Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
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It depends. If you’re a non-US individual claiming income in the US, you must fill out a W-8 form to ensure you can claim tax treaty benefits and certify your foreign status.
A foreign citizen receiving US-sourced income may possibly be exempt from US taxes depending on their home country’s treaty with the US.
What is the importance of W-8 forms for foreign individuals and entities?
- Confirming Foreign Status: The forms certify that the individual or entity is not a US resident for tax purposes.
- Claiming Tax Treaty Benefits: The forms allow the recipient to pay less tax or be subject to exemptions under applicable tax treaties in their country and the US.
- Ensuring Proper US Tax Compliance: The forms ensure that the correct amount of US tax is withheld from their income. Without these forms, the IRS automatically takes 30% of your income, which might be more than what they owe in taxes.
- Avoiding Penalties: Submitting the form helps avoid penalties for not complying with US tax rules.
In short, these forms help the IRS determine which foreign individuals or entities qualify for lower taxes or exemptions through tax treaties.
Additionally, depending on the nature of your relationship with the US tax system, you may be required to fill out a suitable W-8 form.
What are the various types of W-8 forms?
There are five different types of W-8 forms, each serving a specific purpose:
- W-8BEN: This is for foreign individuals who want to claim tax benefits on US income like dividends, royalties, or interest.
- W-8BEN-E: For entities to claim tax treaty benefits. For example, a foreign company with US clients or receiving interest payments from US banks.
- W-8ECI: For entities or individuals engaged in a US trade or business. It could also apply to individuals submitting the form on behalf of their owners, partners, or beneficiaries. For example, a foreign individual is renting out property in the US.
- W-8IMY: For intermediaries or agents receiving US income on behalf of others. An example is a foreign bank that receives interest payments from a US company on behalf of its clients.
- W-8EXP: For foreign governments, international organizations, foreign central banks, or other tax-exempt entities.
Each form guarantees the proper handling of US tax withholding or reduced tax rates based on the foreign recipient’s status and income.
What is the key information required when filling out W-8 forms?
Here’s how you fill out Form W-8:
- Obtaining the correct W-8 form: Choose the proper form based on your status and income (e.g., W-8BEN for individuals, W-8BEN-E for entities).
- Providing personal or entity details: (Lines 1-4)
- Enter your full legal name or business name.
- Enter the country where you are a citizen or your business is registered. If you have dual citizenship, enter the country where you live when filing the form.
- Provide your permanent address. This is the address where you live in the country where you are considered a resident for income tax purposes.
- Enter your mailing address only if it’s different from your permanent address.
- Giving your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN):
- If you have a Social Security Number (SSN), you can provide it. If you don’t have an SSN and aren’t eligible, you can obtain an Individual Taxpayer Identification Number (ITIN).
- You can also provide your foreign tax identification number (FTIN) if applicable.
- Claiming tax treaty benefits (if applicable): Check to see if your country has a tax treaty with the US and confirm that you meet the conditions set out by the treaty to qualify for the reduced rate.
- Certifying foreign status: The individual or entity must sign and date the form to confirm they are a foreign person or entity and qualify for reduced tax withholding.
- Submitting the form: Give the completed form to the withholding agent or company paying you, not the IRS.
Common mistakes to avoid when filling out W-8 Form
Making mistakes could invalidate your W-8 Form. To prevent rejection, consider the following:
- Entering a US address on your permanent address
- Incorrect or missing Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN)
- Incorrect Foreign Tax Identification Number (FTIN)
- Not claiming tax treaty benefits
- Leaving the sections blank
- Choosing the wrong form
- Forgetting to put your signature
- Failing to re-submit and renew the form
If you’ve inputted incorrect information on the W-8 form, you must re-submit a new form within 30 days to avoid further problems.
Where should I submit my completed W-8 form?
You should submit your W-8 form to the US company or withholding agent providing you income from the US.
What is a withholding agent?
A withholding agent is any person or entity with control, receipt, custody, or payment responsibility over income subject to US tax withholding.
Depending on your income and situation, this could be a bank, employer, or investment platform.
When do I need to submit a W-8 Form?
You should submit your W-8 form before you receive your US-sourced income. Without it, the payer will automatically apply a higher withholding tax rate, which is typically 30%.
Do W-8 forms expire?
Yes, a W-8 form is generally valid for 3 calendar years from the date of signing unless your status changes.
If you continue receiving US-sourced income after 3 years, you must re-submit form W-8 to maintain your reduced tax withholding. You need to re-submit before the expiration date to avoid any issues.
What are the consequences of not submitting a W-8 Form?
Without the form, the IRS will automatically withhold 30% of your US-sourced income even if you’re eligible for a lower rate or exemption under a tax treaty.
Additionally, some US payers might hold back payments until they receive your form, which could result in delayed income.
