To obtain tax information from outside sources, businesses use IRS Form W-9. For income tax reporting purposes, a person or business providing services must submit a W-9 form.
Key Takeaways
- The IRS Form W-9 is used to obtain taxpayer information, which helps with informational reporting to the IRS. This information includes the Taxpayer Identification Number (TIN), Employer Identification Number (EIN), and Social Security Number (SSN).
- This form is mainly used between companies and independent contractors working together.
- Ultimately, the W-9 form’s purpose is to simplify the tax reporting process for businesses and individuals alike.
What Is Form W-9?
Form W-9 is an information return form to request a taxpayer identification number and certification. It should be completed and submitted when you are either an independent contractor, consultant, or freelancer who is not otherwise classified as an employee. It is needed for the payer to file state and federal income taxes.
What Information Is Required On a W-9?
A W-9 is a relatively simple form to complete and only requires basic information. To complete a W-9, you’ll need:
- NAME – The full legal name of the employee must be written correctly in order to meet the IRS requirements.
- BUSINESS NAME – If filing as a business, DBA name, trade name, or disregarded entity name must be enlisted.
- ADDRESS – The current address of the employee must be included. This includes the number, street, apartment or suite number, city, state, and ZIP code.
- TAX IDENTIFICATION NUMBER (TIN) – It must either be a social security number, an individual taxpayer identification number, or an employer identification number. If an individual is a resident alien and not eligible for an SSN, they should use their IRS individual taxpayer identification number (ITIN).
- FEDERAL TAX CLASSIFICATION – The taxpayer must designate themselves as an individual, sole proprietor, or single-member limited liability company (LLC) owned by an individual and disregarded for U.S. federal tax purposes.
- EXEMPTIONS – For specific businesses or entities only. If a business is exempt from backup withholding, its code must be enlisted here.
- CERTIFICATION – To be considered complete, the W-9 form must be signed and dated. This is a legal document, so all information must be accurate.
Who Uses Form W-9 and Why is it Important?
The Form W-9 is used to gather information from a vendor. When a company hires and pays more than $600 annually to a non-employee, the company must file an information return.
To ensure that all information is accurate, all the required information is gathered directly from the vendor with a Form W-9. While some information is publicly available, Form W-9 protects the company trying to obtain the information by requiring the other party to sign the filled-out form. This is to certify that the information provided is correct:
- Tax Identification Number (TIN).
- The other party is not subject to backup withholding.
- The other party is claiming exemption from backup withholding.
- The vendor uses the FATCA code and the vendor’s exemption status.
What is FACTA Reporting?
The Foreign Account Tax Compliance Act (FATCA) requires a participating foreign financial institution to report all United States account holders who are specified United States persons. Certain payees are exempt from FATCA reporting. See Exemption from FATCA reporting code, later, and the Instructions for the Requester of Form W-9 for more information.
When is Form W-9 Due?
There is no official deadline for filing W-9; however, the form must be filled out once it is received. Promptly completing the W-9 ensures you will get your tax forms in return as quickly as possible.
Where to Find the Newest Version of Form W-9?
The most recent version of Form W-9 can be found on the IRS website. The IRS does update the form frequently, so it’s good to ensure that you’re using the most recent version of the form.
Penalties For Non-Compliance, Lateness, and Errors
Although the W-9 is a relatively simple form to complete, there are some critical errors that you can make, which may result in hefty penalties. When completing your W-9, watch for the following errors:
Failure to furnish TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.
Civil Penalty for false information concerning withholding. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty.
Criminal penalty for falsifying information. Willfully falsifying certifications or affirmations may subject you to criminal penalties, including fines and/or imprisonment.
Misuse of TINs. If the requester discloses or uses TINs violating federal law, the requester may be subject to civil and criminal penalties.
How To Prepare IRS Form W-9
Completing a W-9 is fairly simple. You simply complete all sections of the form and provide it to whoever requests it. If you have questions, the form includes detailed instructions for each section.
