W-8BEN foreign contractors

Hiring overseas subcontractors (dispatchers, IT, marketing, virtual assistants)? Don’t skip the tax step that protects you.

One key requirement: collect the correct IRS W-8 form from the contractor before signing the agreement and before making any payments.That form helps determine whether you must withhold U.S. tax, and if so, how much.

Which form?

• Foreign individual → W-8BEN

• Foreign company/entity → W-8BEN-E

  
  

What the W-8 documents

1. Whether the payee is or is not a U.S. person, and

2. The payee’s tax status (and sometimes a treaty claim, if applicable)

When withholding may apply

If the payment is treated as U.S.-source FDAP income (common examples: royalties, license fees, some interest, etc.), the default withholding can be 30% unless reduced by a tax treaty.

What helps support that withholding is NOT required

If you’re paying for services performed entirely outside the U.S., the payment is often foreign-source (service income is generally sourced based on where the work is performed), which can mean no U.S. withholding—but you still need the W-8 and good records to support that.

Best practice file: W-8 + contract + invoices + proof of where services were performed + payment records

🚩 red flag: If a “foreign contractor” gives you a W-9 or a U.S. TIN (SSN/ITIN/EIN), pause— they may be treated as a U.S. person for tax, and the process is different.

If you skip this and withholding should have applied, the IRS can assess the business for the withholding tax + penalties + interest.