During U.S. tax filing, it is important to note that W-9, W-8BEN, and W-8BEN-E are essential forms for both U.S. and foreign taxpayers.
In this blog post, we will explore the purpose of each form, identify which individuals are required to file them and comprehend the impact of these forms on businesses and people.
Form W-9: Request for Taxpayer Identification Number (TIN)
Purpose and Use: This form is used extensively in the United States and is filled out by people, companies, partnerships, and trusts to report payments to firms or organizations.
This applies to businesses that are obligated to submit information returns to the IRS. Form 1099-MISC or Form 1099-NEC are needed when a business pays a freelancer or contractor $600 or more a year.
Key Information Required: The following pieces of information are necessary to complete Form W-9:
- Full name
- Business name (if applicable)
- Entity type (individual, corporation, etc.)
- Mailing address
- Social Security Number (SSN) or Employer Identification Number (EIN)
- The W-9, like all other forms, requires a declaration signature, undertakings that the information provided on the form is true, and confirms that the signer is not subject to backup withholding.
Repercussions of Non-compliance: Not submitting a W-9 might result in backup withholding tax at a 24% rate for payments made to a person or business. Also, it is possible that penalties could be incurred due to such incorrectly provided information.
Form W-8BEN: Certificate of Foreign Status for U.S. Tax Withholding (Individuals)
Reason and Application: Form W-8BEN is intended for foreign individuals who receive various types of U.S. income. It enables individuals to verify their non-resident status which in turn allows them to obtain tax treaty provisions that lower the amount of withholding tax on their earnings from the United States.
Essential details needed: The form requires:
- Individual’s name
- Citizenship
- Permanent address outside the US
- Taxpayer identification number if available
- Foreign ID number
When this form is provided, foreign individuals can potentially lessen the automatic 30% standard withholding tax imposed on some types of income, including dividends and royalties.
W-8BEN-E: Certificate of Foreign Status for Entities
We can use it for two purposes. The first purpose is the same as that of W-8BEN, with the exception that it is used by businesses. Rather than individuals, it is used by foreign companies to certify themselves as non-US entities. Such types of businesses can take advantage of tax treaties and opt for lesser withholding rates because of this form.
For W-8BEN, the requirements are not irksome but W-8BEN-E has much more complicated requirements. Some of those requirements accommodate:
- The name of the entity
- Country of incorporation
- Permanent address
- U.S. taxpayer identification number
- Foreign tax identification number
- Certification of beneficial ownership
There are also other requirements, such as foreign ownership structure that entities that are foreign need to be concerned with.
Differences Between W-9, W-8BEN, and W-8BEN-E
| Feature | Form W-9 | Form W-8BEN | Form W-8BEN-E |
| Who Uses It? | U.S. persons (individuals/entities) | Foreign individuals | Foreign entities |
| Purpose | Provide TIN for IRS reporting | Certify foreign status | Certify foreign entity status |
| Tax Withholding Rate | N/A (U.S. taxpayers) | Potentially reduced | Potentially reduced |
| Information Required | Name, SSN/EIN, address | Name, address, citizenship | Name, address, entity type |
Conclusion
Aids in finding out requirements for each form is distinguishing between forms W-9, W-8BEN, and W-8BEN-E. Every form has its unique role and is set for automatic acceptance for varying statuses of taxpayers. These roles can be applied to a person or entity who is a foreigner and determines how much tax is taken off the income produced in the United States.
When dealing with freelancers or overseas contractors, managing these forms protects businesses from penalties and ensures accurate IRS reporting. When filling out these forms, it is prudent to speak to a tax professional to ensure compliance with rules and regulations.
Frequently Asked Questions (FAQs)
If you are a non-resident foreigner who disregarded a single-member LLC based in the U.S. and worked for a U.S. company, you will be required to fill out the W-8BEN-E. And here’s the reason why:
Why Use Form W-8BEN-E?
Entity Status: When it comes to business ownership, a single-member LLC does not treat you as a separate entity. This means income from the LLC is placed in your tax bracket. Being a foreigner means you will need to prove your foreign status.
Tax Withholding: A tax of 30% is withheld for payments made to foreign entities, but U.S. businesses are required to do so unless there is a tax treaty that allows benefits. Once you submit the W-8BEN-E, you are confirming foreign status which allows you to benefit from the tax treaty.
Income Reporting: This gets more complicated since it helps companies based in the U.S. with inaccurate reporting of payments made to you while following the Foreign IRS regulations.
When Should You Fill Form W-8BEN?
You should fill out this form instead if you have done work as an individual instead of working under an LLC. This form is best suited for foreign individuals who need to declare their non-residence for U.S. tax purposes.
Filing Instructions
Submit the Form: It is a must for you to submit the filled-out Form W-8BEN-E to the U.S. company that sent you the payment instead of filing it with the IRS.
Other Requirements: Additionally, details such as name, address, and tax identification numbers if you have any are needed. Other sections which enable conclusively claim treaty benefits are also included.
Nabin Adhikari
