Definition and Example of IRS Form W-8
Tax withholding is required for most income earned in the U.S., regardless of whether the individual receiving that income is a U.S. citizen. Payers (like an employer) then forward this tax money to the federal government on behalf of the payee (like an employee).
Withholding can also be required from "fixed or determinable annual or periodic" (FDAP) income, which can include interest, dividends, royalties, rent payments, fellowships, or even scholarships. The payee, not the type of income, dictates whether a W-8 form must be to the payer.
The IRS, in cooperation with the Department of the Treasury, updated the various W-8 forms in January 2017, as well as the reporting requirements. Prior rules no longer apply.
Submitting a Form W-8 to the paying entity waives this withholding requirement for people who are not U.S. citizens.
A resident of another country might purchase the stock of a U.S. company, which subsequently pays them dividends. A tax treaty between these two countries might provide that this income isn't subject to withholding. The individual would therefore submit Form W-8 to the paying entity to claim these treaty benefits. The paying entity is referred to as the "withholding agent" in tax language.
This income would not be taxable due to the treaty in place. It would therefore not be subject to withholding.
A withholding agent is "any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding or who can disburse or make payments of an amount subject to withholding," according to the IRS.
Who Uses Form W-8?
Withholding agents can be individuals, trusts, corporations, or other types of business. They're obligated to collect Form W-8 from any payee they have reason to believe is a foreign person or entity to exempt them from tax withholding. Otherwise, they must withhold taxes from payments made to them at a rate of 30%.
Submitting Form W-8 could eliminate all withholding, or it could reduce the amount required to be withheld. You, as the payee, must take the additional step of claiming an exemption on the applicable Form W-8 if you want to reduce or eliminate withholding. Payments should not be made until the withholding agent has your Form W-8 on file.
Form W-8 also provides the withholding agent with your necessary identifying information, similar to a Form W-9 for a U.S. taxpayer. This may include your name, address, and taxpayer identification number (TIN).
Types of W-8 Forms
There are five types of Form W-8. Choosing the correct one depends on who the payee is, who the withholding agent is, and why they're claiming an exemption from withholding.
Form W-8BEN is the most common version of this form. It's used by individuals who want to claim tax treaty benefits or foreign status to exempt them from tax withholding. Part II of the form must be completed to claim treaty benefits. The payee must have a valid TIN with the U.S. government.
Form W-8BEN-E is largely similar to the W8-BEN. But it's used when the payee is an entity, such as a trust or corporation, rather than an individual.
Form W-8ECI is used when the income derives from conducting a trade or business within the U.S. The type of income should be specified on Line 11.
Form W-8EXP is used by payees who are foreign governments, foreign private foundations, or foreign central banks. They're tax-exempt according to IRS rules. There's some overlap here with the BEN and ECI forms. This one is for use solely for exemptions claimed under certain terms of the Internal Revenue Code: Sections 115(2), 501(c), 892, 895, or 1443(b).
Form W-8IMY is used by foreign withholding agents who are intermediaries accepting payment on behalf of an exempt payee, partnership or another flow-through business type, or foreign trust.
Where To Get a W-8 Form
All versions of Form W-8 are available on the IRS website, including interactive ones. They can be completed online and printed out, or you can print out blank copies. They can also be saved to your computer or laptop.
What To Do If You Don't Receive Form W-8
Withholding agents aren't permitted by law to make payment to an individual or entity outside the U.S. without having one of these forms on file. Withholding agents are required to request Form W-8 from applicable payees.
Can IRS Form W-8 Be E-Filed?
W-8 forms are provided to withholding agents. They do not get filed with the IRS. They should be kept for records as long as necessary.
Withholding agents can accept Form W-8 by fax or email attachment, provided they're sure the individual or entity that's submitting and signing the form is authorized to do so. Ideally, the form will include a timestamp indicating that this is the case. Typed or printed names on the signature line aren't acceptable.
Requirements for Filing Form W-8
The payee is required to supply a valid U.S. TIN on Form W-8. The withholding agent is required to confirm the number with IRS databases. But there's at least one exception: Foreign grantor trusts with five or fewer grantors are exempt from this rule.
Withholding agents aren't obligated to provide payees who have submitted any Form W-8 with a Form 1099 at year's end. But payments to individuals or entities outside the U.S. might require Form 1042-S instead. This form details all monies transferred to individuals or entities during the tax year. The IRS must receive one for each payee as well.
- Individuals or entities outside the U.S. complete a W-8 form to claim an exemption from U.S. tax withholding for payments made to them that derive from within the U.S.
- W-8 forms are effectively the equivalent of W-9 forms, which are required of nonemployees who are U.S. taxpayers.
- There are five W-8 forms, each designed for certain payees or withholding agents.
- Withholding agents are those who transmit some form of payment to an individual or entity outside the U.S.
- Withholding agents may be subject to a fine of up to 30%, plus interest and penalties if they make payment to any individual or entity outside the U.S. without first receiving Form W-8 from them.
Frequently Asked Questions (FAQs)
How long is a Form W-8 valid?
Most W-8 forms are valid through the last calendar day of the third year. If Form W-8BEN was signed and filed on September 6, 2021, it would be valid through December 31, 2024.
Are there any penalties or fines for not providing Form W-8 to payors?
If a withholding agent fails to collect Form W-8 from an individual or entity and doesn't withhold taxes, the withholding agent may be subject to a penalty of up to 30% of payments they made to a payee outside the U.S. In other words, they must pay the taxes that the payee didn't. Interest and other penalties may apply as well.