W-9 vs W-8: Which Form Does Your Subcontractor Need?

TL;DR: Collect a W-9 from US persons (citizens, resident aliens, US-formed entities) and a W-8 (BEN, BEN-E, ECI, or EXP) from foreign persons. Pay foreign subs without proper W-8 documentation and you owe 30% FDAP withholding plus penalties; US persons file 1099-NEC, foreign persons file 1042-S.

A subcontractor emails you saying they need to submit a W-8 instead of a W-9. Do you accept it? Is it the right form? Are you about to violate IRS withholding rules? This post walks through the W-9 vs W-8 distinction for GCs, covers the variants of W-8 that exist, and explains what you actually need to do with each.

The Basic Rule

• W-9 is for US persons: individuals who are US citizens or resident aliens, and entities formed under US law.
• W-8 is for foreign persons: non-US individuals and entities claiming foreign status for US tax reporting purposes.

One form per sub. If the sub is a US person, they give you a W-9. If they're a foreign person, they give you a W-8. Never both, never the wrong one.

Why This Matters for GCs

The form determines:

1. Whether you withhold taxes on payments. US persons get paid in full (subject to backup withholding rules if no W-9). Foreign persons are subject to 30% FDAP withholding unless a treaty or exception applies.
2. What year-end form you file. US persons get a 1099-NEC. Foreign persons get a 1042-S and a 1042 summary.
3. Your liability if you get it wrong. The IRS holds the payer responsible for withholding the right amount. If you pay a foreign sub without withholding and the IRS catches it later, you owe the tax plus penalties plus interest.

For most US-based GCs, 99% of subs are US persons and file W-9, but the 1% that are foreign is where the expensive mistakes happen.

Who Is a "US Person"?

Under the Internal Revenue Code, a US person is:

1. A US citizen: any US citizen, anywhere in the world
2. A US resident alien: non-citizen who meets the green card test or substantial presence test
3. A US partnership, corporation, or LLC: any entity formed under US federal or state law
4. A US estate: estate of a US citizen or resident
5. A US trust: under certain tests of control and residency

If any of these apply, the person or entity is a US person and files W-9. Everything else is "foreign."

The W-8 Family: Which Variant?

There's not one W-8. There are four main variants, and the sub needs to use the right one. Here's the breakdown.

W-8BEN

For individuals who are not US persons and are claiming foreign status. Most commonly used by individual contractors living outside the US.

Used to:

• Establish foreign status
• Claim a reduced withholding rate under a tax treaty (if one exists between their country and the US)

W-8BEN-E

For entities (companies, partnerships, trusts) that are not US persons. The "E" stands for "Entity."

This is the form a foreign construction company would file. It's longer than W-8BEN. 30+ lines, because the entity has to identify its classification under US tax law (active NFFE, passive NFFE, etc.) and its FATCA status.

W-8ECI

For foreign persons whose income is Effectively Connected with a US trade or business. This applies when a foreign entity has a US office, permanent establishment, or ongoing US business activity and the income is taxable as if they were a US person.

For GCs, this comes up rarely. Typically only with foreign-owned construction companies that have set up US operations. These entities pay tax on their US-effectively-connected income through regular filings, not through withholding, so you don't withhold.

W-8EXP

For foreign governments, foreign tax-exempt organizations, and similar entities claiming exemption from withholding. Rare for subcontractor relationships; essentially never comes up in construction.

W-8IMY

For intermediaries (foreign partnerships, trusts acting on behalf of others). Very rare for direct sub payments.

In practice, 98% of foreign sub W-8 forms you'll see are either W-8BEN (individuals) or W-8BEN-E (entities).

Withholding Rules for Foreign Subs

If you pay a foreign sub for services, the default withholding rate is 30% on gross payments (FDAP. Fixed, Determinable, Annual, Periodical income). You withhold 30% from every payment, remit it to the IRS, and pay the sub 70%.

That sounds brutal. Here's the nuance.

Treaty Reductions

Many countries have tax treaties with the US that reduce the withholding rate for services. The sub's W-8BEN or W-8BEN-E will claim the treaty benefit by listing the country of residence and the specific treaty article. Common treaty rates for services: 0%, 10%, 15% depending on the country.

You're required to withhold at the treaty rate rather than the 30% default, but only if the W-8 properly claims the benefit. If the W-8 is missing treaty information, you withhold at 30%.

Services Performed Outside the US

Here's the big exception. If the foreign sub is performing services entirely outside the United States, the income is not US-source and is not subject to US withholding at all. The sub files no US tax return, you file no 1042-S, and you pay them in full.

For a GC, this is the most common foreign-sub scenario: you hire a graphic designer in Europe to do renderings, and the work happens entirely from their office abroad. No withholding, no 1042-S. Just pay them.

However, the W-8BEN is still required to document the exemption. You need the W-8 on file to prove the sub is foreign and the services are non-US-source. Without the W-8, the IRS default is to treat the payment as US-source and impose withholding retroactively.

Services Performed in the US

If the foreign sub comes to the US to perform work. Flies in, works on site, files a visa, etc.. The income is US-source and withholding applies. This is where the 30% (or treaty-reduced) rate kicks in.

Form 1042-S and Form 1042

For any payments to foreign subs that are subject to US tax or withholding, you file:

• Form 1042-S: like a 1099, one per payee, issued by March 15 of the following year
• Form 1042: annual summary, also due March 15

The 30% withheld (or treaty rate) gets deposited to the IRS throughout the year on monthly/quarterly deposit schedules similar to payroll tax deposits.

This is a whole separate compliance regime from 1099 filing and is materially more complex. If you have any foreign subs with US-source income, work with a CPA who handles international tax.

What to Do When a Sub Sends You a W-8

1. Identify which W-8 variant. If it's W-8BEN, they're an individual. If W-8BEN-E, they're an entity. If it's ECI, EXP, or IMY, you probably need a tax professional involved.
2. Verify the sub is actually foreign. Sometimes US residents mistakenly submit a W-8. If the sub has a US address, US TIN (SSN or ITIN), or otherwise looks like a US person, follow up and confirm.
3. Check the treaty claim. If the W-8 claims a reduced withholding rate, verify the country has a treaty with the US and that the article cited is correct. IRS Publication 901 lists US tax treaties.
4. Determine if services are US-source. Where is the work being performed? If entirely outside the US, no withholding. If in the US, withholding applies.
5. Set up withholding in your AP system. Calculate the withholding amount per payment and set up recurring IRS deposits.
6. File 1042/1042-S in March. Not January like 1099-NEC.

Common Mistakes GCs Make

1. Accepting a W-9 from a foreign person. A W-9 is only valid for US persons. If the sub isn't a US person, the W-9 is invalid and you still need a W-8 on file.
2. Not collecting any form at all. Without W-8 or W-9, you're technically required to withhold 24% (backup withholding) or 30% (foreign default) from every payment. The paperwork is not optional.
3. Paying a foreign sub in full without withholding. If the services are US-source and you pay 100%, you owe the IRS the withholding you should have deducted, plus penalties.
4. Assuming all LLCs are US entities. A Delaware LLC owned by foreign persons is still a US entity for tax purposes (files W-9), but this is a nuanced area. Confirm with a CPA.
5. Missing the 1042-S deadline. March 15, not January 31. This is a separate calendar item from 1099-NEC.

How PaperBoss Handles W-9 Collection

PaperBoss automates W-9 collection for every US subcontractor: at onboarding, the sub gets a secure upload link, uploads their W-9 PDF, and the document lives in your encrypted vault until you need it for 1099-NEC filing in January.

For foreign subs, PaperBoss supports custom document types. You can collect W-8BEN or W-8BEN-E PDFs the same way you collect W-9s, and track them alongside COI and other compliance documents.

Start a 14-day free trial, no credit card required.

Frequently Asked Questions

Can a US citizen living abroad file a W-8?

No. A US citizen is a US person regardless of where they live. They file a W-9. A W-8 from a US citizen is invalid.

Can I pay a foreign sub in the US in cash and avoid the paperwork?

No. Cash payments to foreign subs for services are still subject to withholding. The paperwork and withholding apply regardless of payment method.

What if the foreign sub refuses to provide a W-8?

Then you must withhold at the maximum rate (30%) from every payment and cannot apply any treaty reduction. Most foreign subs will provide the W-8 once they understand this.

How often do W-8 forms need to be renewed?

W-8BEN and W-8BEN-E are valid for three calendar years from the year of signing (unless circumstances change). After three years, collect a new W-8.

What about the 1099 form for a foreign sub who worked in the US?

Foreign persons get 1042-S, not 1099. Don't file 1099-NEC for foreign subs. File 1042-S.

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This article is for educational purposes only and does not constitute tax or legal advice. Consult a qualified international tax CPA for guidance on payments to foreign persons.