If you're ready to simplify your year-end throughout the year — Eide Bailly can help.
There are many types of forms to complete as a business owner. Many of these forms tell the IRS (Internal Revenue Service) when and if other forms need to be filled out, the type of payments that need to be applied, taxes that you should be withholding and more.
A key form for year-end (and all year long) is Form W-9. Chances are you’ve heard of this IRS form, but what is a W-9 tax form for? Understanding the W-9 form purpose is crucial for business owners and independent contractors to ensure proper compliance with tax reporting. In this article, we’ll discuss the W-9 form definition, what it’s used for, best practices, and more.
What is a W-9 Form?
The W-9 form definition states it is a document used to collect Taxpayer Identification Number (TIN), Employer Identification Number (EIN), or Social Security Number (SSN). A W-9 form needs to be submitted for income tax reporting purposes for services rendered by a person or business, as opposed to the 1099 form used for independent contractors.
What is the Purpose of a W-9?
A key aspect of the W-9 form purpose is that it requires businesses to collect taxpayer documents for the purpose of accurate reporting. In other words, it’s the form you use to get account information about vendors, independent contractors, sole proprietors or freelancers. The general rule is that you will need to request a W-9 form from anyone you will pay $600 or more to in a calendar year as a trade or business.
For instance, if your business hires a freelance graphic designer to create your business logo, you will need to collect a W-9 form from them. If you hire a neighborhood kid to mow the lawn at your rental property, you will need to collect a W-9 form from them.
Another W-9 form purpose is to help businesses identify which vendors require the submission of information returns. This means it can also be used as proof that you do not need to file an information return. In most cases, this would occur if the entity filling out the form was a corporation or a nonprofit organization.
Ultimately, the W-9 form purpose is to simplify the tax reporting process for businesses and individuals alike.
Unsure how to report on independent contractors?
After reading this brief guide, you should have a clearer understanding of “what is a W-9 form?” Now, let’s review best practices for the W-9 form.
Best Practices for W-9
The best thing to do is to contact your vendor and request a Form W-9 before you make your first payment. This ensures completion and certification of the form, which you need as a business owner, for tax purposes. While the form doesn’t change that often, it’s good practice to request an updated Form W-9 annually, or as you notice a change in vendor information. This process ensures you will have the most up-to-date information.
Another tip when receiving W-9 forms is to review them as you receive them. Be sure all the required boxes are completed appropriately, and that the taxpayer has signed the form. This will be key if the IRS contacts you regarding incorrect information. Additionally, getting this corrected right away will be easier than trying to track down a new W-9 in January of the following year, when you are rushing to prepare all of your information returns. Or trying to track down the W-9 form after you have received a notice from the IRS.
Software programs and apps can be used to request taxpayer identification for individuals and businesses as well as aid in the collection of W-9 information from your vendors. Additionally, your accounting program may have options to input W-9 data for storage and recovery. These systems may also allow you to run reports and identify missing information. Tackling this list monthly or quarterly makes this task simpler and less overwhelming than reviewing it annually. Similar programs and apps can be used to file your information returns at year-end, but only if your W-9 information has the correct taxpayer identification number and other pertinent details.
You can use the e-services site from the IRS to check the individual taxpayer identification number (TIN) of a vendor. If you receive information that you are unsure about from a vendor, you can verify that the TIN matches their name through this site.
What is a W-9 Form Used For?
When discussing what is a W-9 tax form, it’s important to note what information it tracks and how it helps vendors do business. W-9 tax forms request vendor information and certifies its completeness. It also allows you to prove whether or not you need to provide information returns for those vendors each year. This information is vital to your financial reporting.
Now that you know the answer to “what is a W-9 form?”, the best advice we can give is to collect W-9s early and often. It’s also vital to review the forms immediately as you receive them so you can contact vendors quickly after receipt for any additional required information. Doing so will ensure you are safe from penalties and are reporting all payments to the government in a legal manner.
What Information is Required on a W-9?
The main W-9 form purpose is to gather essential tax identification information from individuals and businesses to assess the necessary amount of W-9 taxes that need to be paid. These are the primary sections on a W-9 form.
Name: List the name of the taxpayer. It must be written correctly in order to meet the requirements of the IRS. The employee must write their full legal name.
Business Name: If filing as a business, DBA name, trade name, or disregarded entity name, list that information here. (This section does not apply to individuals.)
Address: The W-9 form must also include the current address of the employee, including number, street, and apartment or suite number, as well as the city, state, and ZIP code.
Taxpayer Identification Number: It must either be a social security number, an individual taxpayer identification number, or an employer identification number. If an individual is a resident alien and not eligible for an SSN, they should use their IRS individual taxpayer identification number (ITIN).
Federal Tax Classification: In this section, the taxpayer must designate themselves as an individual, sole proprietor or single-member limited liability company (LLC) owned by an individual and disregarded for U.S. federal tax purposes.
Exemptions: Only specific businesses or entities will need to fill out the exemptions section. If a business or entity is exempt from backup withholding, they will need to list their code here.
Certification: A W-9 form must be signed and dated to be considered complete. Keep in mind that this is a legal document, so all information must be accurate.
Who Needs to Complete Form W-9?
It should be completed and submitted when you are either an independent contractor, consultant, or freelancer who is not otherwise classified as an employee. It is needed for the payer to file state and federal income taxes.