What is FATCA reporting? How does it apply to Form W-9?

When it comes to working with vendors outside of your business, your IRS tax requirements become a bit more complex. The best way to handle these new, more complicated IRS requirements is to request Form W-9 Online from every vendor that you do business with.

When you are requesting a Form W-9 from your vendors, this is a pretty simple use of the form. However, you must remember that there are more complex uses of Form W-9. For example, financial institutions often need to request this information from clients and account holders.

This is where FATCA reporting becomes important.

 

What is FATCA Reporting?

The Foreign Account Tax Compliance Act (FATCA) is a federal law that requires U.S. citizens to disclose foreign account holdings annually to curb tax evasion via offshore accounts and assets. Passed as part of the HIRE Act in 2010, FATCA requires U.S. persons, foreign financial institutions (FFIs), and other non-financial foreign entities (NFFEs) to provide the United States Department of the Treasury reporting on foreign assets or be subjected to serious penalties.

FATCA’s Objective: Preventing Tax Evasion

The goal of FATCA is to stop American individuals and companies from evading taxes when they invest, conduct business, and generate taxable income overseas. Maintaining an offshore account is not against the law; however, failure to disclose the account to the Internal Revenue Service (IRS) is illegal. It’s because the United States taxes all of its residents’ income and assets globally.

Exemption!?
Some entities may be exempt from FATCA reporting requirements. If so, it should be indicated on the W-9 Form.

 

Where is FATCA reporting entered on Form W-9?

If you’ve ever filled out Form W 9, you’ve probably noticed a section that asks about FATCA reporting. For many, this part of the form can be a bit confusing—especially if you’re not sure whether FATCA even applies to you. Let’s break it down in simple terms so you know exactly where to enter the required information and whether you even need to worry about it.

FATCA reporting doesn’t apply to everyone. It mainly affects financial institutions, certain U.S. entities and individuals with foreign assets. So, individual contractors or freelancers filling out a W-9 for their clients don’t need to worry about FATCA at all.

If FATCA reporting does apply to you, you’ll need to enter information in Part II of Form W-9, specifically in the section labeled “Exemptions.”

• Look for the box labeled “Exempt payee code (if any)” and “Exemption from FATCA reporting code (if any).”
• If you qualify for an exemption from FATCA reporting, you’ll enter the appropriate exemption code in the FATCA box.
• If FATCA doesn’t apply to you, you can simply leave this section blank.

 

FATCA Exemption Codes 

If your entity is exempt from FATCA reporting, use one of the following FATCA exemption codes: 

Code	Exempt Entity Type
A	An organization exempt from tax under section 501(a), or any individual retirement plan as defined in section 7701(a)(37).
B	The United States or any of its agencies or instrumentalities.
C	A state, the District of Columbia, a U.S. commonwealth or possession, or any of their political subdivisions, agencies, or instrumentalities.
D	A corporation whose stock is regularly traded on one or more established securities markets, as described in Regulations 1.1472-1(c)(1)(i).
E	A corporation that is a member of the same expanded affiliated group as a corporation described in Regulations 1.1472-1(c)(1)(i).
F	A dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered under U.S. law or any state law.
G	A real estate investment trust (REIT).
H	A regulated investment company as defined in Section 851, or an entity registered under the Investment Company Act of 1940 at all times during the tax year.
I	A common trust fund as defined in Section 584(a).
J	A bank as defined in Section 581.
K	A broker
L	A trust that is either exempt from tax under Section 664 or described in Section 4947.
M	A tax-exempt trust under a section 403(b) plan or a section 457(g) plan.

Most individuals do not need to fill out this section unless they represent an entity that qualifies for an exemption. 

To know how to fill Form W9 line-by-line, you can check: Instructions to Fill Out Form W-9

 

Effortless W-9 Management: Simplify Vendor Management with Tax1099 

Managing your vendors and staying IRS-compliant when filing Form 1099s is essential, but the traditional process of collecting Form W-9s can be tedious—especially if you’re still using paper forms. Printing, mailing, and waiting for responses only slows things down. 

Why not streamline the process with Tax1099? Our secure, hassle-free electronic W-9 request system eliminates the extra steps. Simply enter your vendor’s email address, and Tax1099 will send them an invitation to complete Form W-9 online. Once they submit the form, you’ll be instantly notified. From there, you can view, store, and even use the information to file 1099s—all in one place. 

It’s fast, efficient, and completely secure. Simplify your W-9 collection today with Tax1099 

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Frequently Asked Questions  

 

1. What is FATCA? Why was it introduced?

FATCA (Foreign Account Tax Compliance Act) is a U.S. law enacted to prevent tax evasion by requiring foreign financial institutions to report accounts held by U.S. taxpayers. It also imposes FATCA filing requirements on certain U.S. entities and individuals with foreign financial assets. 

 

2. How does FATCA affect Form W-9?

Form W-9 is used by U.S. persons to certify their tax status and provide taxpayer identification numbers (TINs). Some entities may need to include a FATCA exemption code if they qualify for an exemption from FATCA reporting. 

 

3. Who should report under FATCA?

U.S. financial institutions, foreign financial institutions (FFIs), and certain non-financial entities must comply with FATCA reporting. Additionally, some U.S. persons with foreign financial assets exceeding certain thresholds must file Form 8938 to report these assets. 

 

4. What does the FATCA filing requirement box on Form 1099 mean?

The FATCA filing requirement box on Form 1099 indicates that the reported payment is subject to FATCA reporting. It is checked when payments are made to foreign entities that must comply with FATCA regulations. 

 

5. What is the purpose of FATCA exemption codes on Form W-9?

FATCA exemption codes indicate that a business or entity is exempt from FATCA reporting. These codes help payers determine whether they need to report payments to the IRS under FATCA rules. 

 

6. Who qualifies for an exemption from FATCA reporting?

Entities like U.S. government agencies, tax-exempt organizations, REITs (Real Estate Investment Trusts), publicly traded corporations, and certain financial institutions can qualify for a FATCA reporting exemption. 

 

7. How do I find my FATCA exemption code?

The FATCA exemption code depends on the entity type and must be entered in the “Exemptions” section of Form W-9. The IRS provides a list of applicable codes in the W-9 instructions. 

 

8. How does FATCA impact businesses and financial institutions?

Businesses and financial institutions must verify whether vendors, partners, or payees are subject to FATCA filing requirements. If required, they must check the FATCA box on Form 1099 and report relevant payments to the IRS. 

 

9. What happens if FATCA reporting requirements are ignored?

Failure to comply with FATCA filing requirements can result in penalties, withholding taxes on certain payments, and potential restrictions on conducting international financial transactions. 

 

10. How does FATCA impact foreign entities receiving U.S. payments?

Foreign entities receiving U.S.-source payments must certify their FATCA status using Form W-8BEN-E (for businesses) or Form W-8BEN (for individuals). If they fail to comply, U.S. payers may withhold 30% of certain payments.