The Purpose of Form W-9
IRS Kind W-9, Request for Taxpayer Identification Quantity and Certification, is utilized by companies to get tax info from exterior events. The data supplied on Kind W-9 informs the corporate of what info to incorporate in Kind 1098 or Kind 1099.
Let’s check out who’s required to fill out a W-9, what info is required, and the aim of the shape.
- Kind W-9 is used to acquire taxpayer info to assist with informational reporting to the IRS.
- Kind W-9 is most frequently used between unbiased contractors and firms they’re working with, though it is utilized in different conditions as nicely.
- The shape requires a taxpayer to offer their title, deal with, tax classification, and withholding necessities.
- The shape should be signed, and the signing taxpayer is topic to civil and/or legal penalties for willful non-compliance.
- As the knowledge on Kind W-9 is delicate, all events ought to take warning in procuring, sending, and storing the shape.
The Goal Of The W-9 Kind
Goal of Kind W-9
The aim of a W-9 is to collect tax info from a vendor. When an organization pays a non-employee or different entity cash greater than $600 in a yr for his or her service, the corporate should file an info return. To make sure the knowledge return is correct, the aim of a W-9 is to collect all required info immediately from the seller.
Whereas some info is publicly accessible, Kind W-9 protects the corporate making an attempt to acquire the knowledge by requiring the opposite social gathering to signal the filled-out type. The signature certifies:
- the tax identification quantity (TIN) being supplied is right.
- the opposite social gathering just isn’t topic to backup withholding.
- the opposite social gathering is claiming exemption from backup withholding.
- the FATCA code utilized by the seller (and the seller’s exemption standing)
Companies use the title, deal with, and Social Safety quantity or tax identification quantity contractors present on Kind W-9 to finish that info return. Neither the sender nor the recipient ought to ship a replica to the IRS. As well as, the enterprise requesting the tax info should safely safe copies of the shape.
Makes use of of Kind W-9
The Kind W-9 is used to arrange a spread of varied informational returns to the IRS. The commonest scenario happens when an unbiased contractor completes work for an organization and receives funds. If that unbiased contractor receives greater than $600 in a calendar yr, they’re required to be despatched a Kind 1099-MISC and self-report their very own taxes.
The aim of a Kind W-9 extends past simply this single scenario. A financial institution or monetary establishment depends on the receipt of taxpayer info with a purpose to correctly report Kind 1099-INT, 1099-DIV, or 1099-B. A taxpayer can also be requested to furnish a Kind W-9 to cancel debt, scholar loans, or actual property transactions.
Who Must Fill Out Kind W-9?
When you’re an worker, your employer will withhold revenue taxes, withhold and pay Social Safety and Medicare taxes, and pay unemployment tax in your wages. You may obtain a W-2 that summarizes your earnings. As an alternative of filling out a Kind W-9, new hires are sometimes requested to fill out a W-4 to offer their taxpayer info to their employer.
When you’re an unbiased contractor, it will not. Which means you will be chargeable for the employer’s share of Social Safety and Medicare taxes, and you will not be eligible for unemployment compensation in case you are laid off. To report a few of this associated info to the IRS, unbiased contractors, freelancers, and different non-employees that obtained funds ought to fill out a Kind W-9.
Monetary establishments could ask a brand new shopper to fill out a W-9 as it’s a helpful approach of accumulating and recording a buyer’s particulars. Actual property companies can also ask tenants to finish a W-9 as a technique of storing their info as nicely.
Kind W-9 is just used if the taxpayer is a U.S. individual (together with a resident alien). A U.S. individual is outlined as a person, partnership, company, property, or home belief.
Info Wanted on Kind W-9
Kind W-9 asks the unbiased contractor for eight items of data:
- Line 1, Identify. That is the title that’s proven on the person’s tax return. This discipline is required. This discipline is both the title of a person, though it may be the title of the proprietor or a sole proprietor. The taxpayer can even listing the title of a partnership or different entity.
- Line 2, Different Enterprise Identify. This line is just required if the taxpayer has a enterprise title, commerce title, DBA title, or disregarded entity title.
- Line 3, Federal Tax Classification. The taxpayer should choose whether or not they’re an organization, particular person, sole proprietor, single-member LLC, restricted legal responsibility firm, partnership, or belief/property. The taxpayer should solely choose one of many choices supplied.
- Line 4, Exemptions. The taxpayer should choose whether or not they’re exempt from backup withholding or FATCA reporting.
- Line 5 and Line 6, Tackle. The taxpayer should enter their deal with, metropolis, state, and ZIP code.
- Line 7, Account Numbers. This selection discipline is the place the taxpayer can enter extra info if the requester asks. For instance, a financial institution or brokerage agency could ask the shopper to enter their shopper info right here.
- Half I, Tax Identification Quantity. The aim of a W-9 is principally to acquire this tax quantity from the taxpayer. This can be a Social Safety quantity or an Worker Identification Quantity.
Upon the completion of the knowledge above, the taxpayer should signal the shape beneath Half II (Certification). As Kind W-9 requires itemizing a tax ID or Social Safety quantity, each the individual filling it out and the corporate receiving the finished type should guard it rigorously throughout transmission and after receipt to guard in opposition to id theft.
Penalties for Non-Compliant Kind W-9
The IRS has outlined a number of penalties for failure to furnish or adjust to the reporting necessities of Kind W-9. If the taxpayer fails to furnish an accurate tax quantity, the taxpayer is topic to a $50 high quality for each occasion of non-compliance with tax legislation and regulation. This penalty might be waived if the taxpayer can show the non-compliance was not on account of willful neglect.
A taxpayer can be topic to civil penalties for offering incorrect info that results in incorrect withholding. If the taxpayer makes a false assertion that leads to no backup withholding, they’re topic to a penalty of as much as $500. Penalties worsen upon additional non-compliance, because the taxpayer might be topic to legal penalties in sure circumstances. Willfully falsifying any info or affirmations topics the taxpayer to fines or imprisonment.
The requester of the taxpayer info just isn’t exempt from penalties both. If the requester discloses or makes use of the taxpayer’s TINs in violation of federal legislation, the requester could also be topic to civil or legal penalties.
Part 6109 of the Inner Income Code requires taxpayers to furnish their right TIN to those that require it; nevertheless, the IRS additionally warns of id theft and the significance of defending your id, Social Safety quantity, and tax report info.
An unbiased contractor who receives an surprising W-9 ought to hesitate earlier than filling it out and analysis whether or not the requester has a authentic motive to ask for this kind. Monetary establishments typically use Kind W-9 to request info from a buyer when they should report dividends or curiosity. Watch out right here: The monetary establishment ought to in all probability have already got your tax ID quantity from while you opened the account.
One other scenario by which it’s best to hesitate earlier than filling out Kind W-9 is that if the corporate asking you to take action is your employer and you’re presupposed to be categorised as an worker, not an unbiased contractor.
An unscrupulous or financially struggling employer may attempt to classify an worker as an unbiased contractor to economize. When you’re categorised as an unbiased contractor, your employer’s tax “financial savings” will come out of your pocket as self-employment tax. You may additionally turn out to be chargeable for calculating and paying your estimated taxes 4 instances a yr and filling out Schedule C while you file your annual tax return.
How Do I Know If I Am Topic to Backup Withholding?
The IRS could ship you a letter relating to backup withholding. This might need occurred should you did not report all of your curiosity and dividends on a earlier tax return. If you have not obtained this letter, and should you present your tax identification quantity to the requester of Kind W-9, then you aren’t topic to backup withholding. If you’re topic to backup withholding, cross out merchandise two partly two of Kind W-9 earlier than submitting it.
What Is the Most Safe Approach to Submit Kind W-9?
When you can hand off the doc in individual, that is perfect. In any other case, one choice is to make use of a free on-line service to encrypt your accomplished Kind W-9 and e mail it securely to the requester. You may additionally use an encrypted file-sharing service.
An alternative choice is to ship it by way of a service comparable to FedEx, UPS, or the postal service, although there is no such thing as a assure your type won’t be misplaced, stolen, or tampered with in transit.
There’s additionally no assure that the recipient will retailer the shape securely even should you ship it securely, so ask about their methodology of storage previous to sending.
Ought to I Enter My EIN or SSN on Kind W-9?
If you’re a sole proprietor, you may enter both one. If your enterprise is an LLC categorised as an organization or partnership, use the entity’s EIN. If your enterprise is a single-member LLC that may be a disregarded entity, enter your SSN or EIN (not the entity’s EIN).
Can I Refuse to Fill Out Kind W-9?
When you refuse in response to a authentic request, your shopper will withhold taxes out of your pay at a charge of 24%. Companies have a heavy obligation from the IRS to acquire a accomplished Kind W-9 from anybody they pay $600 or extra to in the course of the yr. Failure to conform may end up in fines.
When you assume the individual requesting the shape has no enterprise asking for it, although, refusal might be a good suggestion. When you’re involved, ask a tax skilled for steering.
Who May Ask Me To Fill Out Kind W-9?
A financial institution, a brokerage agency, a lending establishment that has canceled a debt you owe, or the issuer of a prize you may have received all may ask. When you’re a visitor on Ellen throughout her “12 Days of Giveaways” promotion, and the discuss present producers ask you to fill out a W-9 earlier than you permit, it is secure to imagine the request is authentic. When you obtain an e mail saying you received a prize for a contest you do not recall coming into, you might not wish to give that individual a W-9.
Watch out for W-9 phishing scams. When you obtain an e mail request for a Kind W-9 and also you’re undecided it is authentic, contact the supposed sender by telephone (and do not use any telephone quantity within the suspicious e mail) to ask if the request is legitimate. Attackers are refined and may make a message appear to be it got here out of your financial institution and even your shopper. And should you get an e mail from the IRS, it is undoubtedly a phishing try, and it’s best to ahead the e-mail to email@example.com. The IRS would not provoke contact with taxpayers by way of e mail.
The Backside Line
W-9 varieties are utilized in many various conditions, typically for unbiased contractors or freelancers. It is essential to fill out the shape appropriately as you might be topic to penalties whether it is accomplished incorrectly; nevertheless, the entire info ought to be comparatively simple so that you can acquire. Be aware of the way you distribute the shape to the requesting social gathering, and handle defending your delicate info and correct tax reporting standing.