IRS Form W-9

W-9 forms are frequently used for independent contractors and freelancers in a variety of circumstances. It is crucial that you complete the form accurately because doing so could result in penalties. Be careful while distributing the form to the person making the request, and take precautions to safeguard your private data and proper tax reporting status. Let's look at who needs to complete a W-9 form, what information is needed, and what the form's goals are.

What is a Form W-9 ?

A IRS form W-9 is also known as a Request for Taxpayer Identification Number and Certification form. In the US income tax system, a third party who is required to submit an information return to the Internal Revenue Service uses Form W-9.

Each vendor or independent contractor who offers products or services to a firm is identified by name, address, and taxpayer identification number on IRS Form W-9. These individuals must receive 1099-MISC or Forms 1099-NEC from you after the close of the tax year. You must first get a completed Form W-9 from each of your contractors with this required information before you can issue them Forms 1099-NEC.

The form is kept on file by the person who files the information return for verification purposes, it is never actually transmitted to the IRS. Form 1099 are used to report payments paid and information from Form W-9.

Key Facts of IRS Form W-9

  • Employers and other entities can use the W-9, an official form provided by the IRS, to confirm a person's name, address, and tax identification number before paying them.
  • A Form W-9 must be completed by independent contractors, independent contractors, and other non-employees who received payments.
  • A 1099 tax form, which is necessary for filing income taxes, is frequently produced using data from a W-9 form.
  • Under rigorous privacy restrictions, the data that a business collects on a W-9 form cannot be released for any other reason.
  • Independent contractors who work for businesses for which they are not employees frequently need to give those businesses a W-9.
  • If you do not furnish a form W-9 as requested, your client must withhold taxes from your earnings at a tax rate of 24%.

How Does Form W-9 Work ?

Independent contractors often complete IRS Form W-9. To verify a person's name, address, and taxpayer identification number (TIN) for employment or other income-generating activities, the Internal Revenue Service (IRS) uses the W-9 tax form. Either a resident alien or a person who meets the criteria for U.S. citizenship may request the confirmation. Businesses request tax information from third parties using IRS Form W-9, Request for Taxpayer Identification Number and Certification. The company determines what information to include in the Form 1098 or Form 1099 based on the information provided on the Form W-9.

Form W-9 requests that the contractor specify whether they are a sole proprietorship, corporation, partnership, or single-member limited liability business in addition to the taxpayer's identifying information. The contractor must certify on Form W-9 whether they are a citizen of the United States or a resident alien. If they reside in another nation, they might need to file Form W-8 instead. After the end of the tax year, businesses use the data on Form W-9 to create and distribute Forms 1099-NEC, which list the amounts paid to each contractor. You will require Forms W-9 from contractors whom you paid $600 or more throughout the tax year in order to provide them with Forms 1099-NEC.

Purpose of Form W-9

A W-9 is used to obtain tax information from a vendor. A business is required to file an information return when it pays a non-employee or another entity more than $600 for their services in a calendar year. The goal of a W-9 is to obtain the necessary information directly from the vendor in order to guarantee that the information return is accurate.

Even though some information is accessible to the general public, Form W-9 safeguards the company requesting the information by asking the other party to sign the completed form. The signature attests that :
  • The provided tax identification number (TIN) is correct.
  • The other party is not subject to backup withholding.
  • The other party asserts that they are exempt from backup withholding.
  • The FATCA code used by the vendor (as well as their exemption status).

What is Form W-9 Used for ?

The IRS receives a variety of informational returns that are prepared using the Form W-9. A version of Form 1099 is typically created using the data collected on a W-9 form. Any income that the TIN holder may have gotten that isn't typically reported on a W-2 is detailed on a 1099 form.

The most typical situation is when an independent contractor finishes work for a business and gets paid. The independent contractor must receive a Form 1099-MISC and self-report their taxes, if they receive more than $600 in a calendar year.

A Form W-9 is used for more than just this one circumstance. A bank or financial institution must receive taxpayer data in order to file Forms 1099-INT, 1099-DIV, or 1099-B, which are used to report property. A Form W-9 may also be required from a taxpayer in the case of student loans, real estate transfers, and debt cancellation.

Who Can File Form W-9 ?

Independent contractors who work for another party but are not an employee of that party must file Form W-9. This includes gig employees or freelance workers under non-employment structures.

Forms W-9 will only be completed by vendors and independent contractors. C- and S-corporations as well as entities from which you acquire goods for resale are exempt from your obligation to produce 1099-NEC forms. Because the IRS tracks these transactions using a separate mechanism, payments made to contractors and merchants via debit cards, credit cards, or through third parties like PayPal are likewise exempt. The Form 1099-K is used to report them.

Form W-9 is also required from people in specific circumstances. When opening a new account, a bank or lending institution may request a W-9 since interest and dividend payments are made via Form 1099-INT. Participants in a contest with a chance of winning prizes might also be asked to complete a W-9 because the prize money might be considered taxable income and necessitate IRS reporting.

Form 1099 is also used to furnish mortgage interest payments, real estate transaction proceeds, student loan payments, and discharge of certain types of debt. The opposing party may seek Form W-9 for these forms to make sure they have the correct data on file.

Only Americans who are taxpayers are required to utilize Form W-9 (including a resident alien). An individual, partnership, corporation, estate, or domestic trust all fall under the definition of "U.S. person".

How to Fill Out Form W-9 ?

When Form W-9 is requested or whenever you start receiving payment for services as a non-employee, you must fill it out. One of the easiest IRS documents to fill is Form W-9. On the IRS website, you can access all of the pages of Form W-9. The form comprises sections for certification of significant information, registering the taxpayer ID, and identification. We'll walk you through how to do it correctly.

Step 1 : Line 1, Name of the Person (Payee) :

Enter your name, not the name of your company, if your business is a sole proprietorship or a single-owner LLC. Line 1's name must correspond to the name that the IRS has assigned to your taxpayer ID number.

Step 2 : Line 2, Name of the Business :

Business name, if different from the personal name. This might be your trade name or company name, sometimes known as a fictitious name or "doing business as" (DBA).

Step 3 : Line 3, Type of Business :

Enter business tax status. Choose whether your firm will be classified as a sole proprietorship, partnership, C corporation, S corporation, trust/estate, limited liability company, or "other" for purposes of federal taxation. Only one categorization should be chosen, and the relevant box should be checked.

In the instructions for the Form W-9, the IRS has included a summary table for advice if you're unsure about the kind of business company you ought to choose.

Step 4 : Line 4, Exemption Codes :

Exemption codes are unique codes for exempt payees, exemption from backup withholding, and exemption from reporting under FATCA. The sorts of exemption codes are listed in the Form W-9 instructions. There are a few outliers listed here :
  • In the "Exempt payee code" field, payees who are exempt from backup withholding, such as corporations (in most situations), may need to input a code. The exempt payees, their codes, and the kinds of payments for which these codes should be used are listed in the instructions for the Form W-9. Companies might include code "5" while completing a W-9 to receive interest or dividend payments, for instance.
  • The "Exemption from FATCA reporting code" box may require a code to be entered by payees who are exempt from reporting under the Foreign Account Tax Compliance Act (FATCA). The typical independent contractor or freelancer will not fit into either of these boxes.

Step 5 : Lines 5 and 6 :

Give your zip code, city, state, and street address. Be sure to provide the address you plan to use on your tax return. A company's main method of getting your personal information could be the W-9. This address may be utilized to send your 1099 or mail you other crucial tax paperwork because it may be entered into their accounting system when you are set up as a supplier in their records.

Step 6 : Line 7 :

You can give the requester's name and address in this optional step. To record who you gave your tax identification number to, you might want to fill out this box. The Form W-9's top line also offers you the chance to list any pertinent account numbers. Using a number stored in the client's system, this account number portion may be utilized to uniquely identify someone.

Step 7 : Part I, Taxpayer ID Number :

Your personal Social Security number, if you're a sole proprietorship, or your employer identification number (EIN), if you're another form of business, must be entered here as your business' tax identification number. However, the IRS recommends that sole proprietors utilize their SSNs on Form W-9, even though some sole proprietorships also have EINs.

Write "Applied For" in the taxpayer ID number field if you are requesting an ITIN but do not yet have a Social Security number. A taxpayer ID must typically be obtained and provided to the requester within 60 days.

Step 8 : Part II, Certification :

Before signing Form W-9, you must certify that all of your information is accurate. Here are the statements you must certify are true, under penalty of perjury, before signing form W-9 :
  • That the taxpayer ID number (TIN) is correct.
  • That the person is not subject to backup withholding, or that they have been notified by the Internal Revenue Service that they are subject to backup withholding, or that they have been informed by the IRS that they were, but are no longer, subject to backup withholding.
  • That they fit the IRS's definition of a US citizen or other US person.
  • That they are excluded from reporting under FATCA.

A signature on the certification is not necessary for all accounts and transactions, and certain transactions may even be changed. For further information, refer instructions for Form W-9. Give the requester the Form W-9 once it has been completed. The IRS may not require Form W-9 submissions from payees or requesters.

Where to Get IRS Form W-9 ?

You can download Form W-9 from the IRS website, or your contractors can fill it out interactively online, print it out, and then provide it to you after they're finished.

It is not advised to email a completed Form W-9 as an unprotected file attachment. Request to receive it as a password-protected file attachment, via mail, or in person as an alternative.

Penalties for Form W-9 Non-Compliant

For failing to provide or adhere to the reporting requirements of Form W-9, the IRS has specified a number of penalties. For each incident of non-compliance with tax law and regulation, the taxpayer is liable for a $50 filing if they fail to provide a valid tax number. If the taxpayer can demonstrate that the non-compliance was not the result of willful carelessness, this fine may be waived.

If a taxpayer provides inaccurate information that results in inaccurate withholding, they may also be susceptible to civil penalties. The taxpayer may be fined up to $500 if they knowingly provide misleading information that prevents backup withholding. Further non-compliance carries heavier penalties, including in some circumstances the possibility of criminal prosecution for the taxpayer. The taxpayer faces fines or jail time for willfully fabricating any declarations or facts. The person who requested the taxpayer information is also subject to fines. The requestor may face civil or criminal consequences if they use or reveal the taxpayer's TINs in violation of federal law.

Frequently Asked Questions

Who is required to fill out a w9?
A W-9 must be completed by anyone who will be paid as a non-employee. The need for Form W-9 may arise in a variety of circumstances. For instance, some forms of Form 1099 must be provided to taxpayers who will be collecting interest, receiving proceeds from a real estate transaction, paying home mortgage interest, paying student loan interest, or having debt forgiven. An opposing party may ask for your tax information via Form W-9 in order to appropriately submit the tax form.

Are W-9 forms used for self-employed people?
Yes, self-employed people are the ones who use a W-9 the most frequently. Form W-9 must be given to anyone from whom a worker has received over $600 without being officially engaged as an employee, regardless of whether they are an independent contractor, freelancer, or self-employed.

What will happen, if I don't provide form W-9?
A 24% withholding tax will be deducted from any future payments you receive from your customer if you decide not to provide a Form W-9 or if the information given is false. For knowingly neglecting to provide accurate information or misusing TINs, there are further fines and costs.

What should I do, if I don't receive an IRS Form W-9?
As soon as you know that you will be doing business with an independent contractor, it is a good practice to ask for a completed Form W-9 from them. It would be too simple to put off these requests until January, when you would actually need them. You can obtain a set of blank W-9 forms so you always have some on hand for when you hire someone for a job. You'll save a significant amount of time and work.

What happens, if a contractor refuses to fill out and give me Form W-9?
If someone won't give you a Form W-9, you might not want to do business with them. If they are subject to backup withholding and you are unaware of it, you could be held accountable for the penalty.

How to I know, if I am subject to backup withholding?
You might receive a letter from the IRS addressing backup withholding. If you failed to disclose all of your interest and dividend payments on a prior tax return, this might have occurred. You are not subject to backup withholding if you haven't gotten this letter and if you give the person who requests Form W-9 your tax identification number.

Should I Enter SSN or EIN on Form W-9?
Both are acceptable if you're a lone proprietor. Use the entity's EIN if your company is an LLC that is categorized as a corporation or partnership. Enter your SSN or EIN (not the entity's EIN) if your company is a single-member LLC that is a disregarded entity.

How can I electronically sign the Form W-9?
According to the IRS, requestors may set up a system to electronically sign and submit W-9 forms. IRS standards must be met by the system. If your company wants to allow payees to sign the form in this fashion, you might be able to use a provider like Adobe or DocuSign (for a cost). Use a physical delivery, mail, or an encrypted email to send this form's data securely.

If I submit a form W-9, do I have to pay taxes?
Yes, if you complete a W-9 form, you will be required to pay taxes. The IRS and your employer won't often deduct taxes from W-9 wages, though. In order to avoid being caught off guard in April, you will need to make advance plans for your tax payment.

How frequently should a form W-9 be updated?
If any of the information you submitted on a previous Form W-9 has changed, you must submit a new one. If your name, company name, address, Social Security number, or employer identification number have changed, you must complete a new form.