W-9s - Why you Shouldn't be Cutting Corners on this Critical Form
Written By Marin Thompson | Client Services Coordinator, BEC CFO & CPA
What is a W-9 Form and Why Do They Matter?
A W-9 form is a document issued by the United States Internal Revenue Service (IRS) for certain tax purposes. It's officially known as the "Request for Taxpayer Identification Number and Certification" form.
This form is used when a person or entity, like a business, needs to request the taxpayer identification number (TIN) of a third party. These third parties can be contractors, freelancers, or a corporation. The information provided on the form includes the third party's name, address, and taxpayer identification number.
The W-9 form doesn't get sent to the IRS. Instead, the information is used to fill out other documents, such as 1099-NEC forms, which are used to report the amounts paid to contractors or other non-employees. This information helps the IRS track the contractor's income and ensures they are paying the correct amount of taxes.
W-9 forms are crucial for business owners for several reasons:
1. **Tax Reporting**: The primary reason is for tax reporting purposes. A W-9 form provides the business with the correct taxpayer identification number (TIN) of the vendor, which is necessary when the business files its income tax return. If the business pays the vendor $600 or more during the tax year, it must report these payments to the IRS using a 1099 form. The information on the W-9 is used to complete the 1099.
2. **Backup Withholding**: If a vendor fails to provide a TIN, the business may be required to withhold a portion of the payment to the vendor and send it to the IRS. This is known as backup withholding. Having a completed W-9 helps avoid this situation.
3. **Vendor Verification**: W-9 forms also help businesses verify their vendors. The form requires the vendor to certify that the TIN provided is correct and that the vendor is not subject to backup withholding. This can help protect the business from potential tax fraud.
4. **Legal Requirement**: Lastly, it's a legal requirement. The IRS requires businesses to obtain a completed W-9 form from each vendor they do business with. Failure to do so can result in penalties.
In summary, W-9s are important for 1099s because they provide the essential information needed to accurately report payments to contractors and other non-employees. Incorrect or missing information could not only lead to penalties from the IRS but could also put your business deductions at risk. If your business were to be audited and they found you failed to file 1099’s or a 1099, that unreported amount can be disallowed and added to the business’s taxable income. Make sure you are collecting W-9 forms throughout the year as you work with, and pay vendors, so when 1099s are due at the end of January, you are ready for filing.
5 Tips from the BEC Team for Collecting W-9 Forms:
1. Prior to issuing a check to the vendor for completed work, make sure you have an accurate, up to date and properly filled out W-9. This includes a signature and current address for mailing the 1099 if it cannot be sent electronically.
2. Store all W-9 forms in one place that you can share with your accountant at the end of the year.
3. Track all vendors that have not provided a W-9 until you are able to collect the W-9.
4. Gather email addresses with W-9s as 1099s are remitted to the vendor electronically, when possible.
5. If the W-9 is for an individual but they were paid as a business, make sure the business name is notated in relation to the individual, so tracking is easier.