Completing the Certificate of Income Tax Treaty Exemption Form (IRS Form W-8BEN)

Purpose

This document describes when IRS Form W-8BEN, "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding" is required and provides step by step instructions for completing the form.

Background

Nonresident aliens are only subject to taxation on their income from within the United States. Generally, taxes are withheld at a standard rate of 30%. There are several exceptions to the 30% tax withholding requirement, including exemptions claimed under an income tax treaty. An income tax treaty is a bilateral agreement entered into between two governments under which each country agrees to limit or modify the application of its domestic tax laws in an attempt to avoid “double taxation” of income to the individual.

The U.S. has income tax treaties with a number of foreign countries. Under these treaties, non U.S. citizens may be exempt from or receive a reduced rate on income taxes on certain income deemed U.S. source income. For more information on income sourcing rules, refer to the procedure How to Determine Foreign Source Funding.

When a tax treaty applies, the non U.S. citizen must request the income tax exemption using the IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.

Note: To claim an income tax treaty exemption, the person must have or obtain a U.S. Taxpayer Identification Number (TIN). Refer to the "Taxpayer Identification Numbers (SSN and ITIN)" group of procedures for more information on TINs.

When IRS Form W-8BEN is Required

IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding,
must be completed in the following situations:

Using the Form for Tax Treaty Exemptions for Fellowship, Rent, or Royalty Income

Non U.S. citizens who are receiving fellowship, rent, or royalty income payments must complete, sign, date, and submit IRS Form W-8BEN to request exemption under a tax treaty. The form must then be reviewed and approved by the Research Foundation (RF) personnel/payroll administrator or delegate. If the form is not received or is rejected by the RF personnel/payroll administrator or delegate, the income remains taxable.

Refer to the procedure, Using Income Tax Treaties and Quick Reference Tables for detailed information on reviewing and validating income tax treaty exemption claims. The following procedures also provide additional guidance on the taxation of fellowship, rent, and royalty payments:

Obtaining and Completing the Form

IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding,
is available on the IRS Web site as a “fill-in” PDF form. The form can be completed online and printed for original signature.

Sample completed forms for tax treaty exemption requests for non U.S. citizen fellows and royalty payments are provided on the RF Web site:

Reviewing Form W-8BEN

Upon completion, the form must be reviewed by the RF operating location office that handles personnel/payroll matters or a delegate to ensure it is complete and accurate. If the reviewer finds that the form is not complete or knows or has any reason to believe the information is not correct, then tax withholding should not be reduced or exempted.

The reviewer must make a reasonable review and will not be held liable if an error was not clear from the face of the form or other information contained in the withholding agent’s files and documents. The institution is generally presumed to have knowledge of all records and documents that it may have in its possession as a whole, not simply within a particular office or department.

Period of Validity for Form W-8BEN

If the W-8BEN is submitted with a SSN or ITIN, the form will be valid for as long as the income activity (e.g., fellowship for research, fellowship for study, etc.) remains unchanged. If the income activity status changes and the tax treaty exemption still applies, a new form is required.

If the non U.S. citizen files for tax treaty exemption and does not yet have a U.S. tax identification number, he or she must include a copy of the SS-5 (SSN) application or IRS form W-7 (ITIN) application.

If after filing the form the person claiming the benefits becomes ineligible, he or she must notify the office in charge of RF payroll/personnel matters.

Form Retention

Completed and signed forms must be retained in the individual's fellow or supplier file for four years after the last applicable year.

Input to the RF Business System

It is essential that the payment is coded correctly in the RF business system when a non U.S. citizen is claiming exemption from income taxes under an income tax treaty for fellowship, rent, or royalty income.

For fellowship payments to non U.S. citizens, key input involves properly coding Noncitizen Special Info Types (SITs) in the Payroll module. Refer to Processing Taxation or Exemption of Fellowship Payments to Nonresident Aliens and 1042-S Noncitizen Special Info Type (SIT) Monitoring for more information on system input.

For rent and royalty payments, key input involves using the appropriate "NRA" supplier type in the Accounts Payable (AP) module. If the exemption is valid, the NRA supplier type will end with "TE" (treaty exempt). Refer to Nonresident Aliens: Payments to Independent Contractors, Participant Stipend Recipients, Royalty Recipients, and Rent Recipients for more information.

Change History

 

 

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