Here’s a quick guide to help you understand the purpose, uses, and advantages of using IRS Form W-9 in tax compliance.
When you onboard a new vendor or a freelancer to your organization, the first and probably the most important information that you must ask from your vendor is their taxpayer identification number.
TIN or taxpayer-identification number is a primary identification number assigned to business entities by the IRS. Form W-9 is used by business entities to request and solicit TIN information from the newly onboarded parties, i.e. vendors, contractors, freelancers, and other payees.
Although W-9 is primarily used for soliciting tax information from the vendor, there are other underrated and often overlooked uses of W-9. The following will discuss in detail the purpose, uses, and advantages of Form W-9.
So, let’s get to it.
What Is Form W-9?
IRS Form W-9 is primarily used to request taxpayer-identification numbers and certification from the payee.
Businesses make a number of payments to a variety of parties in the course of a business year. In such a case, all the payments made by the business are recorded along with the respective social security number or taxpayer-identification number of the individual to whom the payment is made.
Businesses request for the taxpayer identification number and the name of the individual or entity through Form W-9.
Purpose Of Form W-9
The main purpose of the W-9 Form is to request for taxpayer identification number from the individual or entity to which your business has made any payments.
When the W-9 Form is sent to the payee (vendor or freelancer), they are required by the U.S. tax laws to furnish the correct tax information and send the updated form to you with the requested details. Upon TIN Verification, you can conclude if the provided TIN/name information is correct or not. If the furnished information is not correct, you can resend the form, and request accurate details.
Uses Of Form W-9
Apart from using Form W-9 as an instrument for soliciting TIN information from the vendor, you can also use it to validate the following payee information.
- The official name of the vendor business
- Business address
- Business type
Note: The information provided by your payees in Form W-9 must be in accordance with the official records.
For this purpose, many businesses leverage TIN Matching and Business Address Validation solutions, wherein you can validate the vendor TIN details in accordance with the IRS records and the address information per the USPS records.
While a TIN Check will allow you to check and validate the TIN of your payees, an Address Validation check will allow you to check the registered address of your payee’s business. Both checks will allow you to identify and verify the registered name of the payee per the official records. However, only SOS Entity Search will allow you to check the name, business type, and legal status of the business.
Optimizing your vendor onboarding process with mandatory W-9 Solicitation will allow you to reduce last-minute TIN requests from vendors, year-end rush, TIN discrepancies, penalties for reporting incorrect TINs, B-notices from the IRS, and so on.
W-9 Form enables your business to obtain the correct payee information, making way for smoother operations.
Advantages Of Using Form W-9 For Regulatory Reporting
Let’s discuss the advantages of using form W-9 for regulatory reporting.
Request TINs Officially With W-9
Use Form W-9 to request the taxpayer identification number and the official name of the payee per the TIN solicitation protocol. Do note that W-9 Form is only used for informational purposes and need not be filed with the IRS.
Accelerate Reporting Accuracy
When you gather the required tax information from your payees, be sure to validate the TINs per the IRS records before you report the TINs in your tax returns. When you validate and report the correct TIN information, your files are less likely to get rejected.
Ensure Vendor/Contractor Compliance With W-9
W-9 TIN Solicitation enables you to obtain the tax information from your payee as required, making way for the smooth conduct of business. Further, when you report the correct TINs of your vendors, you avoid IRS notices and penalty assessments, giving you peace of mind.
Improve Regulatory Reporting With IRS Form W-9
When you create your vendor master sheet, every transaction that uses an independent TIN will allow you to categorize the payments made. For example, you will be able to compile all the payments made to a particular vendor throughout the year with their designated TIN, enabling you to report all your non-employee compensations accurately for each vendor.
Did you know that you can also request all your vendors for TIN information in bulk?