What is a W-9 Form: Request for Taxpayer Identification Number and Certification

1. What is a Form W-9?

Form W-9 is a critical IRS document that provides your Taxpayer Identification Number (TIN) to your payer or entity, who must 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 a completed Form W-9 under specific scenarios, which includes mortgage interest payments, IRA contributions, dividend income, real estate transactions, and proceeds from
investment sales.

2. What are the New Updates in the Form W-9 for 2024?

In November 2023, the IRS released a draft of Form W-9, 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 businesses to specify their federal tax classification. Options include individual/sole proprietor/single-member LLC, C corporation, S corporation, partnership, or trust/estate. LLCs also require specifying their tax status as an S corporation, C corporation, or partnership.
• Line 3b must be checked if the entity has foreign partners, owners, or beneficiaries, which is particularly important for flow-through entities. This line helps identify if a flow-through entity, such as an LLC or partnership, has any direct or indirect foreign ownership when submitting its W-9 to another flow-through entity. Flow-through entities pass income directly to their owners or shareholders, who report their share on their tax returns rather than the business reporting the total revenue.

3. 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.

4. When does a business ask you for Form W-9?

Businesses typically request Form W-9 from you at specific stages of your working relationship, primarily to gather your tax identification information for reporting purposes. Here’s a more detailed look at when a business might ask you to complete a Form W-9:

• At the Start of Your Engagement: When you begin an assignment or project, especially as an independent contractor, freelancer, or vendor, the business paying you will often ask you to fill out Form W-9 during the onboarding process. This ensures they have your correct taxpayer identification details, which is crucial for any payments you make.
• Before Preparing 1099 Forms: As the end of the year approaches, businesses start preparing 1099 forms to report payments made to non-employees, such as independent contractors. If they haven’t received your W-9 or need to verify that your information is still up-to-date, they may request you to provide or update your W-9 before they begin the 1099 filing process. This helps them report your earnings accurately to the IRS.

5. What Information is Needed on Form W-9?

Filling out a Form W-9 is quite simple. The primary information that 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 according to how your ,
  LLC is treated.

If your business is registered as an LLC, you may check the appropriate box based on how your business is treated for federal tax purposes.

For detailed information on filling out a W-9 for LLC, click here.

• Taxpayer Identification Number: In this section, you will enter your Taxpayer Identification Number (TIN). You can provide your Social Security Number (SSN) if you are an individual. You can enter your Employer Identification Number if you have a registered business.
• Exemptions: If you are exempt from Backup withholding or FATCA reporting, insert the required code in the appropriate field.

6 What is Backup Withholding?

Under certain circumstances, businesses (payers) that provide you with certain payments must withhold and pay 24% of those payments to the IRS. The term for this is "backup withholding." If you provide the requester with your accurate TIN, complete the required certifications, and declare all your taxable interest and dividends on your tax return, you will avoid backup withholding on receiving payments.

Generally, you will be subjected to backup withholding of payments if:

• You either do not submit your TIN or offer an inaccurate TIN
• The IRS tells the payer to withhold taxes because you have a history of underreporting your income on your
  tax return.
• You need to attest that backup withholding does not apply to you.

7. What is FATCA Reporting?

All US account holders who meet specific US citizen requirements must be reported by a participating foreign financial institution following the Foreign Account Tax Compliance Act (FATCA).

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. These codes apply to persons submitting this form for accounts maintained outside the United States by certain foreign financial institutions.

8. What happens if you fail to provide a Form W-9 for 2024?

As previously mentioned, if you are asked to provide a W-9 form and fail to do so, the payer may need to withhold taxes from your payments at a backup withholding rate. To prevent this, it is essential to 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 crucial.

In addition to backup withholding, not providing the correct TIN to your payers can lead to a penalty starting at $50. This penalty applies unless you show that your failure was due to reasonable cause and not willful neglect.

9. When to Submit Form W-9: 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.

10. TaxBandits Simplifies the Form W-9 Process

Filling out Form W-9 and sharing it with your payers can be challenging. Our simple approach makes filling out a W-9 easier than ever.

TaxBandits’ fillable W-9 solution is designed to help you complete and submit a W-9 to your payers quickly and easily!