What is Form W-9?
Form W-9 is an Internal Revenue Service (IRS) tax form used to confirm an individual’s name, address, and taxpayer identification number (TIN) for employment or other income-generating purposes. Verification may be required for individuals defined as U.S. citizens or individuals defined as resident aliens.
Form W-9 is also known as the Request for Taxpayer Identification Number and Certification form.
KEY TAKEAWAYS
- The W-9 is an official form provided by the IRS for employers and other businesses to verify the name, address, and taxpayer identification number of an individual receiving income.
- The information obtained from the W-9 form is often used to create the 1099 tax form required for income tax filing.
- Due to strict privacy regulations, the information the Company collects on Form W-9 cannot be shared for other purposes.
- Independent contractors who work with a company they are not employed by are generally required to provide that company with a W-9.
- If you do not provide a W-9 when requested, your client will be subject to a 24% withholding tax on your income.
Understanding Form W-9
Form W-9 is simply a formal written request for information and is used only to confirm an individual’s Taxpayer Identification Number (TIN). Employers or other entities required to file information documents (such as Form 1099) with the IRS must obtain your correct TIN to report any income or loss that may affect your federal tax return or taxable income. For most people, a TIN is their Social Security Number (SSN).
Form W-9 differs from Form W-4, which is typically filed directly by the employee with the employer because Form W-9 generally does not provide for withholding of taxes due.
Any taxes required on profits related to the W-9 provided are the responsibility of the TIN holder listed on the document unless the taxpayer is subject to withholding taxes. If additional withholding is required, it must be noted on the W-9 to properly notify the receiving entity that appropriate withholding is required.
Uses of Form W-9
The information obtained on the W-9 form is most commonly used to create the version of the 1099 form. Form 1099 contains information about any income the TIN holder may have received that is not typically included on the W-2.
However, W-2s are issued only to company employees and not to independent contractors or independent vendors. These include but are not limited to, income paid to an individual under a contract, certain real estate transactions, dividends paid in exchange for investments, and various other financial transactions.
A Form 1099 does not need to be issued until the minimum income threshold is met ($600 for most other income). Amounts below this threshold must be reported as income by the TIN holder, but a 1099 form is not required.
Although employees are required by law to provide certain personal information to their employer, employees’ privacy is protected by law. Employers who disclose employees’ personal information in an unauthorized manner may be subject to civil and criminal penalties.
How to Fill Out Form W-9
Form W-9 is one of the easiest IRS forms to fill out. But if you’re worried about your tax forms, don’t be. We’ll show you how to do it right.
All Form W-9 pages are available on the IRS website. Additionally, the form may contain some specific instructions from the IRS.
Step 1: W-9, Line 1
Enter your name as it appears on your tax return.
Step 2: W-9, Line 2
Enter your business name or “separate legal entity” name (if different from the name you entered in step 1). For example, you may be a sole proprietor, but you don’t use your personal name as your business name for marketing purposes; instead, you “do business” under a different name. You can enter the name here.
One type of business that is not usually considered is the limited liability sole proprietorship. Sole proprietorships and S corporations are never classified as disregarded entities.
Step 3: W-9, Line 3
Select the type of business entity for federal tax classification: Sole Proprietorship, Partnership, C Corporation, S Corporation, Trust/Estate, LLC, or Other. Select the appropriate checkbox. Only one category should be selected.
Tip: If you’re not sure which type of business entity to choose, the IRS provides a summary table in the Form W-9 Instructions to help guide you.
Step 4: W-9, Line 4
Exceptions. You can leave these fields blank. Here are some exceptions:
- Recipients (such as corporations) who are exempt from withholding tax may (in most cases) be required to enter a code in the Exempt Payee Code field. The Form W-9 instructions list exempt payees and their codes, as well as the types of payments for which these codes should be used. For example, companies filling out Form W-9 to receive interest or dividend payments enter the code “5.”
- Recipients who are exempt from reporting under the Foreign Account Tax Compliance Act (FATCA) may need to enter a code in the FATCA Reporting Exemption Code field. None of these boxes apply to the typical independent contractor or freelancer.
Step 5: W-9, lines 5-6
Include your street address, city, state, and zip code. Use the address you used on your tax return. For example, if you are a sole proprietor who rents office space but files your tax return using your home address, include your home address on your Form W-9 so that the IRS can match your 1099 information with your Form 1040 No problems will be encountered when matching.
Additionally, W-9s may be the primary way a company obtains your personal information. Since this information may be recorded in their accounting system when you are set up as a vendor in their records, this address may be used to provide your 1099 or send you other important tax documents.
Step 6: W-9, Line 7
In this optional step, you can provide the applicant’s name and address. You may need to complete this field to record who you share your TIN with.
Additionally, you may choose to provide the relevant account number at the end of the top section of Form W-9. This account number portion can be used to uniquely identify an individual by a number in the customer’s system. For example, someone may ask you to fill out a W-9 form. Since the vendor number on your record is #45, you may be asked to record your vendor number on this line.
Step 7: W-9, Part 1
The IRS calls this next section Part One. You must provide your company’s tax identification number here. Your personal Social Security number if you are a sole proprietor, or your Employer Identification Number (EIN) if you are another business type.
Some sole proprietors now also have an EIN, but the IRS prefers sole proprietors use their SSN on Form W-9. This also makes it easier to reconcile any 1099 you receive with the tax return you filed under your SSN.
What if your company is new and does not have an EIN? You can still fill out Form W-9. According to IRS regulations, you should apply for your number and write “Applied” in the TIN field. You want to get this number as soon as possible because until then you will be on security hold. You can apply for an EIN on the IRS website. For more information about withholding taxes, see the instructions in Part II, Step 8 below.
Step 8: W-9, Part 2
In Part Two, you must confirm the accuracy of all information before you can sign the W-9 form. If you knowingly lie on your tax return, you may have to pay a fine or go to jail. The IRS is no joke. Before signing Form W-9, you must certify under penalty of perjury that the following statements are true:
1. The number provided on this form is my correct tax identification number (or I am waiting for a number to be assigned).
- Taxpayers must use a legal tax ID number. Using a “borrowed”, stolen, or forged tax file number is the equivalent of an oath and can have serious consequences.
2. I am not subject to withholding tax because (a) I am not subject to withholding tax, or (b) the Internal Revenue Service (IRS) has not notified me that tax withholding is required for the following reasons: subject to withholding tax, failure to Report any interest or dividends, or (c) the IRS has notified me that I am no longer required to pay backup withholding.
- Most taxpayers are exempt from withholding tax. If you don’t know what the IRS is talking about here, you may be exempt. If you are not exempt, the IRS has notified you that the company that pays you needs to know this because it is required to withhold income tax from your pay at a flat rate of 24% (as of 2020) and Transfer to tax authorities are made to the Internal Revenue Service. By the way, now you know another good reason not to evade taxes: You may have to tell future clients, which may make the company think twice about you. Point (c) essentially says that if you were once on the reservation but are no longer on the reservation, no one needs to know that.
3. I am a U.S. citizen or other American.
- If you are a foreign resident, then you have no problem. The IRS also considers the following persons to be “U.S. persons”: a partnership, corporation, corporation, or association formed or organized in or under the laws of the United States; residential property; and domestic trusts. If your company is a partnership with a foreign partner, special rules apply; read the instructions for Form W-9. If you are not a U.S. citizen, you may need to complete Form W-8 or Form 8233.
4. The FATCA code (if any) entered on this form indicating that I am exempt from FATCA reporting is correct.
- This may not be something you need to worry about as it relates to foreign account tax compliance laws.
Who needs to fill out Form W-9?
If the other party wishes to offer certain payment options in the future, Form W-9 must be completed by one party and submitted to the other party. Generally speaking, Form W-9 must be completed by an independent contractor who performs work for another party who is not employed. This includes freelance or gig workers who are not in an employment relationship.
A W-9 is also required in special circumstances. The bank or lending institution may require Form W-9 as part of setting up a new account because interest and dividend payments are made through Form 1099-INT. Participants in contests offering prizes may also be required to complete a W-9 form because the value of the prize may be taxable income and require IRS reporting.
Form 1099 is also used to pay mortgage interest, student loan payments, real estate transaction proceeds, and pay off certain types of debt. For these forms, the other party can request a Form W-9 to ensure they have the appropriate information.
Fast Fact: Regardless of whether you are subject to withholding taxes, you need to fill out Form W-9. If you are exempt, this form is your way of communicating this exemption to your payer.
Special considerations when filing Form W-9
Sign Form W-9
If the IRS notifies you that you are currently subject to withholding taxes for not reporting all interest and dividends on your tax return, Form W-9 will require you to delete item 2 above.
You can delete item 2 when filling out Form W-9 related to a real estate transaction. Point 2 does not apply in this case, so it does not matter whether you are subject to a security hold or not.
Now, if you carefully read the fine print in the W-9 instructions, it seems to indicate that most people do not need to sign this form at all. Generally, you are only required to sign this form if the IRS notifies you that the Taxpayer Identification Number (TIN) you previously provided is incorrect. Technical details aside, however, if you don’t sign it, the person asking you to fill out your W-9 form may consider it incomplete or invalid.
Return Form W-9
Return the completed W-9 form to the company that requested it. Ideally, you should deliver in person to limit the risk of identity theft. However, this approach is often impractical. Email is considered relatively secure.
If you need to email a form, you should encrypt the document and email and double-check that the recipient’s email address is correct before sending the message. There are free services available online that can help you solve this problem. However, check their reputation before entrusting them with your files. Typically, companies required to file a W-9 form with the IRS will provide you with a form to fill out.
Failure to file Form W-9
When someone asks for a completed W-9 form, there’s usually a good reason. If you are not sure why your information is needed or who made the request, be skeptical of the request. It is expected that requests will be fulfilled in the normal course of business.
There are consequences if you don’t file Form W-9. First, payers must begin withholding taxes from future payments. As of 2022, the current withholding tax rate is 24%.
Additionally, failure to comply will result in the following penalties:
- Each failure to provide an applicant with a correct taxpayer identification number will result in a $50 penalty unless you are able to provide an error that was not an intentional omission.
- The penalty for making a false statement without a reasonable basis that does not result in substitute withholding is $500.
- Other fines and/or imprisonment for intentional falsification of certificates or confirmations.
- Disclosure or misuse of another party’s W-9 information in violation of federal law is subject to civil and/or criminal penalties.
Form W-9 vs. Form W-4
Two commonly used tax forms are Form W-9 and Form W-4. Although they sound similar, their purposes, recipients, and uses are quite different.
Form W-9 is used to request information from a taxpayer (usually an independent contractor or freelancer) for the purpose of filing a tax return. Employees now use Form W-4 to provide information to their employer for income tax withholding purposes.
The entity that pays the taxpayer (a person or company that provides services) receives a Form W-9 from the taxpayer. Organizations use the data on Form W-9 to prepare and issue Form 1099-MISC or other applicable tax forms when reporting year-end payments to taxpayers.
This is very different from the W-4 form. Employees provide W-4s to their employers. Employers use W-4s to determine how much federal income tax to withhold from an employee’s wages and report it to the IRS. Companies no longer ask outsiders for this information, but instead seek W-4s from their internal teams.
In the end, both forms collect many of the same elements. Each call requires a TIN, name, and relevant tax information. However, the type of recipient varies greatly. The W-4 asks for information such as tax filing status (i.e. is the taxpayer married?). Or, a W-9 asks for legitimate company information.
What is the W-9 form used for?
Form W-9 is used to convey tax information from one party to another. This is a formal way of collecting personal data, has a standard method of transferring information, and requires the provider to confirm that the information they provide is accurate. Form W-9 is then used to issue specific tax returns to non-employees who received certain types of payments during the year.
Who needs to fill out a W-9?
In general, anyone receiving compensation in a non-employee capacity must complete a W-9 form. Form W-9 is required in many situations. For example, taxpayers who want to collect interest, receive proceeds from a real estate transaction, pay interest on a home mortgage, pay interest on a student loan, or cancel debt must also receive certain types of 1099 forms. , counterparties may submit your tax information through Form W Request-9.
Does a W-9 apply to self-employed individuals?
Yes, W-9s are most commonly used for self-employed individuals. If the worker is an independent contractor, freelancer, or self-employed, a W-9 form must be provided to those who earn more than $600 but are not employed as regular employees.
What happens if I don’t provide my W-9 form?
If you choose not to file Form W-9 or provide incorrect information, future payments you receive from customers will be subject to a 24% withholding tax. Additionally, there are penalties and fees for intentionally failing to provide accurate information or misusing a taxpayer identification number.
In Conclusion
Form W-9 is an IRS tax form that requires information from individuals who are defined as U.S. citizens or foreign residents. This information is used to complete Form 1099 and is used by independent contractors, freelancers, or independent vendors; not employees. Failure to complete the form may result in penalties.
FAQs
What is a W-9 Form?
The W-9 form, officially known as the "Request for Taxpayer Identification Number and Certification," is a document used by businesses and individuals to collect the taxpayer identification number (TIN) of individuals or entities who are receiving payments that might be subject to information reporting or backup withholding. This information is necessary for tax reporting purposes.
Who Needs to Fill Out a W-9 Form?
Generally, anyone who receives income that is reportable to the IRS must complete a W-9 form. This includes independent contractors, freelancers, sole proprietors, partnerships, limited liability companies (LLCs), and more. Essentially, anyone who is not an employee but is receiving income for services rendered should complete a W-9 form when requested by a payer.
What Information is Required on a W-9 Form?
The W-9 form requires the following information:
*) Name
*) Business name (if applicable)
*) Taxpayer Identification Number (TIN), which can be a Social Security Number (SSN) or Employer Identification Number (EIN)
*) Address
*) Signature, certifying that the information provided is correct
When Should I Provide a W-9 Form?
You should provide a W-9 form to any business or individual who requests it before making payments to you for goods or services. Common situations include when you're hired as a contractor, receive rental income, or have other reportable income.
What is Backup Withholding?
Backup withholding is a tax withholding requirement by the IRS. If you don't provide a correct TIN on your W-9 form, the payer may be required to withhold a portion of your payment and remit it to the IRS. The payer will typically withhold at a rate of 24% from the payment. It's essential to ensure that the information on your W-9 is accurate to avoid backup withholding.
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