How to Fill Out Form W-8BEN for Scholarship Income: A Comprehensive Guide

The W-8BEN form, officially titled "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)," is a crucial document for foreign individuals receiving income from U.S. sources. This guide provides a detailed explanation of how to complete the W-8BEN form specifically for scholarship or fellowship grant income, ensuring compliance with U.S. tax regulations.

Introduction

The W-8BEN form serves to establish your status as a non-resident alien for U.S. tax purposes. By completing this form accurately, you can claim treaty benefits (if applicable) and ensure the correct amount of tax is withheld from your scholarship or fellowship grant. It is important to note that UMass and other institutions cannot advise individuals on which form to complete or how to fill it out.

Who Needs to Fill Out Form W-8BEN for Scholarship Income?

You must provide Form W-8BEN to the withholding agent or payer if you are a nonresident alien who is the beneficial owner of an amount subject to withholding. If you are the single owner of a disregarded entity, you are considered the beneficial owner of income received by the disregarded entity. The scholarship or fellowship recipient who is claiming a treaty exemption may claim a tax treaty withholding exemption for scholarship or fellowship grants by submitting Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (individuals), to the payer of the grant.

Specifically, you need to fill out this form if:

You are a nonresident alien receiving scholarship or fellowship grant income from a U.S. source.
You are claiming a tax treaty exemption on your scholarship or fellowship grant based on a tax treaty between your country of residence and the United States.

When NOT to use Form W-8BEN:

You are a U.S. citizen or resident alien. In this case, you may be required to provide Form W-9.
You are receiving income that is effectively connected with the conduct of a trade or business in the United States, unless it is allocable to you through a partnership. Instead, provide Form W-8ECI.
You are acting as a foreign intermediary (that is, acting not for your own account, but for the account of others as an agent, nominee, or custodian).
You are the trustee of a foreign trust.

General Instructions and Key Considerations

Beneficial Owner: A person is not a beneficial owner of income, however, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent the person is a conduit whose participation in a transaction is disregarded.
Provide the Form Before Payment: Give Form W-8BEN to the person requesting it before the payment is made to you, credited to your account, or allocated. If you do not provide this form, the withholding agent may have to withhold at the 30% rate.
Validity: Generally, a Form W-8BEN will remain in effect for purposes of establishing foreign status for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect.
Changes in Circumstances: If you use Form W-8BEN to certify that you are a foreign person, a change of address to an address in the United States is a change in circumstances. However, if you use Form W-8BEN to claim treaty benefits, a move to the United States or outside the country where you have been claiming treaty benefits is a change in circumstances. If you become a U.S. citizen or resident alien after you submit Form W-8BEN, you are no longer subject to the 30% withholding rate.

Step-by-Step Guide to Completing Form W-8BEN for Scholarship Income

Here's a breakdown of each line on the W-8BEN form, with specific instructions for scholarship recipients:

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Part I - Identification of Beneficial Owner
- Line 1: Name of individual who is the beneficial owner
  - Enter your full legal name (as it appears on your passport or other official identification).
- Line 2: Country of citizenship
  - Enter the country of which you are a citizen.
- Line 3: Permanent residence address
  - Enter the address where you permanently reside. This should be your address in your home country.
- Line 4: Mailing address (if different from above)
  - If your mailing address is different from your permanent residence address, enter it here.
- Line 5: U.S. taxpayer identification number (SSN or ITIN), if required
  - The scholarship or fellowship recipient who is claiming a treaty exemption must provide the withholding agent with his or her Taxpayer Identification Number (TIN), whether it is a Social Security number (SSN) or an individual taxpayer identification number (ITIN), on Form W-8 BEN or on Form 8233, or the withholding agent cannot allow the treaty exemption. The scholarship or fellowship recipient is allowed to attach a copy of Form W-7, Application for IRS Individual Taxpayer Identification Number or a copy of Form SS-5 PDF, or other document from the Social Security Administration showing that an SSN has been applied for, to the Form 8233.
  - If you have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), enter it here. If you do not have one but are claiming treaty benefits, you will generally need to obtain one.
  - If a scholarship or fellowship recipient does not have a TIN at the time he or she claims a tax treaty exemption on Form 8233, he or she must apply for one.
- Line 6: Foreign tax identifying number (if any)
  - Enter your tax identification number from your country of residence, if you have one.
  - New line 6b, "FTIN not legally required," has been added for account holders otherwise required to provide an FTIN on line 6 (redesignated as line 6a) to indicate that they are not legally required to obtain an FTIN from their jurisdiction of residence.
- Line 7: Reference number(s)
  - This line is optional. You can use it to add any reference number that may be helpful to the withholding agent.
- Line 8: Date of birth (MM-DD-YYYY)
  - Enter your date of birth in the specified format.
Part II - Claim of Tax Treaty Benefits (if applicable)
- Line 9: Country of residence where you are claiming treaty benefits
  - Enter the country where you are a resident for tax treaty purposes. For treaty purposes, a person is a resident of a treaty country if the person is a resident of that country under the terms of the treaty.
- Line 10: Special rates and conditions (if applicable - see instructions)
  - This is a crucial section for scholarship recipients claiming treaty benefits.
  - (1) Article and paragraph: Specify the article and paragraph number in the tax treaty between the U.S. and your country of residence that provides the exemption or reduced withholding rate for scholarship or fellowship grants.
  - (2) Reduced rate: Indicate the reduced rate of, or exemption from, withholding under an income tax treaty.
  - (3) Type of income: Specify "scholarship" or "fellowship."
  - (4) Explain why you meet the terms of the treaty article: Explain why you meet additional conditions in the Article and Paragraph. Provide a brief explanation of why you believe you are eligible for the treaty benefit. This might include stating that you are a student or trainee, and that the treaty provides an exemption for students or trainees.
  - Caution: The student/trainee and teacher/researcher articles of the tax treaties generally contain time limits beyond which a treaty exemption may not be claimed. A foreign student/trainee or teacher/researcher who has become a resident of the United States should consult the applicable tax treaty article to make sure that the time limit for the treaty benefit has not expired.
Line 15: Limitation on Benefits.
- Complete Line 15 and indicate that the income is not attributable to a permanent establishment in the United States. As the business profits treaty clauses require that the income for which the treaty claim is made is not attributable to a permanent establishment in the United States, you must certify to this on Line 15.
Part XXX Certification
- Sign here: Signature of the person who is authorized to sign.
- Print Name: print name of signer.
- Date: Date of signature; required format is Month-Day-Year.
- You must check the box to certify that you have the legal capacity to sign for the entity identified on line 1.

Tax Treaty Information and Resources

Tax Treaties: The U.S. has tax treaties with many countries that may offer reduced tax rates or exemptions for scholarship income. Consult the tax treaty between the U.S. and your country of residence to determine if you are eligible for treaty benefits.
IRS Resources: The IRS website (IRS.gov) provides information on tax treaties and other relevant topics.
Form 8233: Form 8233 is used when compensation for personal services (or both compensation for personal services and a scholarship or fellowship) may be exempt from withholding because of a tax treaty.

Reporting Treaty-Exempt Income

The scholarship or fellowship recipients who are nonresidents should generally report the treaty exempt income on Form 1040-NR, Sch OI, item L, line 1(d)and include the amount on line 1(k) of Form 1040-NR. If the income has been reported as taxable income on a Form-W-2, Form 1042, Form 1099 or other information return, the scholarship or fellowship recipients who are residents for the tax year should generally report the income on line 1 of Form 1040, then enter the amount as a negative number for which treaty benefits are claimed on Schedule 1 (1040), line 8z.

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Important Considerations for Foreign Students

Residency for Tax Purposes: Under the Internal Revenue Code, a student may become a resident for tax purposes if his or her stay in the United States exceeds 5 calendar years. If you satisfy the substantial presence test, you must notify the withholding agent, payer, or financial institution with which you have an account within 30 days and provide a Form W-9.
Time Limits on Treaty Benefits: Caution: The student/trainee and teacher/researcher articles of the tax treaties generally contain time limits beyond which a treaty exemption may not be claimed.

Withholding and Reporting

Chapter 3 and 4: Chapter 3 means chapter 3 of the Internal Revenue Code (Withholding of Tax on Nonresident Aliens and Foreign Corporations). Chapter 4 means chapter 4 of the Internal Revenue Code (Taxes to Enforce Reporting on Certain Foreign Accounts).
FDAP Income: Generally, an amount subject to chapter 3 withholding is an amount from sources within the United States that is fixed or determinable annual or periodical (FDAP) income (including such an amount on a PTP distribution except as indicated otherwise). FDAP income is all income included in gross income, including interest (as well as OID), dividends, rents, royalties, and compensation. FDAP income does not include most gains from the sale of property (including market discount and option premiums), as well as other specific items of income described in Regulations section 1.1441-2 (such as interest on bank deposits and short-term OID).
Withholding Agent Responsibility: A withholding agent or payer of the income may rely on a properly completed Form W-8BEN to treat a payment associated with the Form W-8BEN as a payment to a foreign person who beneficially owns the amounts paid.

Special Situations

Partnerships: Generally, a foreign person that is a partner in a partnership that submits a Form W-8BEN for purposes of section 1441 or 1442 will satisfy the documentation requirements under section 1446(a) or (f) as well. However, in some cases the documentation requirements of sections 1441 and 1442 do not match the documentation requirements of section 1446(a) or (f).
Disregarded Entities: A business entity that has a single owner and is not a corporation under Regulations section 301.7701-2(b) is disregarded as an entity separate from its owner. A disregarded entity does not submit this Form W-8BEN to a partnership for purposes of section 1446 or to an FFI for purposes of chapter 4. Instead, the owner of such entity provides appropriate documentation.

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