Independent Contractor Payments For Aliens
When resident and nonresident aliens provide contract services in the United States, there are specific taxes that must be paid. Understanding what payers and payees must withhold is crucial to proper tax filing.
Generally, a U.S. payer must withhold 30% of any payment of U.S. sourced income to a foreign person performing services in the U.S. unless they can reliably associate the payment with documentation that:
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Establishes the payee is a U.S. person
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Claims a reduced rate or exemption with a valid and properly completed series W-8 form; or
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Establishes that the payee is covered under a tax treaty with an accepted Form 8233.,
W-8 Series Forms
The W-8 series of forms is the equivalent of a Form W-9, Request for Taxpayer Identification Number and Certification, for a U.S Citizen or Resident. There are several W-8 series forms but the following two are the commonly encountered ones when dealing with independent contractors and small businesses:
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W-8BEN - Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
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W-8ECI- Certificate of Foreign Persons Claim That Income Is Effectively Connected with the Conduct of a Trade or Business in the United States
When Should the Tax Be Withheld?
Withholding is required at the time that the payment is made. A payment is considered to be made when the beneficial owner of the payment realizes the income. There does not need to be a transfer of cash or other property.
Remember
Only U.S. source FDAP income is subject to withholding. Effectively connected income (ECI) is not subject to withholding.