How to Fill Out W-8BEN Form Correctly - Avoid IRS Penalties!
US organizations are always hunting for the best talents to handle their operations. With 75% of American companies facing a talent shortage, it often means looking for valuable human resources from foreign nations. But hiring talents from outside the US involves following several requirements specified by the IRS. One of these obligations is filing Form W-8BEN to provide details regarding the country of residence of international contractors or employees.
This IRS form ensures that you are adhering to US fiscal laws and avoid withholding taxes on a few income types. It helps determine the exact tax treatment for the income a foreigner has generated by working for an American company. Check out this blog to understand the details regarding completing the form one step after another.
Steps to Follow While Filling Tax Form W-8BEN
Before you start getting into the details of the steps, remember that this form should be completed by the worker who lives abroad and works for a US company. The employer at the American firm does not need to fill this up.
The employer is the one making the payment. So, they need to give a copy of the form to the employee so that the latter can fill it up. Otherwise, it is possible for the employee to download it from the IRS website. The form includes 7 pages with multiple sections.
Now, let's get started with the detailed steps to fill up the tax form accurately:
Step 1: Completing Part I
This part is about providing the identity details of the beneficial owner. The following things are included in this section:
Line 1: Name of the Beneficial Owner
It demands the name of the individual filing the form. Therefore, it should feature the name of the foreign worker getting paid by an American employer.
Line 2: Country of Citizenship
This line requires the foreign employee to specify their origin nation. An employer might be a dual citizen. In that case, they will have to mention the country where they are a resident as well as a citizen.
Important Fact!!!
American citizens or resident aliens will need to fill out the W-9 tax form. They can avoid the W-8BEN form. It is necessary even for an individual who holds dual citizenship in another nation. The W8-BEN is to be filled out by an individual who does not identify as an American resident or citizen.
Line 3: Permanent Residence Address
Here, the employee needs to provide their permanent address. It should include their city, state, town, country, and providence postal code. The person filling out the form cannot provide a care-of address. They also need to avoid mentioning a PO box or financial institution as their address.
Line 4: Mailing Address
This section does not have to be completed compulsorily. Only fill it out if it is different from the permanent residence details.
Line 5: US Taxpayer Identification Number
This can be a social security number. If the person filling out the form is a resident alien, it can also be an individual tax identification number. If the employee is claiming a reduced withholding rate or treaty benefits, they need to provide an SSN or TIN.
Line 6: Foreign Tax Identifying Number
The employee also needs to provide the identification number that foreign tax authorities need to recognize them.
Line 7: Reference Number(s)
It is important to provide a number of reference for the withholding agent. The employee can provide the reference number of the account where they receive payments from the US company.
Line 8: Date of Birth
The employee needs to mention their birth date in the month-day-year format. This might be unusual for foreign professionals. However, it is important to remember that this format is what works in the US.
Step 2: Completing Part II
This section is to be filled by foreign employees who will be claiming tax benefits on the basis of a treaty between the US and their country of origin. The agreement should specify details of withholding on foreign corporations and non-resident aliens under Chapter 3. The lines to be completed under this part are as follows:
Line 9: Tax Treaty Existence
This section validates that the origin country of the foreign employee has a tax treaty with the US.
Line 10: Special Rates and Conditions
This line details the special withholding tax rates or conditions between the US and the employee's country of residence. It also comes with a blank line in case you need to add additional explanations or comments to justify the eligibility for the special rate.
Step 3: Completing Part III
In this section, the foreign worker needs to put their signature. This signature validates the fact that they are an international citizen and a non-American. It attests to the fact that the income associated with the form is not generated through a trade or business conducted in the US.
This section also certifies that no withholding tax should be charged on the said income, or it should be taxed at a special rate. Moreover, the employer needs to agree to submit a new form within 30 days in case any of the previously provided information is incorrect. The foreign contractor should sign their full name along with the date.
Where to Submit the Completed Form
If a foreign employee receiving payment from a US company fails to submit this form, they might have to pay a federal tax withholding rate of 30%. But the question is, where should one submit the format to ensure compliance and enjoy reduced tax charges?
Well, you don't need to submit it to the IRS. Instead, the foreign employee should submit it to their employer. The responsibility of the employer is to safeguard a duly filed Form W-8BEN because it contains sensitive information.
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Form W-8BEN is extremely crucial for foreign employees and you might face difficulties while completing this form. Finding it difficult already? Feel free to contact the experts at SamsCashFlow agency https://www.samscashflow.com/#book and let them guide you at each step.