Completing tax information for Payments

Tax form collection is controlled by the organization sending the payment (the payer). Recipients need to submit tax forms when that payer’s collection setting requires them. Tax forms are not mandatory for every payment.

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How to manage tax collection settings

Payers manage tax form collection for each recipient under Collect tax forms. Choose when Karat collects forms, or turn collection off: You can choose a setting when adding a new recipient. To change an existing recipient’s setting, open Payments > Recipients, select the recipient, and click Edit. Choose a setting under Collect tax forms and save your changes. See Managing recipients in Payments for details on editing existing recipients. To turn off tax form collection, select Do not collect (Skip in the send-payment form). The recipient can then complete onboarding without submitting a W-9 or W-8 for that payer. The payer chooses this setting; recipients cannot change a payer’s tax form requirement themselves. If you’re a recipient with a question about the requirement, contact the organization paying you.

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When a recipient hits the $600 threshold

For recipients set to Collect at $600, Karat tracks the total of all completed payments from the payer’s organization, including any off-platform payments the payer has recorded. When a new payment would push that total to $600 or more:

1. The payment is created with status Recipient action needed and is not transferred yet.
2. The recipient is emailed a link to submit their W-9 or W-8 form.
3. Once Karat approves the tax information, the held payment is released automatically and processing resumes.

Payers can see threshold-blocked payments on the Payments dashboard by filtering for the Recipient action needed status.

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What’s required when tax forms are collected

Which form you complete depends on whether you’re a U.S. person for tax purposes. If you’re completing tax information as an individual, Karat asks Are you a U.S. person for tax purposes? and your answer picks the form. Entities instead choose where the entity is registered (United States or Others).

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U.S. recipients: Form W-9

• Complete Form W-9 and provide your Taxpayer Identification Number (TIN).
• As an individual, answer Yes to the U.S. person question if you’re a U.S. citizen or a U.S. resident alien, including U.S. citizens living abroad. You can enter a foreign address on Form W-9, so living outside the U.S. doesn’t mean you should answer No.
• If you’re a U.S. person and previously chose the non-U.S. path, go back to the question, select Yes, and complete a W-9 instead.

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International recipients: Form W-8

• Complete Form W-8 (W-8BEN as an individual, W-8BEN-E as an entity) and provide your country-specific tax details.
• As an individual, answer No to the U.S. person question. As an entity, choose Others.
• Before you can continue, check the confirmation that reads “I confirm that the services performed for this payment were completed while physically located outside the US.” Karat records your confirmation with the payment and links it to the Payment Authorization terms. If you switch to the U.S. path, the confirmation is cleared. Only check the box if the statement is true for the payment.

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Changing between Individual and Entity (international recipients)

If you’re an international recipient and previously completed your tax details as an Individual, you can switch to an Entity (or vice versa) from your tax details. Use the Taxpayer type selector at the top of the tax form to choose Individual or Entity, and the appropriate W-8BEN or W-8BEN-E flow reopens for the new classification. Your saved tax information does not change until you complete and submit the new form. Approved forms you previously submitted stay associated with the payers you sent them to, so your historical records with those payers are preserved.

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How it works

When prompted to complete a tax form, you’ll enter your information and electronically sign it. Karat then verifies your details, which may include identity checks, sanctions screening, and TIN matching for U.S. users. When tax forms are required, payments may be delayed if your tax information is incomplete or incorrect. Tax forms are updated automatically if your information changes.

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Receiving payments from multiple payers

If you’ve been invited to receive payments from more than one organization, each payer that requires tax information collects it separately. Submitting your tax form for one payer doesn’t automatically share it with another. When you accept a new payment invitation, you may be prompted to complete your tax form again for that payer, even if you’ve already finished the process before. Your previously approved details are reused where possible, so you typically only need to review and re-sign. _{Karat is a fintech company, not an FDIC-insured bank. Banking and Card services provided by Grasshopper Bank, N.A., First Internet Bank of Indiana, and Cross River Bank, Members FDIC.}