W8 vs. W9 Tax Forms

Tax forms W8 vs. W9 – what the heck is the difference?

If you are a US-based company working with freelancers, this question is pertinent to your business. As you probably already know, staying on the IRS’s good side makes life much easier. 

On the other hand, failing to fill out or submit the correct forms—whether by accident or intentionally—can cause major headaches or lead to tax penalties down the road.  

In this guide, we’ll define what tax forms W8 vs. W9, their differences and similarities, and how to fill them out. Once you have all of that sorted out, you’ll be better positioned to maximize your freelancer workforce while remaining compliant.

What is a W-9 tax form?

The full name of Form W-9 is ‘Request for Taxpayer Identification Number and Certification’. Businesses use the form to collect information from the independent contractors, freelancers, and vendors they work with who are US citizens who are required to pay taxes to the IRS.

Quick recap: If your business pays freelancers $600 or more during a tax year, you are required to report these payments to the IRS via Form 1099-NEC. Although businesses aren’t required to withhold income tax or pay Medicare or Social Security benefits on behalf of their freelancers, the IRS still wants to know how much these workers earned so it can make sure they pay the correct amount in self-employment taxes.

So, the W-9 helps businesses gather all of the information they need in order to correctly fill out the 1099-NEC. This information includes:

  • Name
  • Address
  • Social Security number (SSN) or tax identification number (TIN)

Form W-9 is only used to gather the necessary information. Neither you, the business, nor your contractors, should actually submit the W-9 to the IRS.

What are W-8 series tax forms?

Buckle up, friends. The W-8 series tax ID forms are a little bit trickier than the W-9. However, if you work with non-payroll workers who are not US citizens and also US citizens who reside outside of the US, understanding W8 is extremely important. 

Non-US tax residents use W-8 forms to prove their foreign status so they can claim tax treaty benefits.

It is important to note that the US has different tax treaties with different countries around the world, which means withholding amounts differ for freelancers depending on what country they reside in. 

So, after receiving a W-8 form from your non-US citizen, non-resident alien freelancers, paying companies, and withholding agents use W-8 forms to calculate how much tax to withhold. If a contractor fails to submit the form, they will be subject to the full 30% tax rate that ordinarily applies to foreign entities.

Still with me?

To make things even more fun, there are five different W-8 forms, each of which can be used to manage tax requirements for entities that declare a foreign tax ID status. Foreign freelancers don’t need to fill out all five forms, however. They need to determine the right form based on their type of business and purpose. 

The 5 types of Form W8

Here’s a breakdown of all five types of Form W-8. 

  1. W-8 BEN 

This is the most commonly used W-8 form. Its full name is ‘Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting’, and its purpose is to establish that the individual filling it out is both a foreign person and the owner of the business in question. Foreign individuals are ordinarily subject to a tax rate of 30% on the income they receive from US payers. This form helps workers claim a reduction or exemption from US tax withholdings if they live in a country that has a tax treaty with the US, and the income they received is subject to that treaty.

  1. W-8 BEN-E 

The title of this form is also ‘Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting’, and it does the same thing as the W-8BEN, except it is used by foreign entities and not individuals. 

  1. W-8 ECI 

This form is officially called the ‘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’. It is filed by foreign individuals who receive income from US-based payers after engaging in a trade or business with them. The income they receive is considered “effectively connected income” by the IRS. It’s important to note that ECI is not subject to the same 30% withholding rate. Instead, after subtracting relevant deductions, it is taxed at the graduated rate that US citizens and resident aliens are subject to. If the type of income/country of residence is covered by a US tax treaty, it would be taxed at the lowest rate under that treaty.

  1. W-8 EXP 

This form, titled ‘Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting’, is used by entities like foreign governments, foundations, and tax-exempt organizations to claim an exemption or reduction of tax withholdings. In order to qualify, the entity must be eligible under the following IRS codes, otherwise, it must file a W-8BEN or W-8ECI: code 115(2), 501(c), 892, 895, or 1443(b).

  1. W-8IMY 

This form is officially called ‘Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting’. It is used by intermediaries to certify that an individual or business received tax-withholding income on behalf of a foreigner or as a flow-through entity.

Like the W-9 form, W-8 forms should not be submitted to the IRS. Instead, those who receive the payments, like freelancers and independent contractors, should submit them to you, the paying company, or withholding agents. 

However, these tax forms are critical in order to properly fill in 1099 NEC and 1024-s tax forms that all companies working with freelancers are required to submit to the IRS.

W8 vs. W9: What’s the difference?

If the differences between the types of forms aren’t yet clear, here’s a drilled-down list of what makes them unique.

  • Form W-9 is to be filled out by US workers that have a SSN or TIN, while W-8 forms are filled out by foreign individuals and non-resident aliens who receive income from US sources.
  • There is only one Form W-9, but five different types of W-8. The type of W-8 a freelancer or vendor should fill out depends on the type of income they receive.
  • The goals of the W-8 forms are to help the IRS keep track of how much income is being sent to individuals and entities overseas, as well as to determine the correct tax withholding rate.
  • The goal of the W-9 form is to ensure self-employed individuals in the US are paying the correct amount of taxes.

When and how should we collect these tax forms?

Good question. Here’s an overview of the process for both forms.

Forms W-8

Non-US contractors, freelancers, and vendors should submit the correct completed W-8 form to you, the paying company, before the first payment, is made. If they delay in submitting the form, your company or the withholding agent might have to withhold the full 30% that is normally withheld under US tax law.

The best practice is to tell your foreign freelancers to submit the correct W-8 form during their onboarding so that you have all of the relevant documentation in one centralized place before you issue their first payment.

Once submitted, W-8 forms are effective for the year in which they are signed, as well as three more calendar years. For example, a W-8 form signed on October 1, 2021 would be valid through December 31, 2024. 

Form W-9

You should collect a Form W-9 from every new freelancer or vendor they enlist during the onboarding process. If the freelancer or vendor’s information changes (such as business name, address, or TIN), they should submit a new W-9 to you with the updated information.  

Because it’s important to receive a W-9 early, you won’t always know how much you will end up paying them. For example, most freelancers should submit a W-9, but they won’t necessarily end up getting a 1099-NEC, such as if you pay them less than $600 in the calendar year. 

Don’t mix up Forms W8 and W9

The different tax forms and their corresponding requirements might feel overwhelming and complex. But by breaking it down piece by piece and gaining a greater understanding of what the forms are actually for, managing them gets simpler. 

With greater clarity on the various tax forms, you’ll need to deal with, your company will be better equipped to work with freelancers in the US and around the world.