Filling out a W-9 form isn’t very difficult as it really only requires a few pieces of basic information. A W-9 is usually submitted when a citizen receives payment for service rendered as an independent contractor, when you pay interest on mortgage, and when you put in money for your IRA account.
Form W-9 is used when a business needs to have your name, address and taxpayer identification number so the business can issue a tax document to you and to the IRS.
A person/company who conducts business with you relies on the W-9 form as a source for your personal information, the most important of which is the taxpayer Identification Number are doing business with uses the W-9 to collect some of your personal information, the most important of which is your taxpayer identification number (TIN).
For those of you that don’t know their TIN, it is not some long fancy number. It is actually just your Social Security Number (it is at least if you submit as an individual). However, when you submit the form for your business then the TIN is your EIN (employer identification number).
The entity paying you is considered responsible for requesting the W-9 form from you. But this does not mean that the requester has an obligation to file the W-9 with the IRS. The requester must keep the form or a copy of the form on file, and utilize the provided information when preparing for information returns (like 1099s and 1098s).
When the W-9 is for a business, fill out the business name at the very top of the form and cross the appropriate box to identity the type of entity. You should pay extra care when filling out your TIN. The 2nd part of the form requires you to validate the information that you have put in the first part.
♦ Download: Form W-9 (Massachusetts Substitute W-9 Form)
If the LLC is its own separate tax entity (such as a partnership, C-corporation, or S-corporation) then report the name of the LLC and the Federal Employer Identification Number on the Form W-9 and check the appropriate tax classification box (partnership, C-corporation or S-corporation). Do not check the Limited Liability Company box. I know this sounds counter-intuitive, but it’s what the IRS says in their instructions.
If the LLC is owned by another LLC, then check the Limited Liability Company box. Also indicate the tax classification of the parent LLC.
If the LLC is owned by a single member, indicate the tax classification of the owner.
If the LLC is owned by a single member who is a person, the IRS is instructing us to indicate the name of the owner on the Name line, and the name of the LLC on the Business Name line. The IRS prefers that you report the owner’s Social Security Number instead of the LLC’s Federal Employer Identification Number.
The W-9 form also asks whether you are subject to backup withholding. This is withholding at a flat rate of 28% on payments made to you or your business under certain circumstances. There are two common reasons for backup withholding: your name and SSN as provided on Form W-9 don’t match the IRS’s records, or you have outstanding tax debts and the IRS has notified you that you are subject to mandatory backup withholding until the taxes are paid in full. The payments which are reported on an information return tend not to be subject to federal income tax withholding. But a taxpayer may be subject to backup withholding if he/she fails to provide an accurate and valid TIN. And if the payer is supposed to withhold, 28% of all amounts that the taxpayer is to be paid, are remitted to the IRS.
The IRS has a TIN matching program which allows those who request Form W-9 to verify the TINs they have been provided, this is done when they file an information return. The IRS may o it may not penalize W-9 requesters who fail to report an accurate TIN on their returns.
If you choose not to, or rather if you forget to fill out a W-9 requested by an employer or a partner who is duly entitled to information like your TIN, you will be penalized $50. And if you file a false statement which does not result in backup withholding, when you are not exempt from the backup withholding requirement, you will be subject to a $500 penalty.
Falsifying information in a W-9 form may result in prosecution for criminal behavior and may even lead to your imprisonment.
And lastly, if you misuse or disclose the information provided to you by a worker or vendor by medium of a W-9 form, you may be subject to civil as well as criminal penalties.
Therefore, when you are asked for a W-9 form by someone you are working for, it is in your best interest to do it promptly and accurately.
Returning the Form
Ideally, you’ll hand in your completed W-9 form in person, so as to prevent the information from being exposed to unwanted or unfriendly entities. This is because of how frequent and common place identity theft has become in recent years. But since handing it off personally is not always possible, you could use encrypted emails. Mail is often quite secure, but it would be wise to make use of an encryption. And make sure to double check the requester’s email address before sending it off.
A tax payer is obligated to send out a new W-9 form whenever there is a change in their personal information (the information important for a W-9 form). For example, you should send out a W-9 form when you change: your name, business name, address, SSN, EIN.
Generally, a W-9 form is requested when you contract with an independent contractor for a given set of services. And at the very least you should obtain a signed W-9 before paying out any sum larger than $600. Of course, an employer can request an updated W-9 form at any time but there’s no set law o rule for it.
Taxpayers have received have received a request for W-9 from landlord or unlikely businesses. A Form W-9 is like an official and legal way of asking someone to provide their (or their business’s) name, TIN, and address so as to allow the requesting party to issue IRS tax documents of confirmed accuracy. Legally, you are only obligated to fulfill requests of W-9 form from business that pay you interest, dividends, non-employee compensation, and any other type of reportable income. If you receive a W-9 from an unlikely source, ask why they need the W-9 form and how it will be used.
The IRS Form W-9 is mostly used to collect the TIN/SSN of a U.S. citizen you plan to engage in business. To find out such information for a foreign business or individual, you could use Form W-8 and Form W-7 for individuals who aren’t eligible a SSN but are U.S. residents for Tax purposes.
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 institutions sometimes use form W-9 to request information from a customer when they need to report dividends or interest. But 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 fill it out is your employer and you are supposed to be classified as an employee, not an independent contractor. The difference is substantial.
Employee or Independent Contractor?
If you’re an employee, your employer will withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on your wages. If you’re an independent contractor, they won’t. That means you’ll be responsible for the employer’s share of Social Security and Medicare taxes, and that you won’t be eligible for unemployment compensation if you are laid off.
An unscrupulous employer might try to classify an employee as an independent contractor to save money. If you’re misclassified as an independent contractor, your employer’s “savings” will come out of your pocket. If you’re an employee, you should fill out form W-4, not form W-9. (See The Purpose of the IRS W-4 Form and how to fill w4 form?)
It isn’t always clear whether a worker is an employee or an independent contractor, but in general, the more control the business has over what workers do and how they do it, the more likely it is that they are employees. If your Spidey sense starts tingling when someone who hired you calls you an independent contractor, that’s a good sign you should investigate the situation further. Start with the IRS discussion of the difference between the two.