W8 vs. W9 Tax Forms

For businesses operating within the United States and engaging freelancers and independent contractors, familiarizing oneself with various tax forms is essential. Among the most common ones are the W8 and W9 tax forms.

Understanding the differences between these forms is essential to ensuring proper payroll taxation for independent contractors and freelancers. Penalties for non-compliance may apply if the proper tax form is not submitted. 

This blog will provide comprehensive insights into the W8 vs W9 tax forms, highlighting their differences, as well as providing guidance on how to complete them accurately. Armed with this knowledge, businesses can effectively harness the potential of their freelancer workforce while remaining compliant with tax regulations. 

What is a W-9 Tax Form?

Form W-9 is an IRS tax form that seeks details on a person who is either a citizen of the United States or who is a resident alien. Businesses can obtain crucial information from freelancers, independent contractors, and vendors by using a W-9 tax form, also known as a "Request for Taxpayer Identification Number and Certification." It only applies to American-citizen freelancers and vendors.

To better understand the scenarios in which a W-9 tax form is required, let's look at an example. If you pay your freelancers $600 or more in a single tax year, you must use the 1099-NEC form to report these payments to the IRS.

The purpose of the W-9 form is to enable businesses to gather all the details required.  It helps in accurately filling out the 1099-NEC form. These details include the individual's name, address, Tax Identification Number (TIN), and Social Security Number (SSN)

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Who needs to fill out the W-9 form?

Businesses that enlist the services of independent contractors are obligated to provide them with a W-9 form before the commencement of work. Specific criteria define the "independent contractors" classification, and meeting these criteria requires submitting a W-9 form. You will be asked to complete a W-9 form if:

1. You identify yourself as an independent contractor or "freelancer."

2. You are not employed part-time by the company.

3. You expect to receive payment exceeding $600 for services provided to the business.

If you are uncertain whether you fall under the W-9 form requirement, seeking advice from an accountant or tax professional is recommended. They can help you determine your correct tax status and provide guidance on the appropriate forms to complete for accurate tax filing in the relevant tax year.

What are W-8 series tax forms?

The W-8 series tax ID forms can be trickier to complete than the W-9 tax forms, especially when dealing with non-payroll employees, foreign nationals, and people who don't live in the US.

Non-US tax residents utilize the W-8 forms to confirm their foreign status and claim tax treaty benefits based on their country of residence. Employers must accurately withhold taxes based on the information provided in the W-8 form.

Delay in the submission of the W-8 form may subject freelancers and independent contractors to a 30% tax rate, typically applied to foreign entities.

There are five W-8 forms, and employers must select the appropriate one based on the freelancer's tax ID status and individual circumstances to ensure compliance with tax regulations. Let's have a look at the W-8 series tax forms.

The Types of W-8 Series Tax Forms

There are five W-8 series tax forms, and each form is used for a specific purpose. The forms include- 

W-8 BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting)

W-8 BEN form is commonly used in situations involving foreign residents and business owners. This form establishes their status and eligibility for tax treaty benefits. Foreigners can claim tax exemptions or reductions if their country has a tax treaty with the US and the income received is subject to that treaty.

W-8 BEN-E (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting)

Both the forms, W-8 BEN and W-8 BEN-E serve the same purpose of certifying foreign status and claiming tax treaty benefits, W-8 BEN is for individual foreign taxpayers, and W-8 BEN-E is for foreign entities. The W-8 BEN-E form applies only to foreign entities receiving payments from US businesses, and it is submitted to the IRS for compliance.

W-8 ECI (Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States)

The W-8 ECI form is filled by non-U.S. citizens who are involved in business activities within the United States and receive income from U.S. sources. The earnings are typically categorized as "effectively connected income (ECI)”, regardless of whether the income is directly related to the trade or business conducted within the U.S. during a specific year.

W-8 EXP (Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting)

Designed for entities like foreign governments, tax-exempt organizations, and foundations, the W-8 EXP form allows them to claim reductions or exemptions on tax withholdings based on specific IRS codes.

W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting)

Intermediaries use the W-8IMY form to ensure that they receive income subject to tax withholding on behalf of a foreign entity or as a flow-through entity.

W8 Vs. W9: The Difference

Finding your way through the world of tax forms can be challenging, particularly when it comes to the W8 and W9. These two tax forms, though seemingly similar at a glance, cater to entirely different scenarios, leading to potential confusion among taxpayers. Let us have a look at the differences between the two forms: 

Who are these forms applicable to? 

W8 TAX FORM: W-8 forms are filed by individuals or entities from foreign countries who do not hold U.S. citizenship or residency but have conducted work or earned income within the United States. This typically includes foreign-based businesses and non-resident aliens.

W9 TAX FORM: Any US citizen worker who qualifies as an independent contractor, such as a freelancer, lawyer, or software developer, must complete a W-9 form if they have a Social Security Number (SSN) or a Taxpayer Identification Number (TIN). The form includes their name, SSN/TIN, and address. Employers use this information to report payments and determine the correct amount of self-employment taxes to be paid to the IRS.

Purpose and Content

W8 TAX FORM: To aid the IRS in monitoring income remitted to foreign entities and individuals and ascertain the accurate rate and sum for withholding purposes.

W9 TAX FORM: To guarantee that self-employed individuals and entities within the United States remit accurate tax payments.

Tax Implications

W8 TAX FORM: 

• Non-US Tax Residents: Non-US citizens and non-resident aliens use the W-8 form to establish their foreign status and claim tax treaty benefits based on their country of residence. By submitting this form, they can potentially reduce or eliminate certain US withholding taxes on specific types of income.

• Foreign Entities: Foreign businesses or entities use various types of W-8 forms to certify their foreign status and claim tax treaty benefits, if applicable. The withholding agent, usually a US payer, will withhold taxes based on the information provided in the W-8 form.

W9 TAX FORM: 

• US Tax Residents: US citizens and resident aliens fill out the W-9 form to certify their tax identification number (TIN) and provide their correct taxpayer information to the payer. By submitting this form, they affirm their US tax residency status.

• US Entities: US businesses and organizations also use the W-9 form to provide their TIN and taxpayer information to other entities, ensuring accurate tax reporting.

Legal and Compliance Factors

W8 TAX FORM: The W-8 form is used by non-US individuals and entities to establish their foreign status and claim tax treaty benefits. It helps ensure compliance with tax laws and treaties, reducing the risk of over-withholding payments received from US sources.

‍W9 TAX FORM: The W-9 form is utilized by US individuals and entities to provide their taxpayer identification number (TIN) and relevant taxpayer information. It facilitates accurate tax reporting and compliance with US tax regulations for income paid to US residents and businesses.

How to fill out each form?

When we talk about the W9 vs W8 forms, there are distinct steps and specific information to gather while completing.

FORM W-9 

For Form W-9, the process is relatively simple for contractors:

1. Provide your full name on Line 1.

2. Enter your business name on Line 2 (leave blank if you don't have one).

3. Specify your federal tax classification to prevent contractor misclassification on Line 3.

4. Fill in your address, city, state, and ZIP code on Lines 5 and 6.

5. Complete Part I with your SSN or TIN (Taxpayer Identification Number).

6. Sign and date Part II.

On the other hand, Form W-8BEN adheres to a specific structure.

FORM W-8

This form consists of three sections, each requiring specific details from foreign contractors when completing the W-8BEN:

Part I

Full Name

Country of citizenship. For dual citizens, they should provide both countries of citizenship and residency.

Permanent residence address

Mailing address

Social Security number (SSN) if available. If the contractor lacks an SSN, they can obtain an Individual Taxpayer Identification Number (ITIN).

Any additional reference information to assist the withholding agent with inaccurate filing.

Part II

In this section, the contractor indicates their eligibility for treaty benefits based on their foreign country residence, which has a tax treaty with the United States.

Part III

Part three mandates all foreign independent contractors and freelancers to sign and date Form W-8BEN through a handwritten signature or electronically.

For projects involving overseas contractors, additional information may be necessary, mainly when collaborating with professionals from the European Union.

When and How to Collect These Tax Forms?

As previously discussed, the distinctions between the W9 vs W8 ben tax forms, the filing procedures can be intricate. Here's an outline of the processes for the W-8 vs. W-9 forms:

Collecting W-9 Forms

During the onboarding process, every new vendor, independent contractor, or freelancer is required to file a Form W-9. In case of any modifications to the freelancer's information, such as changes in address, business name, or Tax Identification Number, they must promptly update it by submitting a new W-9 form.

Since the timely submission of Form W-9 holds significant importance, employers might not always possess precise payment information for freelancers. This situation can lead to uncertainty when filing a 1099-NEC form. For instance, if freelancers receive payments below $600 in a calendar year, employers are not obligated to submit a 1099-NEC form.

Collecting W-8 Series Forms

Non-US independent contractors, vendors, and freelancers must provide an accurate W-8 tax form to their employers (or the paying company) before receiving the first payment. Failure to submit the form promptly could result in the employer or withholding agent withholding 30% of the payment, as typically governed by US tax laws.

A recommended approach for employers is to assist foreign freelancers and independent contractors in completing the relevant W-8 form during their onboarding phase. This ensures all necessary documentation is in place before issuing the first payment.

Once freelancers submit the appropriate W-8 form, it remains effective for up to three calendar years from the date of signing. For instance, a Form W-8 signed and submitted on January 1st, 2023, remains valid until December 31st, 2026.

How To File Taxes Compliantly with Skuad?

Filing taxes can be made easier with the help of professionals who have the expertise to accurately calculate income, taxes, and deductions and assist in completing tax forms. And partnering with a global payroll and employer of record (EOR) platform like Skuad offers a smooth and uncomplicated tax filing experience.

With Skuad, you can leave all payment and compensation-related tasks to us. Whether it involves cross-border operations, full-time employees, or contract workers, organizations easily can manage cross-border payroll and global contractor payments when you partner with Skuad as your Employer of Record.

FAQs

1. How do I confirm my tax status with W8 or W9 form?

To confirm your tax status, you must understand which form applies to you. If you are a US citizen or resident alien, complete a Form W-9. If you are a non-US citizen or non-resident alien, use one of the W-8 series forms. The specific W-8 form you choose will depend on your circumstances, such as whether you are a foreign individual, foreign entity, or tax resident of a country with a tax treaty with the US.

2. Do green card holders fill out W8 or W9?

Green card holders are considered resident aliens for tax purposes, so they should fill out a Form W-9, which is meant for US citizens and resident aliens. Green card holders are subject to US tax laws, and their income is treated like US citizens.

3. Can a non-US citizen have a W9?

A non-US citizen who is also a non-resident alien is not eligible to fill out a W-9 form. The W-9 is specifically for US citizens and resident aliens. Non-US citizens should use the appropriate W-8 form that corresponds to their tax status and individual situation.

4. Do I have to pay taxes if I fill out a W9?

If you are a US citizen or resident alien who fills out a W-9 form, you must still pay taxes on your income. However, by providing your taxpayer information on the W-9 form, you enable the payer to report your income to the IRS, which helps ensure proper tax reporting.

5. How much taxes will I pay on a W9?

The taxes you will pay on a W-9 form depend on various factors, including your total income, filing status, deductions, and credits. The W-9 form does not dictate the tax rate; it provides the necessary information to the payer, allowing them to report your income accurately. The actual tax liability will be determined when you file your tax return using the information from your W-9 form and other relevant tax documents.