If you are a nonresident and earning money through U.S. sources, you might have already come across the IRS Form W-8 BEN. This form is very important if you want to claim tax treaty benefits as well as escape from excessive withholding tax rates. Although at first it might look quite complicated, it is not as difficult as it appears. Let us see what this form is all about – who needs it, how to fill it out, and where to submit it.
What is form W-8 BEN and why is it important?
W-8 BEN Form, also known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals),” is issued to certify that you are an alien resident. Basically, you will use it to reduce or eliminate the normal 30% withholding tax on U.S.-sourced income in some tax treaties.
- Significance: Without it, you may pay excessively more tax than is necessary.
- Who needs this? – Non-U.S. residents receiving income like royalties, dividends, or service payments from U.S. organizations.
Who needs to fill out form W-8 BEN?
This form is not for everyone. It is for:
- Non-residents/aliens who receive income from U.S. sources but not for personal services.
- Those entitled to tax withholding tax exemption by treaty with the United States from their home country.
U.S. citizens and resident aliens will not need this form as long as the source of income is from personal services, such as by freelancing or contracting. Those would need a different form, like W-9 or 8233.
How to fill out form W-8 BEN
Filling out Form W-8 BEN is fairly straightforward if you know the basics. Let us break it down section by section:
- Part I: Identification Information
- Enter your name as it appears on official documents.
- Provide your country of citizenship.
- Add your mailing address and, if applicable, your U.S. taxpayer identification number (TIN).
- Part II: Claim of Tax Treaty Benefits
- Check if your country has a tax treaty with the U.S.
- Specify the article of the tax treaty you are claiming and the reduced tax rate that applies.
- Part III: Certification
- Sign and date the form to confirm that all the information provided is accurate.
Make sure you double-check everything before submitting. Errors can delay the process and may lead to incorrect tax withholding.
Where to submit form W-8 BEN
Contrary to what many think, you do not send Form W-8 BEN to the IRS. Instead:
- Submit it to the organization or business paying you. This could be your employer, a financial institution, or any entity making payments to you.
- Keep a copy for your records. You might need it for future reference or in case of any disputes.
How long is form W-8 BEN valid?
A completed Form W-8 BEN is generally valid for three years unless your circumstances change. For example, if you move to a different country or your tax treaty benefits no longer apply, you will need to update and resubmit the form.
Read more: IRS Form 1099-R in 2024: what is it, instructions, how to fill it out and where to apply for it
Common mistakes to avoid when filing form W-8 BEN
Here are some pitfalls to watch out for:
- Providing incorrect or incomplete information.
- Failing to claim eligible tax treaty benefits.
- Submitting the form to the wrong entity.
Double-check the instructions or consult a tax professional if you are unsure.
What if you fail to file form W-8 BEN?
In the absence of this form, a withholding tax rate of 30% would be imposed on your U.S. income, even if a treaty exists between your country and the U.S. This will lead to overpayment, and you will have to reclaim this amount using other tax forms.
