This guest blog is written by Scott Letourneau, CEO and founder of NCP, a Riverbend Consulting partner.
Incorrectly completing the Amazon tax interview can cause costly account verification delays and serious IRS issues. Many non-resident sellers mistakenly fill out the W-9 instead of the W-8BEN, risking severe penalties.
Mistakes in the Amazon tax interview can cause account verification issues, preventing your account from being activated. More severe errors, such as using the wrong tax forms, can lead to legal consequences for providing false information.
To avoid these pitfalls and ensure smooth account verification, gather all necessary documents, verify your Tax Identification Number (TIN), and double-check every entry for accuracy.
Now, let’s explore the common Amazon tax interview mistakes and how to avoid them.
Amazon Tax Interview Mistake #1: Not Understanding the First Two Tax Interview Questions.
The first two tax interview questions are as follows:
The first Amazon tax interview question:
What is your classification? The two answers are “individual” and “business.”
The definition includes sole proprietorships OR single-member LLCs where the owner is an individual. This question seems simple, but it is where most get into trouble. This confuses sellers since single-member LLCs are disregarded for tax purposes and are so popular.
Yes, your single-member LLC is a separate legal entity for liability purposes, but for tax purposes, when owned by you, an individual, it is considered an “individual.”
Although many sellers get this question correct, they make mistakes later in the tax interview when they aim to show the newly formed LLC or Inc. as the legal entity under the “business name.”
- 2nd Question: If you answer “individual” to the first question, the second question will ask, “Are you a U.S. citizen, U.S. permanent resident (green card holder), or other U.S. resident alien”?
- If you answer “business” to the first question, the second question will ask, “Are you a U.S. resident entity?”
You would answer “No.” if you are a foreign entity, such as a UK LTD company. If you were a U.S. LLC taxed as a corporation, you would answer “yes.”
The Tax Interview Leads to a W-9 vs. a W-8BEN or W-8BEN-E
A U.S. person completes a W-9 Form. A U.S. person can be a U.S. citizen or an entity that is a corporation or partnership. An LLC taxed as a corporation or partnership is considered a U.S. person, which leads to completing the W-9 for the tax interview.
A single-member LLC disregarded as owned by a foreign individual or company does NOT count as a U.S. person if the owner is a non-resident individual or entity.
For example, a single-member LLC disregarded as the legal entity on Amazon should NOT lead to completing the W-9; if so, you are committing perjury on part II certification of the W-9.
A single-member LLC disregarded owned by a foreign individual would lead to completing the W-8BEN on the tax interview:
A single-member LLC owned by a foreign entity would lead to completing the W-8BEN-E on the tax interview.
Amazon Tax Interview Mistake #2: Tricking the Tax Interview
Avoid “tricking the tax interview” when a single-member LLC is disregarded and owned by a non-resident because you want the LLC name to appear in the “business name” vs. your “personal name.”
To understand where this comes into play, when you go to an Amazon product page, on the right-hand side, it will say “Ships from” and “Sold by.” In this case, it is shipped from Amazon and sold by “executive collection.”
When a customer clicks on “Sold by,” it will take them to the next page, the seller page. It describes the seller’s reviews and provides detailed seller information.
In this situation, the business name may be a DBA (doing business as) name linked to an LLC or corporation.
If you were an individual or a single-member LLC disregarded owned by an individual, in this case, often you will see many Chinese sellers, and their seller page detailed seller information may look like this example:
This is a long personal name; you know the address is from China.
Some sellers want the best of both worlds. They want a single-member LLC disregarded to sell on Amazon, but they do NOT want their name to be the “business name,” so they attempt to “trick” the tax interview, which is NOT recommended.
In this example, the answer to the first tax interview question is “individual,” and on the second question, “no,” which leads to the tax identity information.
The tax identity information says “full name” and NOT “organization name” because this is an individual. It is looking for YOUR individual name, NOT the name of the LLC.
When you put the LLC name on “full name,” the issue is who signs the form.
This will create an error because the signature name does not match the full name. However, the “trick” is to type your LLC name in the “signature” line, which is NOT recommended.
In this situation, with a single-member LLC disregarded and owned by an individual, the “full name” is your name, and the signature is where you type your same full name. Not the LLC name.
Amazon Tax Interview Mistake # 3: Changing Your Single-Member LLC to a Partnership or Corporation for Amazon
This is not necessary with a brand new Amazon seller account unless you want the legal entity to appear as the “business name.”
Some will say that if an Amazon store is opened using a disregarded LLC, the beneficial owner must complete the appropriate withholding certificate, not the LLC. That part is true.
Some will say the Amazon “storefront” must display the beneficial owner’s name and NOT the LLC’s.
This is NOT true.
The “display name” can be any name and is often your “brand name,” which is typically not your LLC name.
As we mentioned, if you want your “business name” to be your LLC name, that is a different subject.
Amazon Tax Interview Mistake #4: Updating Legal Name for a Single-Member LLC on Amazon
Suppose your legal name is a foreign entity, and you want to change it to a U.S. LLC.
The most common situation is that you want U.S. insurance, which requires a U.S. company to obtain full coverage. In that case, the U.S. entity must operate the Amazon business, not your foreign entity.
To change the “business name,” you must retake the tax interview, complete a W-9, and create a U.S. person, which is NOT a single-member LLC disregarded.
For example, a single-member LLC can be taxed as a corporation, or a two-member LLC taxed as a partnership.
To change the “Legal Entity,” you must retake the tax interview.
Retake your Tax Interview
See how there is NO single-member LLC disregarded option? Because you selected “business above.”
You will update your EIN at the end, which will be manually verified within a few days. Amazon will verify the EIN with the IRS.
If the EIN is “too new,” Amazon may reject it. Wait a week or two and enter it in again. The IRS even says registering in all systems can take 2-4 weeks.
Amazon asks if your EIN is 60 days old. If it is, Amazon must verify your EIN with the IRS.
Amazon Tax Interview Mistake #5: Assuming No U.S. Tax Liability with a W-8BEN as a Non-Resident
The W-8BEN states that you should NOT use this form if you are a beneficial owner (meaning a non-resident individual) claiming that income is effectively connected with the conduct of a trade or business in the United States.
According to Amazon’s tax interview guide details1, if your income is effectively connected with a U.S. trade or business, you must provide a U.S. tax identification number (TIN).
If you do NOT have a U.S. TIN, you may apply for a U.S. TIN (ITIN or EIN) with the IRS.
If you have a foreign (non-U.S.) income tax identification number issued by your local tax authority, enter it in the appropriate box.
However, this entry is for informational purposes only and will NOT be used to determine if your income is effectively connected with a U.S. trade or business.
Most non-resident sellers, who are individuals, will complete W-8BEN and assume they are not engaged in a U.S. trade or business and do not have effectively connected income.
The actual analysis to determine if you are engaged in a U.S. trade or business and have effectively connected income with a U.S. trade or business is beyond the scope of this article, but if you did have a U.S. office or U.S. employee working in the U.S. on behalf of your LLC selling on Amazon, that would mean your profits from the LLC are likely subject to U.S. taxes. Unfortunately, this is NOT black and white. Whether or not the owner of the U.S. LLC is subject to U.S. taxes is based upon facts and circumstances. 2
The key is to know that just because you complete form W-8BEN or W-8BEN-E (owned by a foreign entity) does not always mean your US LLC that is taxed as a partnership or disregarded will NOT pay any U.S. taxes. It is based on facts and circumstances.
It is recommended that, as a non-resident, you contact a U.S. tax professional before expanding to Amazon.com, whether operating as a foreign entity completing the W-8BEN-E or a U.S. single-member LLC disregarded owned by you as a foreign individual or a foreign entity.
Amazon Tax Interview Mistakes #6: Common IRS Mistakes on the W-9 for U.S. Residents
As a U.S. resident, you will complete the W-9 Form. The W-9 will lead Amazon to send you a 1099-K form with your annual income on it (once you are over $600 in income earned).
If you are an individual in the U.S. or a single-member LLC disregarded for tax purposes (where you are the owner), you will answer the questions:
- What is your tax classification? Individual or business. In this case, you would be an individual.
- Are you a U.S. permanent resident (green card holder or other U.S. resident alien? If you say yes, Amazon has a drop-down menu for acknowledging. In most cases, you would be “an individual who is a U.S. citizen.”
- A U.S. citizen would only check “business” if your LLC were taxed as a partnership, corporation, or S corporation or you formed a separate or limited partnership.
- If you start as a single-member LLC disregarded and file form 2553 to be later taxed as an S corporation later in the same tax year or after the first tax year, you would retake the tax interview and then click on “business.”
Common W-9 mistakes for single-member LLCs disregarded entities include:
- Incorrect Tax Classification: Failing to select “S Corporation” as the correct classification.
- Using the Wrong Name: Entering the owner’s name instead of the LLC’s name in the “Name” field.
- Wrong TIN: Using the owner’s SSN or ITIN instead of the LLC’s Employer Identification Number (EIN).
- Address Errors: Providing an incorrect or outdated address associated with the LLC,
To avoid IRS complications and ensure compliance, seek professional support when starting a new Amazon seller account or changing your legal entity or tax status, which may require retaking the Amazon tax interview.
Proper guidance prevents errors in your tax interview that could cause issues years later. Navigating Amazon’s platform is challenging enough; don’t add IRS scrutiny to your concerns.
