Need to sign IRS forms W8 and W9 and withhold 30% of payments? | Forex Factory

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Need to sign IRS forms W8 and W9 and withhold 30% of payments?

  • Poll

  • Do we sign or not ?
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  • #1
  • First Post: Feb 10, 2014 12:32am Feb 10, 2014 12:32am
Us brokers is requesting to sign W8 or W9 in order to comply with IRS regulations, effective May 1, 2014 , in order to earn interest. In the new instruction to this forms says " withhold 30% of any payment". Interest which brokers paying on your account and including swap.
But by the new regulations, you can ( not have to) sign and if you not going to sign you will not be payed interest. So all + swap will not be payed, if you are not going to sign.
So I have to pay 30% + tax ????

How this will affect traders ???
Even though I walk through the darkest valley, I will fear no evil
  • #2
  • Feb 10, 2014 12:44am Feb 10, 2014 12:44am
By my calculations, If I am holding long Eur/USD one full lot for 24 hours, my interest $0,27. It looks like that 30%, $0,08, wouldn't be much trouble for day traders, but big one for investors and carry trades.

So any idea do I need to sign this form, or I don't need to sign it ?
Even though I walk through the darkest valley, I will fear no evil
  • #3
  • Feb 10, 2014 1:32pm Feb 10, 2014 1:32pm
Yes I'm afraid Uncle Sam wants to skim the cream off.
The email I got said this would affect interest payments on cash balance and not on open possies. I had a peek at the W8 but I'm not sure it's worth it.
forget about tomorrow, just steal away into the night
  • #4
  • Feb 10, 2014 1:57pm Feb 10, 2014 1:57pm
Inflation will raise soon. Interest rates will follow.

The government knows it beforehand because they designed it.

So they start to put laws in place to take advantage of the situation

In a high inflation/interest rate economy financial institutions lure clients paying "high" interest in their accounts.

The money is still corroded by inflation but people have the illusion their money is growing.

The government jumps in and taxes the interest rate institutions pay because the nominal value is perceived as high.

With high inflation the regular guy has few options to protect his money other than the misleading "high" interest anyways.

More people park their money in institutions trying to scape from inflation.

So, the tax guy has a more "captive" herd to exploit.
Don't call me. I call you!
  • #5
  • Feb 11, 2014 1:54am Feb 11, 2014 1:54am
Quoting MarginCalled
Inflation will raise soon. Interest rates will follow. The government knows it beforehand because they designed it. So they start to put laws in place to take advantage of the situation In a high inflation/interest rate economy financial institutions lure clients paying "high" interest in their accounts. The money is still corroded by inflation but people have the illusion their money is growing. The government jumps in and taxes the interest rate institutions pay because the nominal value is perceived as high. With high inflation the regular guy...
It is understandable
Even though I walk through the darkest valley, I will fear no evil
  • #6
  • Feb 11, 2014 2:00am Feb 11, 2014 2:00am
For me as day trader, it is not a big deal, even if will not sign, what I am loosing? $0,24 from one lot if I will hold it for 24 hours.
For big players who have carry trades it is going to be a killer.

The question is do we support uncle sam or not ?
Even though I walk through the darkest valley, I will fear no evil
  • #7
  • Feb 11, 2014 2:03am Feb 11, 2014 2:03am
Quoting spekitox
Yes I'm afraid Uncle Sam wants to skim the cream off. The email I got said this would affect interest payments on cash balance and not on open possies. I had a peek at the W8 but I'm not sure it's worth it.
It will affect swap. If you will have + swap you not going to be paid unless you will sign W8!
Even though I walk through the darkest valley, I will fear no evil
  • #8
  • Feb 11, 2014 2:10am Feb 11, 2014 2:10am
Take a vote, and explain your decision !
Even though I walk through the darkest valley, I will fear no evil
  • #9
  • Feb 11, 2014 7:37am Feb 11, 2014 7:37am
Quoting monocor
For me as day trader, it is not a big deal, even if will not sign, what I am loosing? $0,24 from one lot if I will hold it for 24 hours. For big players who have carry trades it is going to be a killer. The question is do we support uncle sam or not ?
I don't think you got the point.

0.24 today can grow in nominal terms to 2.4, 24.00, 240.00 2400.00 or even higher.

If we go to hyperinflation you can have 24000.00 dollars per day just in interest on your account.

All will be nominal since the real money depreciation will be bigger.

But even if nominal such a increase can allow you to speculate in lagging instruments. And make some money

I already signed mine.
Don't call me. I call you!
  • #10
  • Feb 11, 2014 8:39am Feb 11, 2014 8:39am
Quoting MarginCalled
{quote} I don't think you got the point. 0.24 today can grow in nominal terms to 2.4, 24.00, 240.00 2400.00 or even higher. If we go to hyperinflation you can have 24000.00 dollars per day just in interest on your account. All will be nominal since the real money depreciation will be bigger. But even if nominal such a increase can allow you to speculate in lagging instruments. And make some money I already signed mine.
Joking right !
Do you understand what is interest rate and swap ?

I didn't signed mine, still thinking. Interest doesn't make any difference for me, I do not hold positions more than 5-6 hours. And by signing that form I will make extra payments, I have to pay taxes any way, so why do I have to give them extra 30% from interest.
Even though I walk through the darkest valley, I will fear no evil
  • #11
  • Feb 11, 2014 10:12am Feb 11, 2014 10:12am
Quoting monocor
{quote} Joking right ! Do you understand what is interest rate and swap ? I didn't signed mine, still thinking. Interest doesn't make any difference for me, I do not hold positions more than 5-6 hours. And by signing that form I will make extra payments, I have to pay taxes any way, so why do I have to give them extra 30% from interest.

I do understand.

I'm not sure if i made myself understandable on the scenario projected so i will try one more time.

When inflation raises your account at the broker starts to get smaller.

A little bit every day. 10% inflation means that in 1 year your 10K account becomes 9K.

It is still 10K ( nominal value) there but your purchasing power is decreased by 1K.

As soon as inflation starts to accelerate and the money devaluation gets noticed
people start to pull their money out of financial institutions.

So the financial institutions start to pay higher interest on people's money in order
keep their clients.

So when inflation get at 10% your broker will pay you lets say 8 or 9% to keep your business.

How the broker can afford it?

The same way they afford it now. Their bank pay them interest in the bulk of the accounts they have deposited
so the broker keeps a little of the interest and pass you the rest.

Inflation and interest rates are correlated with the former always lagging behind on the retail level.

The government knows that inflation/interest will raise.

If hyperinflation kicks in you may get 5% or more in interest only payed daily on your account.

The IRS want to tax it.
Don't call me. I call you!
  • #12
  • Feb 12, 2014 4:42am Feb 12, 2014 4:42am
Quoting MarginCalled
{quote} I do understand. I'm not sure if i made myself understandable on the scenario projected so i will try one more time. When inflation raises your account at the broker starts to get smaller. A little bit every day. 10% inflation means that in 1 year your 10K account becomes 9K. It is still 10K ( nominal value) there but your purchasing power is decreased by 1K. As soon as inflation starts to accelerate and the money devaluation gets noticed people start to pull their money out of financial institutions. So the financial institutions start...
Again, it is nothing to do with trading. They wont pay higher interest, there is no way they would do that in this economy. Interest can be increased only in the healthy economy. If they will increase interest rate, they will kill production inside the country, prices will rise, it is going to be much more profitable to import, and so on, and so on. You don't understand basic principles of economy and how it works.

5 % a day, out of your mind, the highest was 12% per year.
And what is the point to have that 1% a year of interest, If I have 40-80% a month from trading! 10K account in one month will be 14-18K, and I don't really care what will happen in a year!
Even though I walk through the darkest valley, I will fear no evil
  • #13
  • Feb 12, 2014 7:54am Feb 12, 2014 7:54am
Quoting monocor
{quote} Again, it is nothing to do with trading. They wont pay higher interest, there is no way they would do that in this economy. Interest can be increased only in the healthy economy. If they will increase interest rate, they will kill production inside the country, prices will rise, it is going to be much more profitable to import, and so on, and so on. You don't understand basic principles of economy and how it works. 5 % a day, out of your mind, the highest was 12% per year. And what is the point to have that 1% a year of interest, If I have...
Ok, when we get there you will remember ( and understand) what I told you.

Take care.
Don't call me. I call you!
  • #14
  • Last Post: Feb 12, 2014 11:58am Feb 12, 2014 11:58am
Monocor,

(New member here. But I've been reading the Forum posts for a long time.)
I have not received any notice from my brokers regarding the IRS W-8 or W-9 forms you mentioned, so I don't know what exactly they were requesting you to do. However, here are a few US tax rules that may apply, which may help you make your decision--

If you are a US citizen or resident, you are subject to US taxation on worldwide income. So if the broker pays you any amount of interest, however small (over $10 for the calendar year), you need to report that income on your income tax returns. The broker is required to report the interest payment information to the IRS. The IRS will do a computer matching against your income tax returns for such income.

The W-9 form is for you to report your SS# or Federal tax ID number (if a legal entity) to the broker. Such information would already have been provided to the broker when you opened the account, so that's no big deal to complete that form now/again if they ask you.

The W-8 form is usually applicable only to foreign owners/beneficiaries of US financial accounts. US brokers are required to withhold US tax from certain payments to foreigners. Read the filing instructions on this form on the IRS.gov website, to see if it applies to you. http://www.irs.gov/pub/irs-pdf/iw8.pdf

Not having received any such notice from my broker, I believe the 30% tax you were referring to is a withholding tax.


The withholding rule should apply whether you are an investor or a trader... but exempt for US corporations (because corporations are required to keep a complete set of books).

Even if you are subject to any withholding tax, it's not so bad. The treating of this kind of withholding is similar to the withholding on W-2 salary. The withholding amount can be used as a credit against your actual income tax liability calculated at the end of the year when you file your income tax returns. So any withholding may just be a small timing difference of cash flow in your account.

So choosing between getting interest income from the broker or not, I would always opt to get income; because I would always be ahead after paying tax on it even at my high tax bracket.

I hope I did not misread your question, and I hope you find the above points helpful. And always check with your own tax advisor for your own tax situation.
I'd be interested to know your final decision. Thanks.
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