundations. It helps establish their foreign status and may provide eligibility for reduced or exempt withholding on certain types of US source income.
- Form W-8IMY – The “Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding” is used by foreign intermediaries, foreign flow-through entities, and certain US branches of foreign banks or insurance companies. It helps determine the appropriate withholding tax on payments to these entities.