What is a w9 form?
The most common question “what are w9 forms ? ” has a very simple answer. The form is used for collecting basic information about every freelancer or contractor or self-employed person’ who gave you any kind of service exceeding the value of $600.This is a form for IRS and payers who are under a legal obligation to file certain information,request for taxpayer identification number and Certification on the W9 form.
Information that triggers the use of W9
- Form 1099-DIV (dividends, including those from stocks or mutual funds)
- Form 1099-MISC (various types of income, prizes, awards, or gross proceeds)
- Form 1099-B (stock or mutual fund sales and certain other transactions by brokers)
- Form 1099-S (proceeds from real estate transactions)
- Form 1099-K (merchant card and third party network transactions)
- Form 1098 (home mortgage interest), 1098-E (student loan interest), 1098-T (tuition)
- Form 1099-C (cancelled debt)
- Form 1099-A (acquisition or abandonment of secured property)
The information collected through W9 is the basis for filling information returns, such as 1099s and 1098s.
1. Who needs to fill out a w9 form?
In following situations , IRS requires information reports from party engaged in following types of transaction with you. They are under an obligation to not only file information reports containing the correct Taxpayer Identification Number (TIN) of the person who is paid or transacted with, but also make correct withholding tax .
- Any amount paid to an independent contractor like
- Graphic designers
- Repair persons
- Private investigators
- Real estate transactions.
- Mortgage interest you paid.
- Acquisition or abandonment of secured property.
- Cancellation of debt.
- Contributions you made to an IRA
So, they will ask you and it is your obligation to fill W9 and give to the payer. The payer is only responsible for requesting the W-9 form from you and once you submit it to it, they are supposed to keep the form w9 on file, and use the same to prepare information returns, such as 1099s and 1098s, and determine whether federal tax withholding is necessary on the payments you receive.
2. How does a w9 form affect my taxes?
You should think that the purpose of W9 is identification of payee by IRS. It means when you filed W9 , the database of IRS is filled with information about your income. The computerised system of IRS will match your tax return with the information it has , based on the various information returns filed by payer where in you are identified vide your W9 form. Any discrepancies in your tax return and reported income will be caught by IRS . Some of then may also be selected for IRS audit to check the discrepancies.
3. How to fill out w9?
IRS provides printable W 9 forms on its website and also the fillable w 9 form pdf format from IRS website that you can fill directly.A W-9 form has two parts. Part I is identification data about the payee. Part II is the certification or signature.Since the purpose of form w9 identification of person getting payments, IRS has put a very simple form for garnering the basic identification of payee or the person who are claiming exemption from withholding tax. The minimum details that is required on a W-9 form, are as under :
- Name as per income tax return.
- The name of the contractor’s business, if it differs from the contractor’s name.
- Details about business type-partnership, sole proprietorship, corporation, limited liability company, etc..
- The address.
- The taxpayer identification number (TIN) or Social Security number.
4. Is a new W 9 required each year?
First of all ,filling of Forms W-9 is not an annual affair as it does not expire. As per IRS rule, Forms W-9 are collected from vendors who have appeared for the first time in three calendar years on an IRS “B Notice” list (see Pub. 1281) or on an IRS proposed penalty notice (see Pub. 1586), or when the vendor tells you information has changed
5. How to submit Form W-9?
W-9 forms can be filed in any of the three ways :
- Give it to the requester by hand in person .
- Email form W9 after encrypting it for security to the requester.
- Send it through courier service such as FedEx, UPS, or the postal service.
6. Which number EIN or SSN should I enter on W9?
- Sole proprietor- enter either one.
- Business as an LLC – use the EIN of LLC.
- Business as a single member LLC-enter Your SSN or EIN and not the entity’s EIN
7.What if I refuse to fill out Form W-9?
As per IRS rules, you will be subjected to a very high percentage of withholding tax in case you refuse or do not submit the form w-9 to the requester. Since , the entity will have more responsibilities on account of the non-submission of W9 by you, you may not be given further business opportunity.
What if I file an erroneous W9?
If you fill the W9 correctly, there is no adverse effect. But, if you filed a W9 form with an erroneous identification number or without TIN or SSN, immediate consequences will be backup withholding tax on the payments made to you. The tax rate under backup withholding is substantial at 28 per cent of all amounts payable to you. That much money will go to IRS in case of non-submission or error in identification number in w9.
8.When is a w9 not required?
In general, W-9s are required only for business-to-business relationships where more than $600 is paid in the calendar year.If you spend for personal purpose , say for example in store , the store keeper will not request your SSN or TIN in a form W9 .
W9 not required for exempt persons or entities
W9 is also not required to be filed by a person who is exempt from a W9 obligation. Following types of payee are exempt from W9 filing
- Any IRA, an organization exempt from tax per section 501(a), or a custodial account per section 403(b)(7) if said account meets the criteria of section 401(f)(2)
- Financial institution
- The U.S. government or its associated third parties
- A real estate investment trust
- The District of Columbia, a U.S. state, a U.S. commonwealth or possession, or any of their subdivisions and third-party authorities acting on their behalf
- An overseas government or its acting authorities and subdivisions
- A dealer of commodities or securities that is required to be registered in the U.S., a U.S. commonwealth, or the District of Columbia
- Commodity Futures Trading Commission registered futures commission merchants
- An organization that is registered under the Investment Company Act of 1940 throughout the entirety of the tax year
- A trust fund per section 584(a)
- A custodian or nominee investment middleman
- A trust that is given exemption from tax per section 664 or section 4947
- Nonprofit LLCs (subject to certain qualifying criteria)
9.How to send a w9 by email?
First of all, It’s not safe to send W9 by email because it is basically a document with your identity data . This document is meant for IRS alone through the client (requester ). Sending by mail , these days , is wild and very unsecured way of sending an important document .This may lead to identity theft which is increasing by leaps and bounds . So , if you must send it be mail , use a service that encrypt data .
10.Form W9 & Phishing Scam
Laxity in dealing with W9 or casual attitude to send the W9 in an insecure way may pose a serious threat of Identity theft. So, a bad person may use your personal information like your SSN without your permission, to commit fraud or get a job by quoting your SSN or may file even a tax return using your SSN to receive a refund. Therefore, you should be alert in handing over the W9 to the only person who is supposed to get.
While giving a true and correctly filled W-9 is an obligation on your part, you must confirm if the request for form w-9 is not from shady person or entities. That will protect you from identity theft and other phishing scams.For example , beware of following kinds of requests
- an email declaring you as winner of a contest. Do you recall participating in any contest like that ? Do not respond if you don’t recall it .
- An email from the IRS regarding W-9 because the IRS doesn’t initiate contact with taxpayers via email.