An IRS Form W-9, known as the "Request for Taxpayer Identification Number and Certification," serves the purpose of acquiring the legal name and tax identification number (TIN) of either an individual or a business entity. Typically, it is necessary when a payment is being made, and tax withholding is not part of the transaction.

Table of Contents

• How it Works
• When Is a W-9 Required?
• Requirement for Payment without Tax Withholding
• Responsibility for Tax Liability
• Common Uses of the W-9 Form
• When a W-9 is Not Necessary
• How to Complete a W-9 Form
• FAQs
• What is the Penalty for Not Collecting a W-9?
• Is an Electronic Signature allowed on W-9?
• What happens in the case of Contractor Refusal to Provide a W-9?
• What if W-9 is incorrect?
• Does the IRS update Form W-9 each year?
• What happens if a W-9 is NOT collected?
• Sample for IRS Form W9

How it Works

1. Hire: When you hire a non-employee, you are essentially bringing in an individual or a business to perform specific services for you. This could be anything from freelance work, consulting, or any service that is not part of your regular employee workforce.

2. Request W-9: Once you've hired the non-employee, you should request them to fill out a W-9 form. The W-9 is a tax form used to collect the individual's or business's taxpayer identification number (TIN) or social security number (SSN), along with other relevant information such as their legal name and address. This information is crucial for tax reporting purposes.

3. Pay: After the non-employee has completed and signed the W-9 form, you can proceed to make payments for the services rendered. Payments should be made by the agreed-upon terms, which may include hourly rates, project fees, or any other negotiated payment structure.

4. $600 Limit: If you have paid the non-employee $600 or more during the tax year, you are required to prepare a 1099-NEC form. This form is used to report the total amount paid to the non-employee for their services. It's essential to keep accurate records of all payments made to ensure compliance with this threshold.

5. IRS Filing: Before January 31st of the following year, you need to file the 1099-NEC form with the IRS. This involves providing the IRS with information about the non-employee, your business, and the total payments made to the non-employee. Additionally, you must send a copy of the 1099-NEC to the non-employee, so they have the necessary information for their tax reporting.

It's important to note that non-employees, such as independent contractors, are responsible for reporting their income to the IRS, and the 1099-NEC form helps the IRS track these earnings. Properly following these steps helps ensure compliance with tax regulations and provides both your business and the non-employee with the necessary documentation for tax purposes. Failure to follow these steps can result in tax penalties and legal issues.

When Is a W-9 Required?

Requirement for Payment without Tax Withholding

A W-9 must be obtained whenever a payment is being made, and taxes are not withheld from that payment. According to IRS regulations, an employer making wage payments to employees is responsible for withholding taxes, but when payments are made to non-employees, such as independent contractors or service providers, withholding is not required.

Responsibility for Tax Liability

By completing and signing a W-9, the payment recipient acknowledges their responsibility for any tax liability associated with the payment they receive. This means they are accountable for reporting their income to the IRS and fulfilling their tax obligations.

Common Uses of the W-9 Form

1. Independent Contractors: Businesses that hire freelancers, vendors, or independent contractors often request a W-9 to collect the taxpayer identification number (TIN) or social security number (SSN) of the service provider. This information is necessary for reporting payments to the IRS, typically done using a 1099-NEC form.

2. Banking and Investment Income: Financial institutions may require a W-9 to report various types of income paid to individuals, such as capital gains, dividends, or interest. The information collected on the W-9 is used for reporting income to the IRS, usually via a 1099-DIV form.

3. Rental Income: Property management companies responsible for overseeing rental properties often request W-9 forms from property owners. This information is used to record payments made to property owners and is later reported to the IRS on a 1099-MISC form.

4. Real Estate Transactions: In real estate transactions, particularly property sales, a W-9 may be requested from the buyer and seller. This information is used to report details of the transaction, such as sale proceeds, to the IRS using a 1099-S form.

5. Legal Settlements: When individuals receive payments related to legal settlements, the payer may request a W-9 for tax reporting purposes. These payments are typically reported on a 1099-MISC form, and the information collected on the W-9 is used to fulfill these reporting requirements.

In summary, the W-9 form is a crucial tool for businesses and financial institutions to collect essential taxpayer information for tax reporting purposes. It ensures compliance with IRS regulations and facilitates the accurate reporting of various types of payments.

When a W-9 is Not Necessary

1. Employees: W-9 forms are not needed for traditional employee-employer relationships. In these cases, information related to tax withholding is gathered through the completion of a Form W-4, which helps determine the amount of income tax to be withheld from an employee's paycheck.

2. Personal Payments: Making payments to friends or reimbursing someone for personal services, such as a friend helping with household tasks, generally doesn't require the collection of a W-9 or the reporting of these payments to tax authorities.

3. Tax-Exempt Organizations: When payments are made to tax-exempt organizations, charities, or qualified nonprofits, it's typically unnecessary to request a W-9. These organizations are usually exempt from the reporting requirements that apply to other payment recipients.

4. Under IRS Threshold: Certain transactions fall below the IRS reporting threshold. In many cases, businesses that pay for services do not need to collect a W-9 or report the income if the total payments made to a payee do not reach the minimum threshold, which is often set at $600 or as defined by specific tax regulations in various areas.

How to Complete a W-9 Form

Part 1 - Providing Identifying Information:

• Line 1: Enter your full legal name, exactly as it appears on your income tax return. This is your individual or business name.

• Line 2: If your business has a different name (e.g., a trade name or disregarded entity name) than what's on Line 1, you can enter it here. For individuals, you can leave this line blank.

• Line 3: Indicate your tax classification by checking the appropriate box:
  • Individual/sole proprietor/single-member LLC
  • C Corporation
  • S Corporation
  • Partnership
  • Trust/estate
  • Limited liability company (LLC) and specify how it's taxed:
    • C = C corporation
    • S = S corporation
    • P = Partnership
    • Other (if none of the above apply)

• Line 5: Provide your street address. This should include the physical location where you receive mail or conduct business. Do not include a P.O. Box here.

• Line 6: Enter your city, state, and zip code, corresponding to the street address you provided in Line 5.

Part 2 - Providing Your Taxpayer Identification Number (TIN):

• Enter either your Social Security Number (SSN) or Employer Identification Number (EIN) in the space provided. For individuals, this is typically your SSN. For businesses, it's usually the EIN.

Part 3 - Certification:

• Sign and date the form in the spaces provided. Your signature certifies that the information you've provided is correct. The date should reflect when you provide the completed form to the entity or individual requesting it. A valid signature and date are necessary for the form to be legally valid and accepted.

Once you've filled out all the required sections of the W-9 form, you can provide it to the entity or person who requested it, allowing them to report payments or income to the IRS accurately.

FAQs

What is the Penalty for Not Collecting a W-9?

Those who fail to collect a W-9, as required for information reporting, may face a fine of $50 as a penalty. This penalty is imposed for non-compliance.

Is an Electronic Signature allowed on W-9?

The W-9 form can be signed, dated, and submitted electronically; a physical (wet) signature is not required. Electronic signatures are acceptable for this purpose.

What happens in the case of Contractor Refusal to Provide a W-9?

If a contractor refuses to provide a W-9, it can result in compliance issues, and the situation can be addressed through one of two methods:

What if W-9 is incorrect?

If a payee provides a W-9 with deliberately false information, such as an incorrect TIN (Taxpayer Identification Number), they could be subject to perjury penalties. For minor errors like name discrepancies, the payee should correct and resubmit the form to the payer.

Does the IRS update Form W-9 each year?

The most recent revision of the W-9 form by the IRS was in October 2018, and this version is still in use for all subsequent tax years. The IRS does not update the form annually.

What happens if a W-9 is NOT collected?

If a W-9 is not collected, and transactional information is not reported to the IRS as required, penalties may be imposed. It's essential to comply with W-9 requirements to avoid potential penalties for non-reporting.

Sample for IRS Form W9