What Is Form W-9: Request For Taxpayer Identification Number And Certification

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 compensation.

The IRS requires businesses to report all such non-employee compensation made to independent contractors. Similarly, the IRS requires the vendor to report all compensation received through such arrangements.

In order to file a 1099 form, you need to collect information like Social Security Number (SSN), Employee Identification Number (EIN), and other details (collectively called Taxpayer Identification Number or TIN) from the individual, entity, or business you are filing for. That’s where Form W-9 comes in. This form has all the important details you require for filing 1099 and other related forms.

What Is Form W-9?

Form W-9 or Request for Taxpayer Identification Number and Certification is a document that you can need to use to obtain information from a payee or recipient. The form collects the following information:

• Full legal name, including business or entity name (if applicable), as it appears on the income tax return. 
• Complete address with ZIP Code, street, city, and state. 
• Taxpayer Identification Number (TIN) which can either be a Social Security Number (SSN) or Employer Identification Number (EIN). 
• Federal tax classification of the recipient or payee such as individual/sole proprietor, C-corp, S-corp, partnership, trust/estate, LLC, etc. 
• Certification by the payee, signed under penalty of perjury, that confirms the provided information is correct and that they are not subject to backup withholding.

Note: A payer/recipient doesn’t send Form W-9 to the IRS. Instead, you, the payer, can keep this form for at least four years and use it to file any required 1099 information return.

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).

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.

Why every payer needs a Form W-9

This taxpayer ID request form not only collects important information that is needed to file 1099s and other related forms, but it also helps with the following:  

• Prevents Backup Withholding: A correct name/TIN match can help prevent backup withholding where 24% of the amount being reported is withheld from the payee. 

• Avoids Penalties: Having correct W-9 data which can easily pass the IRS TIN-matching helps avoid penalties of $60, up to $340 per forms. 

• Makes Administrative Work Easier: Getting the right details upfront saves time, prevents last-minute emails, incorrect forms, and less stress during filing season. 

If you do not collect a correct W-9 form on time, it can cause issues for both you and your payee. Even one missing or incorrect W-9 can trigger backup withholding of the payee or recipient. While you could face IRS liabilities and w-9 penalties for payers. 

TIP: Collect W-9s from your payee during onboarding and use an electronic W-9 solicitation tool, like Tax1099, to request, collect, and store W-9s digitally in one platform. 

Who Should Complete a W-9? 

You can request Form W-9 from any U.S. person you are filing a 1099 or other related forms for. As per the IRS, the words “U.S. person” is defined as anyone who falls under the following parameters: 

• An individual who is a U.S. citizen or U.S. resident alien 
• Partnership, corporation, company, or association created in the U.S. 
• An estate (other than a foreign estate) 
• A domestic trust (as defined in Regulations section 301.7701-7). 

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.

Form W-9 Backup Withholding Rules 

IRS’ payer backup-withholding rules require you to withhold 24% of reportable payments if your payee/recipient did not provide a TIN or the TIN they provided was incorrect.  

The amount which was withheld can be reported and remitted to the IRS using Form 945. Backup Withholding generally stops only after you receive a correct, signed W-9 from the payee. Or an IRS/SSA validation notice which confirms that payee’s TIN is accurate and released the account from backup withholding. 

B-Notices Backup Withholding Rules 

For CP2100/CP2100A mismatch notice where the TIN and name combination do not align with IRS records, you’ll need to follow the first/second B-Notice procedures set by the IRS. 

For a first B-Notice, the IRS requires you to send a formal notice to the payee within 15 days of you receiving the notice. You’ll need to obtain a signed W-9 within 30 days to stop the withholding process.  

The second B-Notice happens only when there is a mismatch three years after the first mismatch. For this notice, just receiving a new signed W-9 from the payee is not enough. You will need to obtain an IRS confirmation of the SSN for individuals and an IRS Letter 147C (TIN Confirmation) for entities, after which the backup withholding can be stopped. 

Real-Life Scenarios 

1. If a designer was paid $1,200 for their services and received 1099-NEC but did not provide Form W-9, 24% of the payment must be withheld. The payer will also need to remit the $288 (withheld amount) and report it to the IRS using Form 945 to reconcile the payments. 
2. If a landlord’s LLC earns $8,000 in rent, a 1099-MISC must be filed to report the rental amount. However, if a valid W-9 was not given during the filing process, it could lead to potential penalties of $340, plus an IRS “B” Notice to fix the issue. Only once a valid W-9 is given, Form 1099-MISC can be filed.  
3. If a bank credits $75 interest to an individual as interest payment, the bank needs to file a Form 1099-INT. If the bank does not have a valid W-9 or if the TIN does not match IRS records, the bank must withhold 24% of the interest payment. Only after a valid W-9 is provided the bank can issue a Form 1099-INT without backup withholding.  
4. If a contest winner receives $900 as part of a sweepstakes, the company that organized the contest must report the amount using 1099-MISC. However, if the winner doesn’t provide a valid W-9, the payer must withhold 24% ($216) backup withholding on the prize payment.   
5. If an attorney received $20,000 in proceeds and has to report it on 1099-MISC Box 10 but does not provide a valid TIN or filed W-9, 24% of the proceeds would be withheld. Only after receiving a filled W-9 can the payer file an accurate 1099-MISC. 

FAQs 

1. Is a W-9 required before any payment? 

Ans: Yes, a payer should always request for a completed W-9 before making any payments to the payee to avoid mandatory 24% backup withholding. 

2. When should the payer request a new W-9? 

Ans: A payer should always request a new W-9 from payees if any change has been made to the payee’s name, business type or TIN. You must also request for a new W-9 if the IRS issued a “B-Notice.” 

3. Are e-signatures acceptable? 

Ans: Yes, the IRS allows e-signatures on Form W-9 if the process meets IRS requirements such as identity verification, logging each submission, capturing the same data as paper W-9, ability to generate a hard copy upon request, and an e-signature under penalties of perjury. 

4. Must an exempt corporation still provide a W-9? 

Ans: Yes, an exempt corporation that does not file 1099 forms still need to provide a W-9 to document the exemption status. 

5. What if the payee refuses to sign a W-9? 

Ans: If a payee refuses to provide a signed W-9 form, the payer, need to start a 24% withholding on the payment amount. You should also keep written proof of every request and report the withheld tax on Form 945. 

6. Are foreign vendors covered by W-9? 

Ans: No, foreign vendors do not file Form W-9, they need to file the appropriate W-8 form instead. 

If you’re looking for seamless electronic W-9 solicitation solutions, head over to Tax1099 to get started.