IRS Form W-9, Request for Taxpayer Identification Number and Certification, is used by businesses to get tax information from external parties. The information provided on Form W-9 informs a company of what information to include in Form 1098 or Form 1099.
Let's take a look at who is required to fill out a W-9, what information is required, and the purpose of the form.
Key Takeaways
- Form W-9 is used to obtain taxpayer information to help with informational reporting to the IRS.
- Form W-9 is most often used between independent contractors and companies they are working with, although it's used in other situations as well.
- The form requires a taxpayer to provide their name, address, tax classification, and withholding requirements.
- The form must be signed, and the signing taxpayer is subject to civil and/or criminal penalties for willful noncompliance.
- As the information on Form W-9 is sensitive, all parties should take caution in procuring, sending, and storing the form.
Purpose of Form W-9
The purpose of a W-9 is to gather tax information from a vendor. When a company pays a non-employee or other entity more than $600 in a year for their service, the company must file an information return. To ensure the information returned is accurate, the company sends out a W-9 to gather all required information directly from the vendor.
While some information is publicly available, Form W-9 protects the company trying to obtain the information by requiring the other party to sign the filled-out form. The signature certifies:
- The tax identification number (TIN) being provided is correct.
- The other party is not subject to backup withholding.
- The other party is claiming exemption from backup withholding.
- The FATCA code used by the vendor (and the vendor's exemption status)
Businesses use the name, address, andSocial Security number ortax identification number (TIN) contractors provide on Form W-9 to complete that information return. Neither the sender nor the recipient should send a copy to the IRS. In addition, the business requesting the tax information must safely secure copies of the form.
Uses of Form W-9
The Form W-9 is used to prepare a range of various informational returns to the IRS. The most common situation occurs when an independent contractor completes work for a company and receives payments. If that independent contractor receives more than $600 in a calendar year, they are required to be sent a Form 1099-MISC and self-report their own taxes.
The purpose of a Form W-9 extends beyond just this single situation. A bank or financial institution relies on the receipt of taxpayer information in order to properly report Form 1099-INT, 1099-DIV, or 1099-B. A taxpayer may also be asked to furnish a Form W-9 to cancel debt, student loans, or real estate transactions.
Who Needs to Fill Out Form W-9?
If you're an employee, your employer willwithholdincome taxes, withhold and pay Social Security and Medicare taxes, and payunemployment taxon your wages. You'll receive a W-2 that summarizes your earnings. Instead of filling out a Form W-9, new hires are often asked to fill out a W-4 to provide their taxpayer information to their employer.
If you're an independent contractor, an employer of your services won't take care of these things. That means you'll be responsible for the employer's share of Social Security and Medicare taxes, and you won't be eligible forunemployment compensationif you are laid off. To report some of this related information to the IRS, independent contractors, freelancers, and other non-employees that received payments should fill out a Form W-9.
Financial institutions may ask a new client to fill out a W-9 as it is a useful way of collecting and recording a customer's details. Real estate businesses may also ask tenants to complete a W-9 as a method of storing their information as well.
Form W-9 is only used if the taxpayer is a U.S. person (including a resident alien). A U.S. person is defined as an individual, partnership, corporation, estate, or domestic trust.
Information Needed on Form W-9
Form W-9 asks the independent contractor for eight pieces of information:
- Line 1, Name of Entity/Individual. This is the name that is shown on the individual's tax return. This field is required. This field is either the name of an individual, or it can be the name of the owner or a sole proprietor. The taxpayer can also list the name of a partnership or other entity.
- Line 2, Business Name. This line is only required if the taxpayer has a business name, trade name, DBA name, or disregarded entity name.
- Line 3, Federal Tax Classification. The taxpayer must select whether they are an individual/sole proprietor, a C corporation, and S corporation, a partnership, a trust/estate, or an LLC (limited liability company). (If you check LLC, you must also indicate whether it's a C corp, an S corp, or a partnership.) The taxpayer must only select one of the options provided.
- Line 4, Exemptions. The taxpayer must select whether they are exempt from backup withholding or FATCA reporting.
- Line 5 and Line 6, Address. The taxpayer must enter their address, city, state, and ZIP code.
- Line 7, Account Numbers. This option field is where the taxpayer can enter additional information if the requester asks for it. For example, a bank or brokerage firm may ask the client to enter their client information here.
- Part I, Tax Identification Number (TIN). The purpose of a W-9 is mainly to obtain this tax number from the taxpayer. This may be a Social Security number or an Employee Identification Number.
Upon the completion of the information above, the taxpayer must sign the form under Part II (Certification). As Form W-9 requires listing a tax ID or Social Security number, both the person filling it out and the company receiving the completed form must guard it carefully during transmission and after receipt to protect againstidentity theft.
Penalties for Non-Compliant Form W-9
The IRS has outlined several penalties for failure to furnish or comply with the reporting requirements of Form W-9. If the taxpayer fails to furnish a correct tax number, the taxpayer is subject to a $50 fine for every instance of non-compliance with tax law and regulation. This penalty can be waived if the taxpayer can prove the non-compliance was not due to willful neglect.
A taxpayer can also be subject to civil penalties for providing incorrect information that leads to incorrect withholding. If the taxpayer makes a false statement that results in no backup withholding, they're subject to a penalty of up to $500. Penalties get worse upon further non-compliance, as the taxpayer can be subject to criminal penalties in certain cases. Willfully falsifying any information or affirmations subjects the taxpayer to fines or imprisonment.
The requester of the taxpayer information is not exempt from penalties either. If the requester discloses or uses the taxpayer's TIN in violation of federal law, the requester may be subject to civil or criminal penalties.
Section 6109 of the Internal Revenue Code requires taxpayers to furnish their correct TIN to those who require it; however, the IRS also warns of identity theft and the importance of protecting your identity, Social Security number, and tax record information.
Other Considerations
An independent contractor who receives an unexpected W-9 should hesitate before filling it out and research whether the requester has a legitimate reason to ask for this form.Financial institutionssometimes use Form W-9 to request information from a customer when they need to reportdividendsorinterest. Be careful here: The financial institution should probably already have your tax ID number from when you opened the account.
Another situation in which you should hesitate before filling out Form W-9 is if the company asking you to do so is your employer and you are supposed to be classified as an employee, not an independent contractor.
An unscrupulous or financially struggling employer might try to classify an employee as an independent contractor to save money. If you're classified as an independent contractor, your employer's tax "savings" will come out of your pocket as self-employment tax. You'll also become responsible for calculating and paying your estimated taxes four times a year and filling out Schedule C when you file your annual tax return.
How Do I Know If I Am Subject to Backup Withholding?
The IRS may send you a letter regarding backup withholding. This might have happened if you didn't report all your interest and dividends on a previous tax return. If you haven't received this letter, and if you provide your tax identification number to the requester of Form W-9, then you are not subject to backup withholding. If you are subject to backup withholding, cross out item two in Part II of Form W-9 before submitting it.
What Is the Most Secure Way to Submit Form W-9?
If you can hand off the document in person, that's ideal. Otherwise, one option is to use a free online service to encrypt your completed Form W-9 and email it securely to the requester. You could also use an encrypted file-sharing service.
Another option is to send it through a service such as FedEx, UPS, or the postal service, though there is no guarantee your form will not be lost, stolen, or tampered with in transit.
There's also no guarantee that the recipient will store the form securely even if you send it securely, so ask about their method of storage prior to sending.
Should I Enter My EIN or SSN on Form W-9?
If you are a sole proprietor, you can enter either one. If your business is an LLC classified as a corporation or partnership, use the entity's EIN. If your business is a single-member LLC that is a disregarded entity, enter your SSN or EIN (not the entity's EIN).
Can I Refuse to Fill Out Form W-9?
If you refuse in response to a legitimate request, your client will withhold taxes from your pay at a rate of 24%. Businesses have a heavy obligation from the IRS to obtain a completed Form W-9 from anyone they pay $600 or more to during the year.Failure to comply can result in fines.
If you think the person requesting the form has no business asking for it, though, refusal is probably a good idea. If you're concerned, ask a tax professional for guidance.
Who Might Ask Me To Fill Out Form W-9?
A bank, a brokerage firm, a lending institution that has canceled a debt you owe, or the issuer of a prize you have won all might ask. If you receive an email saying you won a prize for a contest you don't recall entering, you may not want to give that person a W-9.
Beware of W-9 phishing scams. If you receive an email request for a Form W-9 and you're not sure it's legitimate, contact the supposed sender by phone (and don't use any phone number in the suspicious email) to ask if the request is valid. Attackers are sophisticated and can make a message look like it came from your bank or even your client. And if you get an email from the IRS, it's definitely a phishing attempt, and you should forward the email to phishing@irs.gov. The IRS doesn't initiate contact with taxpayers via email.
The Bottom Line
W-9 forms are used in many different situations, often for independent contractors or freelancers. It's important to fill out the form correctly as you may be subject to penalties if it is completed incorrectly; however, all of the information should be relatively easy for you to obtain. Be mindful of how you distribute the form to the requesting party, and take care of protecting your sensitive information and accurate tax reporting status.
