A business owner should always be aware of everything related to tax. One should know which tax form needs to be complete or collected from the employees. Providing your employees with the correct tax form is not always easy. This task can be very daunting if one does not have any knowledge of accounting. But, knowing about taxes and tax forms is very essential for running a business smoothly. Understanding the difference between various tax forms simplifies your job.
All About Form W-8
A W-8 form is used by foreign businesses and non-residents who are earning any type of income from the U.S. There are many types of form W-8: form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY. According to the IRS, there are two types of income- active and passive. Hence, whether your employees work in the U.S. or simply receive a pension, you will require one or other W-8 forms. This makes it very essential to understand the difference between all types of W-8 forms. Each of these forms is a self-certification medium that documents the employees’ status. This might be a resident of the U.S. or non-resident aliens. Also, it helps to withheld tax appropriately. If you make a mistake with these forms, you might find yourself in trouble with the IRS. This might result in your employees losing a lot from their paychecks. You can run your business smoothly if you have the correct knowledge of the following.
- The form W-8 certifies your employee as a foreign entity, non-resident alien individual or exempt foreigner.
- The form W-8BEN is a certificate of foreign status regarding tax withholding on income. You will specifically use this for owners of the U.S. based income who are not the U.S. tax residents. This form helps foreigners to claim benefits from the tax treaty. It is the most commonly used W-8 form.
- The W-8BEN-E is similar to form W-8BEN. The only difference is that it is specific for use by entities rather than individuals. These entities include private foundations, corporations, trusts, partnerships, disregarded entities and so on.
- The form W-8ECI is used by entities that are involved in a trade that has an income source based in the U.S. This form helps such entities to exempt them from the normal 30% withholding on the U.S. based income.
- The form W-8EXP is one of the lesser-known W-8. It is applicable for international organizations, foreign governments, and foreign tax-exempt organizations to demand an exemption from the FATCA (Foreign Account Tax Compliance Act).
- The form W-8IMY establishes foreign status for any entity that is either qualified or non-qualified intermediary of flow-through and established chapter-4 status.
- The form W-8 CE is applicable to every covered expatriate. Also, according to this, the employee is eligible for unique tax regulations. Moreover, it is also known as the notice of expiration and waiver of treaty benefits.
These are the most common forms you will be using for your employee’s tax status. The judicial use of these tax forms will help your company and your employees’ breeze through the tax day.
