W8ben is a tax form that foreigners submit for a tax exemption or a reduced tax rate on income earned while residing in the United States. The w8ben is officially called a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).

In the United States, certain types of income earned by a non-resident foreign national are subjected to a flat of 30 percent tax; however, the foreign person can file a w8ben tax form for tax exemption or a reduced tax rate if the country of residence is under an income tax treaty with the United States. However, foreign national who is a resident alien (has a green card) is subjected to the same tax rates as a U.S. citizen.

The w8ben tax form has three parts and requires the following information:

  • Payee name
  • Permanent residence (Non-U.S. address)
  • Country of tax residency
  • Mailing address
  • U.S. taxpayer identification number (social security number or Individual Taxpayer Identification Number) or the Foreign tax ID
  • Article number and treaty section
  • Withholding tax rate

Payers use the information on a w8ben to complete 1042-S tax form, an annual tax report that documents the total amount paid to a non-resident individual.

Best Practices

When it comes to locating and submitting the right form for tax withholding, companies often put the responsibility on the payee. But that method can lead to more work for accounts payable. For example, if the payee submits an incorrect or incomplete tax form, then accounts payable bears the responsibility of correcting and completing the payer’s tax forms.

Financial management and automation technology enable accounts payable to be proactive with assisting payees to complete tax forms and validating the information in near real time, thus eliminating the manual and time-consuming process of tracking down missing or incomplete tax documents. These best practices can help accounts payable speed up the onboarding process for new payees, make collecting w8ben tax forms a seamless part of the onboarding process, and have tax information ready when it’s time to file annual taxes:

  • Provide the payee a questionnaire to help determine the correct tax form
  • Enable onboarding payees to complete and submit the correct tax form within a management software rather than having payees locate the tax form on their own
  • Utilize cloud-based technology to automate validation of payee information and tax data
  • Adopt a financial management system that automatically generates annual tax forms required by the IRS

Data Points

Source: Tax Expatriation

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