Organizations may want to update the W-9 form for each vendor or payee annually or whenever there is a change in the vendor’s or payee’s information. This includes changes to the vendor’s or payee’s name, address, taxpayer identification number (TIN), or withholding requirements.
Keeping the W-9 forms up to date is not only a good practice but also essential for organizations that pay a large number of vendors or payees. While the IRS does not require organizations to update the forms regularly, it is important to ensure that the information on file is accurate and be prepared with proper documentation in the event of an IRS penalty notice.
Why is it important to keep W-9 forms up to date?
Two topl reasons why organizations should keep W-9 forms up to date:
1. Compliance with IRS regulations: The IRS requires organizations to file information returns, such as Form 1099-MISC and Form 1099-NEC, for certain types of payments made to vendors and payees. The information on the W-9 form is used to complete these information returns, and accurate information is crucial to remain compliant with IRS regulations.
2. Avoidance of penalties: Filing an information return with incorrect information can lead to penalties from the IRS. By keeping W-9 forms up to date, organizations can minimize the risk of incurring penalties and ensure smooth tax reporting. If you have a completed W-9 and are assessed a penalty by the IRS you can present that W-9 to the IRS as proof of due diligence and you have a very high likelihood of having that penalty abated!
How to update W-9 forms
Updating W-9 forms is a straightforward process. Organizations can request a new W-9 form from each vendor or payee at the beginning of each calendar year. This ensures that the information remains accurate and up to date for the entire year. Some 1099 filing products offer a W-9 solicitation feature that will email users requesting a new W-9 and collect that information on your behalf electronically.
Alternatively, organizations can also utilize a W-9 management system to track and update W-9 forms electronically. This can streamline the process and make it more efficient, particularly for organizations that deal with many vendors or payees.
When to update W-9 forms outside of the annual cycle
1. Changes to Business Structure:
If there have been any significant changes to your business structure, such as incorporating a new entity, merging with another company, or changing your legal status, it is important to update your W-9 forms. These changes can impact your tax reporting requirements and may require you to provide updated information to the IRS. By keeping your W-9 forms up to date, you ensure that your business remains compliant with the latest tax regulations.
2. Changes in Ownership:
In the event of changes in ownership, whether through a sale, acquisition, or transfer of shares, updating your W-9 forms is essential. When ownership changes, the IRS needs accurate information about the new owners to ensure proper tax reporting. By promptly updating your W-9 forms, you avoid any potential discrepancies or penalties associated with incorrect or outdated information.
3. Changes in Tax Classification:
If there have been changes in your tax classification, such as transitioning from a sole proprietorship to an LLC or vice versa, updating your W-9 forms is necessary. Different tax classifications have different reporting requirements and tax obligations. By updating your W-9 forms, you ensure that the IRS has the correct information to process your tax returns accurately.
4. Changes in Business Name or Address:
When your business undergoes a name change or moves to a new location, it is important to update your W-9 forms accordingly. The IRS relies on accurate information to ensure that your tax returns are properly processed and that any correspondence reaches you in a timely manner. By promptly updating your W-9 forms with the new business name or address, you avoid any potential confusion or delays in tax-related matters.
5. Request from Paying Entity:
Sometimes, a paying entity may request an updated W-9 form from you, even if there haven’t been any significant changes in your business. This could be due to their internal auditing procedures or changes in their own reporting requirements. It is important to comply with such requests promptly to maintain a good professional relationship with the paying entity and to ensure that your business remains compliant with its policies.
To comply with IRS regulations, avoid penalties, and ensure accurate tax reporting for vendors and payees, it is crucial for organizations to keep W-9 forms up to date. Updating the forms annually and whenever there is a change in the vendor’s or payee’s information is a recommended practice. By doing so, organizations can maintain compliance, minimize risks, and ensure smooth operations when it comes to tax reporting.