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Table of Contents
What Is A W9 Form
A W9 form is an IRS form that individuals and companies use to gather information on another vendor or contractor.
The main objective of completing a W9 form is to gather information on a vendor allowing you to file your information return to the IRS.
In fact, the IRS requires that an information return be filed whenever you pay a non-employee or entity more than $600 in a given year.
The W9 form is titled “Request for Taxpayer Identification Number and Certification” which is essential that, a request to obtain the taxpayer’s identification.
When a company or entity completes the W9 form, it is certifying its tax identification number is correct, it is not subject to backup withholding, is a US citizen or US person, and its FATCA code (Foreign Account Tax Compliance Act Code), if any, is correct.
When the W9 form is completed, the sender or the receiver of the form do not have the obligation to send a copy to the IRS.
However, it’s important to keep it on record.
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Why Is A W9 Form Important
Knowing what a W9 form is and how it works is important.
In most cases, independent contractors complete a W9 form when they provide services to a company and receive payment from that company in excess of $600 per year.
When a non-employee contractor provides services, invoices, and gets paid, the client is required to provide an informational return to the IRS.
Independent contracts are also required to self-report their income for tax purposes and with the use of W9 forms, the IRS can track how much an independent contractor would have received.
However, using W9 forms is not just for independent contractors who receive payment.
There are many other situations where a W9 form may be required such as to cancel debt, to deal with a financial institution, to get a loan, or in the context of a business transaction.
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Who Uses W9 Forms
The IRS requires that a person or entity receiving an income or part of a transaction provide its Taxpayer Identification Number to the person or entity who is required to file an information return to the IRS to report the monies paid.
Generally, individuals or entities that receive an income from another company, are part of a real estate transaction, receive mortgage interest, acquire or abandon secured property, cancel debt, or make contributions to the IRS will need to use a W9 form.
Individuals that work for companies as employees will generally have their employers withhold the necessary sums of money from their payroll and they receive a W2 at the end of the year.
However, independent contracts are required to pay their share of Social Security and Medicare taxes.
As a result, independent contracts, self-employed individuals, freelancers, and entities that provide services to another will need to complete a W9 form allowing the paying party to satisfy its informational report obligations to the IRS.
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What Does W9 Tax Form Include
The W9 tax form is a simple form that is generally simple to complete.
In Section 1, you are required to indicate your name.
In section 2, you provide your business name if it’s different than the name you put in Section 1.
Section 3, you need to check the box that applies to you indicating the type of business structure you operate, such as sole proprietorship, single-member LLC, C Corporation, S Corporation, Partnership, Trust, Estate, Limited liability company, or other.
In Section 5, you’ll need to put your address.
In section 6, you should put your City, State, and ZIP code.
Section 7, you will need to put the list of your account numbers, but this is optional.
For example, if you are offering the W9 form to a bank, you may want to include your account number there.
In Part I, you will need to enter your Taxpayer Identification Number (TIN) or Social Security Number for individuals.
In Part II, the statement that you are required to certify is outlined, such as your TIN is correct, you are not subject to backup withholding, you are a US citizen or US person, and your FATCA code, if any is given, is correct.
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W9 Form Noncompliance Penalties
Individuals and entities that are required to complete a W9 tax form can face important penalties if they fail to respect their obligations.
The IRS indicates that failure to furnish your correct TIN to a requester can result in a penalty of $50 for every failure, unless the failure was not due to willful neglect or the failure was due to a reasonable cause.
In addition to that, you can be exposed to civil penalties if the information you provide is false and without any reasonable basis.
The civil penalty can go up to a $500 fine.
Things get more serious if you are found to falsify the information given.
In the case of information falsification or false affirmations, you can be subject to criminal penalties and, in worst cases, imprisonment.
The IRS also indicates that if the requester discloses or uses the TIN in violation of federal law, the requester may be subject to civil and criminal penalties as well.
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Takeaways
So there you have it folks!
What is a W9 tax form?
In a nutshell, the W9 tax form is commonly used if you act as an independent contract, freelancer, or work as a self-employed person and you get paid by the client.
In that case, the paying party will request that you complete a W9 form so they can adequately complete their 1099 form and report the payments made to you to the IRS.
The W9 form provides the information the client or vendor needs to report the amounts paid to you to the IRS.
Typically, the company or client paying an independent contractor is responsible to ask the contractor to complete a W9 form so they can respect their informational obligation to the IRS.
In essence, by completing the W9 form, you are confirming your Taxpayer Identification Number, you are indicating that you are not subject to back withholding, and you are a US person or entity.
Now that you know what the W9 tax form is all about and why it’s important, good luck with your research!
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