Understanding Form W-9, Request
Updated on August 10, 2021 - 10:30 AM by Admin, TaxBandits
In this section we will cover the following topics:
- What is Form W-9?
- Who must complete a W-9 Form?
- When should I request a W-9 Form?
- Information required on a W-9 form
- What is backup withholding?
- What is FATCA Reporting?
- What are the penalties if the contractors/payees fail to furnish correct TIN?
- How TaxBandits helps in simplifying your processing of W-9?
1. What is Form W-9?
Form W-9 is used by businesses to request a Tax Identification Number (TIN) and certification from the independent contractors or freelancers they hire to work with their businesses. The requested information includes the contractors’ name, address, and TIN.
For example, The Form W-9’s purpose comes into play when independent contractors are paid more than $600 during a calendar year. After the contractor earns this amount, the business is required to file a Form 1099 on their behalf. The Form 1099-NEC indicates to both the IRS and the independent contractor how much they were paid by the business. To file a Form 1099-NEC, businesses need the information captured on Form W-9.
2. Who must complete a W-9 Form?
Form W-9 should be completed by any independent contractor, freelance worker, and vendor that a business hires or works with. This allows the business to have the crucial information that they will need when it comes to file a Form 1099 on the contractor/vendor’s behalf.
3. When should I request a W-9 Form?
If you are making an arrangement to work with a vendor or an independent contractor, you should ask them to complete a Form W-9, much like you would ask a new employee to complete the Form W4 during the onboarding process.
4.Information required on a W-9 form.
IRS Form W-9 captures relevant information that will be helpful, for you, the payer when it comes to filing tax forms. This includes
- Contractors Name, Address
- Contractor TIN (EIN / SSN)
- Federal tax classification, and any applicable exemption codes
5. What is backup withholding?
Backup withholding will come into play if the contractor or vendor doesn’t provide a Form W-9 or provides an incorrect TIN. As the payee, you are required to withhold 24% of payments that are made to this individual for the IRS.
This backup withholding will continue until the correct TIN is provided.
There are many different types of payments that backup withholding can be applied to, such as:
- tax-exempt interest
- broker and barter exchange transactions,
- nonemployee pay
- payments made in settlement of payment card and third party
- certain payments from fishing boat operators.
6. What is FATCA Reporting?
The Foreign Account Tax Compliance Act (FATCA) requires that certain international financial institutions report all the accounts that are held by United
7. What are the penalties if the contractors/payees fail to furnish
Failure to furnish a TIN to their payer can result in a $50 penalty in each case that this occurs. Providing a false TIN without a reasonable cause can result in a much higher penalty of $500.
8. How TaxBandits helps in simplifying your processing of W-9?
TaxBandits simplifies the W-9 process by bringing it into the modern era. Payers are able to request their independent contractors and vendor’s W-9 digitally. Their payee will be prompted by email to complete their W-9 through TaxBandits. Once complete, you, the payee, will be notified. Not only can this process be completed in minutes, it is much more secure than a paper system. Both the payer and payee will have access to view and download the Form W-9 at any time from their secure TaxBandits account.