Form W-9 is a critical IRS form that provides your Taxpayer Identification Number (TIN) to your payer or entity. The payer or entity must then file a 1099 on your behalf with the IRS.
Your payer will use the information you provided on your W-9 Form to report payments they made to you through 1099 Forms. Your payer will also request W-9 under specific scenarios, which include mortgage interest payments, IRA contributions, dividend income, real estate transactions, and proceeds from investment sales.
Who is Required to Fill out Form W-9?
If you’re working as an independent contractor, freelancer, consultant, etc., you must fill out a W-9 Form before starting work with a business. The W-9 is required if you:
Classify yourself as an independent contractor or freelancer.
Are not a full-time employee of the business.
Expect to be paid over $600 for your work during the year.
What Information is Needed on Form W-9?
Filling out a Form W-9 is quite simple. The primary information businesses will require from you on Form W-9 is your Tax Identification Number (TIN). Here is an overview of all the information captured on Form W-9:
Name & Address: You can use the same name as on your tax return or provide your business's name. If you have a DBA name, you may also provide it. After that, provide your address.
Federal Tax Classification: For federal tax classification, check the appropriate box and specify what kind of business entity you are. If your business is an LLC, you can check the appropriate box based on how your LLC is treated for federal tax purposes.
Example:
If your LLC is a disregarded entity, you must check the box for "Individual/sole proprietor or single-member LLC."
You must check the "Limited liability company" box and provide the appropriate classification to specify whether your LLC is classified as a corporation or partnership. (C=C corporation, S=S corporation, P=Partnership).
Taxpayer Identification Number: In this section, you will enter your Identification Number (TIN). You can provide your Social Security Number (SSN) if you are an individual. You can enter your Employer Identification Number (EIN) if you have a registered business.
Exemptions: If you are exempt from Backup withholding or FATCA reporting, mention the required code in the appropriate field.
Backup withholding is a federal tax withheld from certain types of income when you fail to provide your payer a correct TIN or when they are subject to withholding due to underreporting of income. It applies to payments like interest, dividends, rents, royalties, gross proceeds paid to an attorney, etc. The current backup withholding rate is 24%. Your payer is responsible for withholding and remitting this tax to the IRS when required.
You failed to provide a correct TIN to your payer.
You failed to report or inaccurately reported your interest and dividend income on your federal income tax return.
(or)
You failed to certify that you are not subject to backup withholding for underreporting of interest and dividends.
What is FATCA Reporting?
The Foreign Account Tax Compliance Act (FATCA) is a US law designed to combat tax evasion by US taxpayers holding financial assets in foreign accounts. Under FATCA, participating foreign financial institutions (FFIs) must identify and report information about US account holders, specifically those classified as "specified US persons."
FATCA reporting ensures transparency by requiring FFIs to disclose these accounts to the IRS. Certain payees are exempt from FATCA reporting.
While filing the Form W-9, if you’re exempt from FATCA reporting, you can enter the exempt code in the appropriate space on Line 4.
Click here to learn more about the codes relating to exemption from FATCA reporting.
When to Submit Form W-9: What are Common Scenarios?
Here are a few common scenarios to help you better understand when to submit a W-9 and when you don’t need to.
I’m a Freelancer. I don’t have a registered business. Should I still submit a W-9?
Yes! If the business you work for pays you $600 or more in a year, they must report these payments by filing a 1099-NEC to the IRS. For that, they will request that you provide your completed W-9 Form. You can provide your SSN and other tax information in your W-9 Form.
I work as an employee and independent contractor for two different businesses. Should I provide my W-9 to both businesses?
Not exactly. Typically, the business you work for as an employee does not ask you to provide a W-9 form; instead, you will fill out Form W-4.
However, the business that hired you as an independent contractor will require you to complete and submit Form W-9 since they will file 1099s for you.
What are the New Updates in the Form W-9 for 2024?
The IRS released a draft Form W-9 in November 2023, adding a new section called Line 3b. The finalized version, published in March 2024, divides the original Line 3 into two parts: Line 3a and Line 3b.
Revisions
Line 3a: requires you to specify your federal tax classification, such as:
Individual/sole proprietor/single-member LLC,
C corporation,
S corporation, partnership,
Trust/estate.
Limited Liability Company (LLC). You must also mention your federal tax classification as an S corporation, C corporation, or partnership.
Line 3b
is checked if you indicated on Line 3a that you are a Partnership, Trust/Estate, or an LLC classified as a partnership for tax purposes (indicated by entering “P” for the tax classification). Suppose you are providing Form W-9 to such an entity (a partnership, trust, or estate) where you hold an ownership interest. In that case, you must check the box on Line 3b if the entity has any foreign partners, owners, or beneficiaries.
When is the deadline for Filing Form W-9?
Form W-9 does not have a specific IRS filing deadline since it is not filed to the IRS; instead, it is provided by individuals or businesses to a requester, such as a business or individual, when asked before the start of a working relationship.
It’s best to complete the W-9 form upon request to avoid delays in payments or reporting. Businesses should collect W-9 forms during independent contractor/vendor onboarding to ensure compliance with IRS filing deadlines.
What happens if you fail to provide a Form W-9?
As previously mentioned, if you are asked to provide a W-9 form and fail to do so, your payer must withhold taxes from your payments, known as backup withholding. To prevent backup withholding, you must provide accurate information on Form W-9 when your payer asks.
If any information changes (like your name, address, or TIN), updating the Form W-9 immediately is important.
Other Penalties of Form W-9
Understanding the penalties emphasizes the importance of providing accurate information on Form W-9 and ensures compliance with IRS regulations. Always double-check your entries and provide truthful certifications to avoid potential fines and legal consequences.
Civil Penalty for False Information Regarding Withholding: If you knowingly make a false statement on Form W-9 that results in no backup withholding, you can be subject to a civil penalty of $500
Criminal Penalty for Falsifying Information: You may face criminal penalties, including fines if you intentionally provide false information on certifications or affirmations on Form W-9.
Misuse of TINs: If you fail to provide the correct TIN to your payers, you are subject to a penalty of $50 for each failure. However, this penalty may be waived if the failure was due to reasonable causes and not to willful neglect (intentional disregard of rules or requirements).
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