In the era of globalization, more and more US-based companies are hiring foreign employees.
Independent contractors are an important part of many businesses. As of 2022, there were 31.9 million contractors in the US. However, qualified independent contractors are located worldwide, so you don’t even have to stay within the US when expanding internationally.
Yet, this more comprehensive pool of potential hires comes with complications. This means you need to stay above board regarding taxes — and a big part of that is ensuring your team abroad is taxed correctly.
Non-citizens living outside the US are taxed differently from US citizens and permanent residents. So it’s essential to tell the IRS if your company hires someone who isn’t a citizen or a green card holder.
If you have employees and contractors abroad, you must understand how the W-8 BEN form works.
In this article, we’ll break down the basics of the W-8 BEN form, when you need to use one, and why it’s important.
Here’s how to help you and your workers comply with the IRS rules.
What is a W-8 BEN Form?
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. It certifies which country of residence an individual is submitting their taxes to, as it is not the U.S.
Form W-8 BEN is essentially an international worker’s version of the W-9 form.
Its official name is the “Certificate of Foreign Status of Beneficial Worker for United States Tax Withholding and Reporting (Individuals).”
The IRS includes several W-8 forms in the series. The W-8 BEN form is to be completed by the international contractor or beneficial owner receiving the income.
Non-resident aliens are subject to a 30% income tax on the gross income they receive from a US-based employer. If a tax treaty exists between the US and the country of residence, a non-resident alien may be eligible for a reduced tax rate.
Notably, W-8 BEN forms are not sent directly by the employee to the IRS. It is up to the employer to collect them.
Here’s how the W-8 BEN form is used:
What is a W-8 BEN form used for?
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. 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.
Federal tax withholding, or how much is deducted from the employee’s gross income, is determined by the total amount earned and the taxpayer's information provided.
As mentioned earlier, whether the US has a tax treaty with the worker’s country of residence will determine the rate the worker is eligible to apply for.
The US has established tax treaties with over 60 countries to date.
When do I need to ask a contractor to fill out a W-8 BEN form?
Employers must request Form W-8 BEN from foreign contractors who meet the criteria before they are compensated for services rendered. Contractors who do not complete the W-8 BEN form are subject to the 30% taxation rate.
Employers should request a W-8 BEN form when a contractor:
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
Don’t hesitate to hire workers if they meet employment and labor requirements. As their employer, you will need to ensure they fill out the correct forms for compensation and tax withholding.
Ensure you have all of your ducks in a row regarding tax compliance. While you may understand the tax considerations for US employees, there is more to think about when hiring workers abroad.
How do I fill out a W-8 BEN form?
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:
The employee’s full name
The employee’s country of citizenship
The employee’s permanent residential address
The employee’s mailing address (if different from their residence)
The employee’s Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) (for employees or workers seeking a taxation reduction based on a tax treaty)
The Foreign Tax Identifying Number (TIN) issued by the employee’s jurisdiction of residence; if the country doesn’t issue TINs, there’s a checkbox for the employee to opt-out
The reference number if the withholding agent needs referencing account information to meet regulations
The employee’s date of birth (MM/DD/YYYY)
The foreign country for whose tax laws the employee claims benefit
Withholding rates (if applicable)
2. Sign and date the form. (The form must be signed and dated to be valid.)
3. Return the form to the requesting entity.
A non-green card-holder living outside the US won’t have an SSN. These workers can apply for an ITIN, issued regardless of their immigration status, to comply with US filing or reporting requirements.
Who is responsible for providing the W-8 BEN form?
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.
US companies should request a W-8 BEN form from all foreign workers who meet the criteria.
However, collecting W-8 BEN forms is only one of the employer’s responsibilities. Employers have numerous considerations to make in managing global payroll. Fortunately, with a partner like Remote, you don’t have to do it alone.
The Remote platform offers payroll services for countries across the globe that make it easy to onboard, hire, and pay workers while remaining fully compliant with employment, labor, and tax laws.
Who needs to fill out a W-8 BEN form?
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 (the employer), regardless of whether they are claiming a reduced rate of, or exemption from, withholding.
In the US, the IRS withholds federal income taxes based on the employee’s gross income. Taxes are used to support public programs, such as Social Security and Medicare. Residents of certain states may also be subject to state income tax withholdings.
Although foreign workers aren’t US citizens, they are subject to tax withholdings based on the tax treaty of their country of residence. The amount will differ based on the agreement.
What is the difference between a W-8 and a W-8 BEN?
W-8 refers to a series of five forms that foreign individuals and businesses use to claim exemptions.
The W-8 BEN addressed in this article is the specific form for individuals to establish foreign status for the purposes of taxation.
Employers should also be aware of the W-8 BEN-E form. This slightly different variation is used when contracting with a foreign entity rather than a foreign individual.
Individuals who want to claim their income is effectively connected with a US trade or business should complete form W-8 ECI .
Where should I send a W-8 BEN form?
Workers should return forms to the requesting body, usually an employer or withholding agency
W-8 BEN forms are not submitted by the individual directly to the IRS.
Whether foreign workers are eligible for accordant tax treaty reductions or not, the IRS requires the W-8 BEN to be completed and submitted to their employers.
When does a W-8 BEN form expire?
A W-8 BEN form expires on the last day of the third successive calendar year after which it is signed. For example, a W-8 BEN form signed on 9/30/22 is valid through 12/31/25.
If the foreign employee’s identifying information is changed, a new form will need to be completed and submitted.
Form W-8 BEN may also be considered valid indefinitely under certain circumstances.
Employers must understand the form’s validity and keep it current to ensure compliance.
Why try to navigate the process on your own? Partnering with Remote will help your business stay fully compliant with U.S. and foreign tax regulations.
What happens if employers and workers don’t submit a W-8 BEN form?
Workers and employers have different responsibilities.
For workers
If workers do 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.
This could be a costly oversight for employers and contractors alike.
For employers and HR professionals
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 you are improperly compensating your workers. The consequences of improperly withheld pay can be serious and may include a breach of the employment contract or other legal troubles.
How can you manage international workers and stay compliant?
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.
Avoid these consequences by working with a qualified professional.
Remote can help you manage your international contractors. Not only will it help onboard and pay them, but it will also help ensure you avoid the penalties that result from incorrectly classifying them.
What’s the best way to pay remote employees and contractors?
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, consider working with an employer of record (EOR).
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.
An EOR like Remote is a service provider that helps you onboard, hire, manage, and pay international workers. It has established legal entities, allowing businesses to hire and onboard international employees in days instead of months.
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.
EORs assist in onboarding workers to take the burden off your HR department.
Learn more about working with an EOR in our on-page guide.
Manage and pay international teams with Remote
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 compliance and proper compensation for your international workers.
Understanding the tax forms is just part of what you need to know about compliance when hiring globally.
Whether you want to hire one 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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