This form is used for a non-U.S. person to have the U.S. payor (considered a withholding agent) to reduce the amount of U.S. tax to be withheld on personal services provided in the United States. The individual providing the service could be an employee or an independent contractor, sole proprietor.
It is possible for a Canadian corporation to hire Canadian employees that travel to the U.S. to render personal services on its behalf. In this regard, the income derive therefrom would be subject to IRS Form 8233.
A non-U.S. person would be a Canadian not considered resident of the U.S. for U.S. income tax purposes, either under the Internal Revenue Code or under a tax treaty ( between the U.S. and country of residence of the income recipient). Depending on the days present in the U.S., the income from U.S. source may be entirely exempt from federal U.S. taxation. For state income taxation, some states follow the treaty and some do not.
Personal services provided must be in the U.S., services provided from your home-office in Canada is considered Canadian source or foreign source from a U.S. perspective, and is not subject to the application of this form. Usually individuals paid by a U.S. payor would receive a W-2 ( as an employee), or a 1099 information slip, as independent contractor.
If the U.S. payor also pays for services provided in Canada, they may request IRS Form W8- BEN or IRS Forms W8-Ben-E. The latter form is for non-individual income recipients. This form is usually requested by the payor to ensure there is no withholding requirement with respect to the cross- border payment for services provided outside the United States.
The form is signed by the withholding agent and by the recipient of the income. One copy is sent to the Internal Revenue Service.
The form requires the individual recipient to have an ITIN or what is called, individual taxpayer identification number. In this regard, the individual would note ‘applied for” on the form in this box and attach a signed copy of the form with his/her IRS Form W-7 (application for an ITIN).
The payor should understand that an individual cannot obtain an ITIN prior to filing a tax return without attaching the 8833 to the W-7 application. If the payor resists signing this form until an ITIN is obtained, it may end up withholding 30% federal tax and the individual will have to file a 1040NR with a treaty-based disclosure IRS Form 8288 to obtain a refund. The withholding agent should examine the instructions and the appendix to the W-7 to learn on how this works.