What Is the Purpose of a W-9 Form?
A Form W-9 provides the necessary taxpayer information for businesses to report payments to the IRS, ensuring compliance and preventing backup withholding.
Form W-9, officially titled Request for Taxpayer Identification Number and Certification, is a document businesses use to collect identifying information from individuals or other businesses they pay who are not employees. This includes freelancers, independent contractors, and vendors. The function of the form is to gather the necessary data for the paying entity to report these payments accurately to the Internal Revenue Service (IRS). The form serves as a formal request for a person’s or entity’s correct name and Taxpayer Identification Number (TIN), which is then held by the payer to ensure compliance with federal tax law.
Who Is Required to Provide a Form W-9
A Form W-9 must be provided by any “U.S. person” who is set to receive certain types of payments from a business. The term “U.S. person” is broad and encompasses U.S. citizens and resident aliens. It also includes entities organized in the United States, such as partnerships, corporations, estates, and domestic trusts. When these individuals or entities are engaged for services and are not classified as employees, the payer will request a W-9.
This requirement most commonly applies to independent contractors, freelancers, and sole proprietors who perform work for a business. For instance, if a company hires a graphic designer for a project or a consultant for advice, that professional will be asked to complete a W-9 before payment is issued.
Information and Certifications Needed for the Form
The first part of the form asks for the legal name of the individual or business as shown on their tax return, along with any “doing business as” (DBA) name. You must also indicate your federal tax classification, such as sole proprietor, C Corporation, S Corporation, or partnership. This classification determines how your business is taxed and is a necessary detail for the payer’s records.
You must provide a Taxpayer Identification Number (TIN). For individuals and sole proprietors, this is their Social Security Number (SSN). For other business entities like corporations and partnerships, it is the Employer Identification Number (EIN). It is important to enter the correct number that corresponds with the legal name provided to avoid mismatches with IRS records.
By signing the form, you are making several certifications under penalty of perjury. You certify that the TIN you provided is correct and that you are not subject to backup withholding. The signature also confirms that you are a U.S. person, including a U.S. resident alien.
The Payer’s Reporting Obligation
The purpose of collecting a W-9 is to enable the payer to fulfill its legal reporting duties to the IRS. Businesses that pay non-employees $600 or more for services in a calendar year must report these payments. The data from the W-9 is transferred directly to an information return, which is then filed with the IRS.
The most common information return associated with W-9 data is Form 1099-NEC, Nonemployee Compensation. This form details the total amount paid to a contractor during the year. The W-9 provides the necessary information for these 1099 forms, allowing the IRS to match the income reported by the payer with the income reported by the recipient on their own tax return.
Consequences of an Incorrect or Missing W-9
Failing to provide a W-9, or providing one with an incorrect TIN, has a financial consequence known as backup withholding. Backup withholding is not an additional tax but a mandatory deduction of federal income tax from payments that would otherwise be made in full. The current backup withholding rate is 24%, and this amount is remitted to the IRS by the payer on the recipient’s behalf.
If the IRS notifies the payer that the provided TIN is incorrect, withholding will be triggered. For example, if the name and TIN on the W-9 do not match the IRS’s records, the payer will be instructed to begin backup withholding. Submitting a complete and accurate W-9 is the way for a contractor or vendor to ensure they receive the full payment they are owed without any mandatory tax deductions.