A simple guide on Form W-9 to help you understand the origin, purpose, and uses of the TIN request form.
As businesses evolve and grow, so does their tax burden. The IRS, being a tax regulatory body in the U.S. requires businesses to follow certain tax regimes to ensure tax compliance.
When businesses expand, they tend to hire independent contractors for certain projects and work and pay them the mutually agreed compensations.
The IRS requires businesses to report all such non-employee compensations made to independent contractors. Similarly, the IRS requires the vendor to report all compensations received through such arrangements.
The TIN reported in Form 1099-NEC acts as the common denominator for identifying and cross-verifying the amount paid by the business and the amount received by the independent contractor.
But for businesses to be able to report the vendor TIN in the 1099 forms, the vendor needs to furnish their respective TIN through an IRS Form, which is Form W-9.
Form W-9 is widely used in business-contractor arrangements, wherein the hiring business sends Form W-9 to request and obtain the vendor taxpayer identification number (TIN).
The following will discuss in brief the origin, purpose, and uses of Form W-9.
Origin Of Form W-9
From the form revisions page of the IRS, it can be understood that Form W-9 dates back to the year 1983, where it was first revised to help businesses obtain the vendor TINs and report any compensations made to contractors in 1099-MISC.
This is what the W-9 form looked like back in 1983.
The form underwent a variety of changes through the years. However, W-9 has remained intact since 2018 and no drastic changes were made to it.
Purpose Of Form W-9
Primarily, Form W-9 is used to request the vendor to provide their taxpayer identification number, name, business name, federal tax classification, any exemption codes, and business address per the official records.
The information obtained through this form will be used for 1099 reporting and the payer (the business that is paying the vendor) will send copies of 1099 returns to the vendor.
Uses Of Form W-9
Let’s discuss the uses of Form W-9 and other related topics.
Request TIN From Payee
W-9 Form helps businesses with soliciting the tax information of the vendor, such as their TIN and name for reporting purposes.
Businesses do not have to personally reach out to the vendor through other mediums of communication if they are sending Form W-9 to obtain the tax details of the vendor.
The vendor is required by the tax laws of the U.S. to furnish accurate tax details in the form.
Backup Withholdings
Most independent contractors, freelancers, and other business vendors are subject to backup withholdings and FATCA reporting. But if the contractor is exempt from such withholdings and reporting then they have to communicate the same through Form W-9.
By checking the boxes in Line 4 of W-9 and specifying the exemption code, the vendor is declaring that they are not subject to any withholdings and FATCA reporting and the payer must abide by these declarations.
Accelerated 1099 Reporting
Businesses can accelerate their 1099 reporting when they have all their vendor TINs in one place. For this, businesses must send W-9 forms weeks in advance to enable the vendors to receive the mailed forms, furnish and certify the W-9 information, and mail back the completed forms to the payer.
Tax1099 can help you solicit the vendor tax details through Electronic W-9 Solicitation program. Learn more about it here.
When you have all the vendor TINs in one place, it’s easier for your accounting teams to verify the information and file the tax returns before the deadlines.
Business-Contractor Compliance
Form W-9 is a formal protocol followed by businesses and vendors to establish their business-contractor arrangement.
By following regulatory regimes like W-9 solicitation, businesses and vendors are following the tax withholding guidelines, ensuring that the correct TINs are reporting, and complying with the IRS.
If you’re looking for seamless electronic W-9 solicitation solutions, head over to Tax1099 to get started.