As withholding agents, credit unions are required to withhold a percentage of the amount paid to members unless they can “reliably associate” the interest payment with either:
► Form W-9 for a U.S. citizen or resident alien; or
► Form W-8BEN for members whose permanent residence is outside of the U.S. and who aren’t U.S. citizens (nonresident aliens).
The form might be considered unreliable if, for example, it’s missing relevant information, the information is inconsistent with what your member has told you, or a reasonably prudent person would question it.
If you can’t reliably associate the interest payment with one of these IRS forms, then you should presume the interest payment is made to a U.S. citizen and backup withhold.
If you receive a Form W-8BEN from your member, and you have no reason to believe any of the information on the form is unreliable or incorrect, you’re exempt from reporting on Form 1099-INT. But after Jan. 1, 2013, you must file Form 1042-S if the nonresident alien member is from a country that has an information exchange agreement with the U.S.
You don’t send Forms W-8BEN to the IRS, but you must keep these forms in the credit union’s records for as long as they’re relevant to your tax-reporting responsibilities.
Generally, a Form W-8BEN provided without a U.S. taxpayer identification number (TIN) will remain in effect from the date the form is signed until the last day of the third succeeding calendar year, unless a change in circumstances makes anything on the form incorrect.
According to the form’s instructions, Form W-8BEN with a U.S. TIN “will remain in effect until a change of circumstances makes any of the information on the form incorrect, provided the withholding agent reports on Form 1042-S at least one payment annually to the beneficial owner.”
Currently, you’re allowed to rely on a W-8BEN that contains a P.O. box as a permanent residence provided you don’t know, or have reason to know, the person providing the form is a U.S. citizen and a street address is available. The IRS doesn’t like this allowance, so keep an eye out for changes.
When obtaining identifying information from your nonresident alien members, remember the Customer Identification Program (CIP) under the Bank Secrecy Act requires you obtain one of the following for non-U.S. citizens: an individual TIN; a passport number and the country of issuance; an alien identification card number; or a number and country of issuance on any other foreign government-issued document that shows nationality or residence with a photograph or similar safeguard.
Although you won’t actually be filing these new 1042-S forms until 2014, now’s the time to put policies and procedures in place so you can collect the nonresident alien interest payment information in January.
COLLEEN KELLY is CUNA’s federal compliance counsel.