W-8 & FATCA Tax Compliance

Capture Tax Forms, Send Foreign Vendor/Contractor Payments, Stay Compliant

Payment Rails accounts payable tax compliance platform streamlines the entire W-8 & 1042-S process by digital tax form collection, validation, withholding, payouts and year-end tax reporting. Asking your recipients to complete complicated paper-based tax forms is already painful enough. Why make the process itself painful as well?

w-8ben on desktop computer
w-8ben on desktop computer
W-8 & FATCA Tax Compliance

Capture Tax Forms, Send Foreign Vendor/Contractor Payments, Stay Compliant

Payment Rails accounts payable tax compliance platform streamlines the entire W-8 & 1042-S process by digital tax form collection, validation, withholding, payouts and year-end tax reporting. Asking your recipients to complete complicated paper-based tax forms is already painful enough. Why make the process itself painful as well?

Reduce Administrative Burden

Eliminate the administrative burden of manually collecting tax form documents from recipients/suppliers via mail, scan or fax

Eliminate Errors

Eliminate recipient errors and wasted time through use of an easy to complete guided tax form process

Automate Calculations

Eliminate manual and complex tax withholding calculations with a FATCA compliant platform.

Avoid Penalties

Avoid hefty IRS tax penalties by staying compliant.

Work Digitally

Go paperless with a fully digitized tax form collection and reporting solution in accordance to IRS requirements.

Scale Seamlessly

Go paperless with a fully digitized tax form collection and reporting solution in accordance to IRS requirements.

Never worry about taxes again

Make tax season a breeze
with Payment Rails

  • without payment rails tax compliance chart
  • with payment rails tax compliance chart
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Powerful tax features

Everything you need for tax compliance.

Payment Rails automates and solves the manual and complex accounts payable and tax compliance process

  • Tax Form Collection

    W-8BEN & W-8BEN-E form digitization

  • Payout Automation

    Streamlined payout processing

  • Reporting

    Automated year-end 1042-S generation.

  • Document Storage

    Central hub to maintain completed tax forms for IRS audits

  • Intelligent Validation

    Dynamic form validation

  • E-Deliver Forms

    Automatically handle electronic delivery of forms to your independent contractors.

Learn more about W-9 & 1099 Tax compliance

W-9 & 1099 Tax Compliance

Frequently Asked Questions: W-8 & FATCA Tax Compliance

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) imposes withholding rules on U.S. persons making payments of U.S. source income to foreign entities. The FATCA withholding rules require a 30% withholding tax on certain payments of U.S. source income to foreign entities that fall within specifically defined categories. Payors of U.S. source income to foreign entities need to obtain a W-8BEN or W-8BEN-E from the foreign payee in order to document the payee’s FATCA status and substantiate exemptions from this withholding obligation.

Who is required to fill out a Form W-8?

A Form W-8 is completed by non-resident aliens (NRA) who do work and/or make income in the U.S. or foreign business entities who make income in the U.S. These tax forms are only used by foreign persons certifying their foreign status.

There are several versions of the W-8 form. It certifies foreign status, regarding tax withholding on income. The purpose of the Form W-8 is to establish the identity and status of your Recipient/Vendor as a non-U.S. person, that they are the beneficial owner of the revenue and whether a lower rate of withholding applies as the result of a treaty claim. Even if their country does not have a treaty with the US, the form is used to establish that they are not a U.S. person.

Tax-free income, as specified by this form, includes interest, dividends, rents, royalties and annuities. The form allows foreigners to claim tax treaty benefits. To receive benefits from a tax treaty between the U.S. and the foreigner’s home country, the filer must provide certification of residency in the indicated country as well as a tax identification number. It is typical for foreigners to be taxed at a rate of 30% on income that is received from a U.S. source.

What is a Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding)?

Form 1042-S reports taxable federal income and the corresponding federal tax withholding relating to the following types of income received by U.S. non-residents:

  • Wage payments made to employees who have claimed tax treaty benefits
  • Service payments made to independent contractors for work performed in the U.S.
  • Royalty payments issued to individuals or entities.
If my payouts are made with PayPal, do I still need to collect a Form W-8?

Yes. According to U.S. tax law, any U.S. company must withhold a percentage of payments to citizens and entities in other countries depending on the tax treaties and remit these withholdings to the government. Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of:

  • Wage payments made to employees who have claimed tax treaty benefits
  • Service payments made to independent contractors for work performed in the U.S.
  • Royalty payments issued to individuals or entities.

Non-U.S. persons will be required to complete a Form W-8BEN/W-8BEN-E and will be issued a Form 1042-S. W-8BEN is for individuals. W-8BEN-E is for entities.

How do I find out if the payment is U.S. source income?

The source of income determined under the U.S. tax rules based on the type of income

Compensation for personal services, whether employment or self-employment, is generally sourced where the services are performed, not where the income is paid. Therefore:

  • Income for services performed outside the United States is foreign-source and not subject to U.S. tax for a non-resident alien (NRA), even if paid by a U.S. employer or payer.
  • Income for services performed in the United States is U.S.-source income and subject to U.S. tax even if paid by a foreign employer or payer.

Tax withholding on income other than personal services (i.e. Royalties) from a U.S. source ranges from 0% to 30% depending on the income type, country of the seller, and whether there is a tax treaty between the US and the seller’s country.

A list of the applicable tax treaties and withholding tax rates can be found here.

Disclaimer: These FAQ’s do not constitute legal or tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved. You are responsible for consulting with your own professional tax advisors concerning specific tax circumstances.