In every country, paying taxes is constitutional to serve in various government-mandated programs that benefit the government, businesses, and employees.
It is the reason why the first step in starting a job, as part of the mandatory requirement, is to provide a taxpayer identification number (TIN).
It is a unique number that the employers and other government transactions will require to assess proper intervention and reflect your deductions or tax payments properly, based on your income-generating engagements.
As part of the Internal Revenue Service (IRS) forms under the United States federal government, the Form w-9 is designed to help workers request tax identification and other information.
Let us define and explore the purpose of the said form as we go along in this article.
What is Form W-9?
The W-9 form, or the request for taxpayer identification number and certification, is part of the IRS forms intended to verify a person’s name, home address, and unique taxpayer identification number.
The confirmation request is conducted by either a person identified as a U.S. citizen or those recognized as resident aliens in the country.
The information collected on the form w-9 is often utilized to accomplish a 1099 tax form, which is also required for actions relative to income tax filing.
When to accomplish form w-9
The form must be accomplished by an individual who will furnish a copy to a requesting party that may provide a particular payment.
In most cases, form W-9 is accomplished by an individual who performs duties for another party, who is typically not employed. It comprises freelancers or part-time employees on a non-employment agreement.
There are instances where a W-9 is requested as part of the requirement for setting up a new account. It is more common for a bank or financial institution to provide interest and dividend payments, which will be reflected in 1099-INT or the Interest income form.
Winners of the contest or other sorts of competition are also required to accomplish w-9 due to the tax calculations that may be incurred on the prize value and for IRS reporting.
Different uses of form w-9
The use of form w-9 is mainly to gather information from an individual. In cases where the company pays a non-employee or an entity more than $600 in a year for service rendered, a return filing is necessary.
While other information included in Form W-9 is accessible online, the protection of the company as the requesting party is also imposed. It requires the other party to complete a form that includes a signature, which certifies the following:
- The tax identification number (TIN) is correct
- The other party is not subjected to backup withholding
- The other party requests backup withholding exemptions
- Foreign Account Tax Compliance Act (FATCA) code used by the vendor (with the vendor’s exemption status)
Companies use all available details on the form w-9, specifically the Social Security Number or tax identification number, name, and address that the other party provided to complete the return information.
The sender or the recipient may forward a copy to the IRS. However, the company that requested the tax information is responsible for properly securing the copies of the form.
It is also needed in accomplishing forms 1098 and 1099 for mortgage interest payments, real estate transaction proceeds, student loans, and clearance of certain types of debt.
It is no wonder why many companies are now working with Software-as-a-Service (SaaS) providers to ensure sound collection and filing of forms to the IRS. Automating its process will promote timely and systematic ways of filing.
Key takeaways in filing form w-9
To easily understand more the purpose and uses of form w-9, here are some of the key takeaways that can guide you:
- Form w-9 is provided to correctly obtain taxpayer information to help with the reporting requirements of the IRS.
- Form w-9 is essential for independent contractors as they deal with companies they are rendering services with, although other purposes depend on the case or relationship of the two parties.
- The form allows a taxpayer to provide details accurately, including their full name, location, tax classification, and requirements for withholding.
- The form must be signed, and the signing taxpayer is subject to civil or other criminal penalties for willful non-compliance.
- The form has a legal provision subjecting taxpayers to civil and other criminal penalties for non-compliance and failure to provide accurate information. It also requires the signature of the taxpayer.
- Considering the sensitivity and privacy of the taxpayer, both parties should take safety measures in keeping, reproducing, and sending the form.
Tax professionals are sometimes hired or outsourced from different countries to ensure that the process and documentation receive proper focus and attention.
Effects of not complying with Form W-9
Refusing to cooperate with a request for form w-9 may result in a company computing a withholding tax based on a 24% rate from your pay of the taxpayer.
Companies have the responsibility and obligation from the IRS to secure fully accomplished form w-9 of all its employees or other entities, and failure to attend may result in penalties.
But if you observe that the person or representative asking for it has no official business and is not considered credible, refusal to comply is a good idea. It is imperative to ask for assistance or guidance from any tax professional.
On the other hand, there are also reported cases where phishing scams are using form w-9 as an instrument to perform crimes. Always check the reliability of the sender, and if possible, conduct background checks or make a call via phone to verify if the request is valid.
W-9 forms are requested for various situations and purposes, often associated with freelancers or independent contractors. Accomplishing it with utmost accuracy is necessary to avoid penalties and other problems.