Customer Stories — 14 min
If you have employees and contractors abroad, you need to understand how the W-8 BEN form works. In this article, we’ll break down the basics of the W-8 BEN form to help you and your workers comply with the IRS rules.
A W-8 BEN form is a United States Internal Revenue Service (IRS) tax form used to determine the foreign status of non-resident aliens for the purposes of taxation. Its official name is the “Certificate of Foreign Status of Beneficial Worker for United States Tax Withholding and Reporting (Individuals).”
The IRS taxes all income paid by companies in the US. People residing in the US, those who hold a US Green Card, and those who spend the majority of the year in the US are subject to income tax. However, a non-citizen living outside of the US is classified as a Non-Resident Alien (NRA) and is taxed at a different rate.
Some countries have treaties with the US that grant their citizens and residents a lower tax rate. All NRAs earning beneficial income in the US must establish their country of residence. Then, the IRS uses that information to determine if the workers are eligible for a lower tax rate. By filling out the W-8 BEN, the worker claims the benefits of any existing tax treaties. The employer can then use the corresponding rate for income tax withholding.
Employers must request Form W-8 BEN from foreign contractors who meet the criteria before they are compensated for services rendered. HR should request forms from employees and contractors who meet these requirements:
Is a non-citizen
Is not a resident of the US
Does not have a green card
Is the beneficial owner of compensation for work done
Once you request that a worker complete a W-8 BEN form, here’s what they’ll need to do:
1. Enter the information requested by the form, including:
US Taxpayer Identification Number (ITIN) or Social Security Number (SSN)
Foreign Tax Identifying Number
Date of birth (MM/DD/YYYY)
Foreign country for whose tax laws they claim benefit
Withholding rates (if applicable)
2. Sign and date the form.
3. Return the form to the requesting entity.
It is the employer’s responsibility to request and provide the W-8 BEN form to employees and contractors.
The list of countries with relevant treaties is long and subject to change. However, when managing global payroll, US companies should request a W-8 BEN form from all foreign workers who meet the criteria.
Any employee who is a non-resident foreign person and who is the beneficial owner of an amount subject to withholding must fill out Form W-8 BEN.
Workers should submit a W-8 BEN form when requested by a withholding agent or payer, regardless of whether they are claiming a reduced rate of, or exemption from, withholding.
W-8 forms are a series of five forms that foreign individuals and businesses use to claim exemptions. The W-8 BEN is the specific form for individuals to establish foreign status for the purposes of taxation. Employers should also be aware that a Form W-8BEN-E is a slightly different variation that is used when contracting with a foreign entity rather than a foreign individual.
Workers should return forms to the requesting body, usually an employer or withholding agency.
A W-8 BEN form expires every three years.
Workers and employers have different responsibilities.
If a worker does not fill out Form W-8 BEN, they are subject to a tax rate of 30%, even if they qualify for a lower rate. Without the form, they may not receive all of the money to which they are entitled.
In the absence of an updated W-8 BEN form, you must deduct the standard 30% for income tax from the pay of the worker in question. This could mean that you are improperly compensating your workers. The consequences of improperly withheld pay can be serious and may include breach of the employment contract or other legal troubles.
When managing international workers, maintaining compliance is critical. Failure to do so opens you up to fines, penalties, and litigation, which can effectively deny benefits to your team. That means you need an effective solution. An employer of record (EOR) like Remote can help.
Learn more about Remote’s services for international contractor management on our website.
Paying your global workforce can be complicated. One option is to establish a local legal entity in the country where you will be hiring workers. However, this process is long, complicated, and expensive. If establishing a legal entity doesn’t make sense for your situation, you can work with an EOR, which will allow you to hire and onboard international employees in days instead of months.
Unless you have a local legal entity, an EOR is the only way to employ workers abroad. An EOR ensures that you remain compliant with all local laws and regulations.
EORs have expertise in the countries in which they operate and are able to dedicate their full attention to the country where your workers live. Not only that, but they can assist in onboarding workers to take the burden off of your HR department. Learn more about what to look for in an employer of record in our on-page guide.
Managing global payroll can be tricky. Understanding the basic US tax forms, including Form W-8 BEN, is vital for US companies and HR professionals with employees or contractors abroad. Correctly filing Form W-8 BEN helps ensure you are in compliance and that your workers are properly compensated.
But tax forms are just part of what you need to know to stay compliant when hiring globally. Whether you want to hire one international contractor or grow an entire international team, Remote is here to help. Contact us today with any questions you may have on global employment or global contractor management.
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