A W-9 vs W-8 BEN Overview for Withholding Purposes

A W-9 vs W-8 BEN Overview for Withholding Purposes

The W-9 and W-8 Explained

When it comes to withholding tax by US companies/withholding agents, there are two main forms that the company will issue, and taxpayers are only required to complete one of them. The two forms are the W-9 form and a W-8 form.  The W-9 form is used by US persons such as US Citizens, Lawful Permanent Residents, and foreign nationals who meet the Substantial Presence Test. Conversely, the W-8 is used by nonresident aliens in order to put the withholding agent on notice that the person receiving the income is not a US person. The withholding rules are different depending on whether a person is a US person or a non-resident alien. Let’s take a brief overview of the W-9 and W-8 forms.

W-8 BEN Form

The W-8 Form is technically referred to as the Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). When a person is a non-resident and has an account at an institution for example, instead of that institution issuing a W-9 as it will for its US customers, instead it issues a W-8BEN  or W-8BEN-E for non-individuals. The person is required to identify their name, address, and other identifying information sufficient to identify them for withholding purposes. It also requires the taxpayer to identify their country of citizenship.

W-8 BEN To Claim Treaty Benefits

One of the most important aspects of the W-8BEN form is to claim tax treaty benefits. Most of the time, the withholding rate is 30% for nonresident aliens in accordance with FDAP.  But, some tax treaties provide for a reduced — or even completely waived — withholding requirement. Thus, it is very important for taxpayers to be aware of whether or not reside in a treaty country and if so if it is the type of income that can reduce or eliminate withholding. Taxpayers are required to identify what country they are residents of, the reduced withholding rate – and which article/paragraph of the treaty are they relying on. Taxpayers with questions about withholding can refer to Publication 519 and other publications for assistance.

W-9 Form

The W-9 form is much simpler exercise. Essentially, the institution or employer will request a W-9 form so that the company can identify the taxpayer’s Social Security number or other tax identification number. With this information, the company can issue forms such as W-2 and 1099.  Taxpayers have the opportunity to identify issues such as withholding and related issues on a form W-4 as well.

Did You Submit a W-8 BEN but are a US Person?

One situation some taxpayers must be aware of is if they are a US person but may have opened a foreign account at a foreign financial account and provided a W-8BEN instead of a W-9. If the foreign financial institution receives a W-8BEN then they will not report the individual to the US government (since the form represents that the person is not a US Person). The problem is if the US government finds out that a person provided this information to a foreign financial institution, they might see it as a fraudulent attempt to avoid FBAR or FATCA reporting. If you are in this situation, you may want to consider getting into compliance before the IRS learns of it (noting, that oftentimes it is the result of mistake or inadvertence, such as when a person may have changed from a non-resident to a resident and not updated the institution – and can be resolved through a non-willful amnesty submission).

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.