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Whether they know it or not, most U.S. taxpayers will fill out Form W-9 during their lifetime.
Form W-9 is used by people or businesses to request tax information from other people or businesses who receive income from the requestor. The requester uses information on the W-9 to file a 1099 for the income recipient at the end of the year.
It’s important to provide an accurate and complete W-9 because it will impact how the requestor reports your income to the IRS. Reporting incorrect information on the W-9 could result in negative financial consequences–such as backup withholding, penalties, & interest–in addition to time lost in dealing with the IRS.
No one wants any of that so it’s important to provide a correct W-9.
The problem, though, is that the W-9’s instructions can be difficult to understand if you don’t have a tax background. To solve that problem I’ve written this simple but comprehensive walkthrough of Form W-9 for U.S. taxpayers.
Hopefully it answers your questions but otherwise please don’t hesitate to get in touch.
What is Form W-9?
Form W-9, officially known as the "Request for Taxpayer Identification Number and Certification," is a tax document used in the United States. It's a form provided by the Internal Revenue Service (IRS) for individuals or entities to provide their Taxpayer Identification Number (TIN). Businesses and financial institutions often request this form from people who are getting paid for services or from whom they need to report certain types of income.
Why am I being asked to fill out Form W-9?
You might be asked for Form W-9 if you're an independent contractor, a freelancer, or if you're involved in certain financial transactions. Companies and institutions need this form to correctly report how much they pay you, as this information is essential for your tax records and theirs.
Filling out Form W-9: line-by-line walkthrough
Form W-9, Line 1
Enter your name as shown on your tax return.
* A sole proprietor is an individual who owns an unincorporated business. Unincorporated means that you have not filed legal paperwork to form an LLC, corporation, or other legal business entity.
** A single-member LLC is an LLC that has only one owner. For federal tax purposes, a single-member LLC is called a “disregarded entity” because the LLC’s income should be reported on the owner’s personal tax return.
Form W-9, Line 2 - Trade Name
If the business name differs from the name in Line 1, put it here. For example, write the name of your single-member LLC or “DBA” on this line.
Form W-9, Line 3 - Tax Classification
Select the federal tax classification of the person or entity on Line 1. Check only one box.
Here’s how to determine the correct tax classification.
Limited Liability Company (“LLCs”) - Tax Classifications
LLCs should also check a tax classification box.
* If you’re the only owner of the LLC, do not check the “Limited liability Company” box. Instead, check the “Individual/sole proprietor or single-member LLC” box.
Form W-9, Line 4 - Exemptions
Individuals, sole proprietors, and partnerships aren’t exempt from backup withholding (even if they’re not subject to backup withholding) so they should leave this line blank.
Corporations are exempt from backup withholding for certain types of payments. Corporations typically would enter code 5 into the backup withholding checkbox on line 4 unless another code applies. Corporations should review the exemption list on the W-9 instructions to confirm.
You can leave the FATCA checkbox blank if all of your financial accounts are held in the United States. Otherwise, consult with the W-9 requester if you’re unsure whether a FATCA reporting exemption applies.
Form W-9, Line 5 - Address
Write your mailing address. The person or company who asked you to complete Form W-9 will mail your 1099s or other informational returns to this address, unless you consent to electronic delivery.
Form W-9, Line 6
Write your city, state, and ZIP code.
Form W-9, Line 7
Optionally, write the account numbers or other identifying information that you have on file with the person or company requesting Form W-9.
Form W-9, Part I
Provide your TIN, which is usually your Social Security Number (“SSN”) or Employer Identification Number (“EIN”). Resident aliens may need to apply for an “ITIN.”
* A sole proprietor is an individual who owns an unincorporated business. Unincorporated means that you have not filed legal paperwork with the state to form an LLC, corporation, or other legal business entity.
** Do not provide the EIN of your single-member LLC. Since the LLC’s income should be reported on your personal tax return, provide your SSN or EIN on Form W-9 even if the LLC has its own EIN.
Form W-9, Part II
Sign and date the W-9. By signing, you certify the following statements:
- You’re a U.S. person (see below);
- You’re not subject to backup withholding (see below);
- You’re exempt from FATCA reporting (see below);
- The TIN and other information you provided is correct.
It’s crucial to review the W-9 before signing it. Penalties, both civil and criminal, might apply if any of the statements are untrue and you sign the Form W-9. Double check the info you provided to make sure it’s correct.
What does “United States person” mean?
For federal tax purposes a “United States person” is:
- A citizen or resident of the U.S.;
- A business formed in the U.S.; or
- A U.S. trust or estate;
A U.S. citizen is someone who was born in the U.S., whose parents are U.S. citizens, or became a naturalized U.S. citizen.
A U.S. resident is a person who maintained a “substantial presence” in the U.S. or possessed a Green Card during the tax year.
U.S. citizens and residents may be required to file a tax return (Form 1040) depending on their income for the year. Refer to IRS Publication 519 for more information on taxes for resident aliens.
A business formed in the U.S. is either a partnership or corporation for tax purposes.
A U.S. corporation is any business entity formed under federal or state law, excluding limited liability companies. Corporations must file an annual tax return.
If it’s not a corporation, a business that has two or more owners (including limited liability companies) will be classified as a partnership unless the owners have elected to be taxed as a C corporation or S corporation. Similar to corporations, a partnership must also file an annual tax return.
The definition of what constitutes a U.S. partnership can be less cut and dry since partnerships are often informal arrangements between business partners. Even so, a non-corporate business entity that has two or more owners will generally be a U.S. partnership if it receives income “effectively connected” with the conduct of a trade or business in the U.S and it’s not a corporation for tax purposes.
A limited liability company having a single-member may elect to be taxed as a S or C corporation. In the absence of an election the single-member LLC will be “disregarded” for tax purposes. As a disregarded entity, the LLC will report its income on the business owner’s tax return and will assume the status of its owner as a U.S. or foreign person.
What is backup withholding on Form W-9?
Backup withholding is a 24% tax deduction from certain types of income payments. You become subject to backup withholding when either the IRS or income payer notifies you that you’re subject to it. At that point the payer will begin deducting 24% of your income payments and sending it to the IRS as a tax payment.
You become subject to backup withholding when you:
- Didn’t provide a W-9 to the payer;
- Didn’t sign Part II of W-9;
- Provided an inaccurate W-9;
- Didn’t report interest and dividends on your tax return.
Since the payer uses the W-9 to report the income to the IRS, by not providing an accurate W-9 (or no W-9 at all) the income would go unreported. Backup withholding is how the IRS ensures that taxes get paid on the incomoe by shifting responsibility from the payee to the payer when a taxpayer provides an inaccurate W-9.
In Part II of Form W-9 you must certify that you’re not subject to backup withholding for one of the following reasons:
- You’re exempt from backup withholding;
- You haven’t been notified by the IRS that you’re subject to backup withholding; OR
- The IRS has notified you that you are no longer subject to backup withholding.
Most individuals and sole proprietors aren’t exempt from backup withholding, so they would need to certify under the second or third statements.
If you’ve never been notified by the IRS that you’re subject to backup withholding, you can certify under the second statement.
You might be subject to backup withholding if, in the past, you didn’t report interest and dividend income on your tax return and the IRS sent a letter notifying you that you’re subject to backup withholding. If that’s the case, don’t sign Form W-9 until you’ve received a subsequent letter confirming that you’re no longer subject to backup withholding.
Backup withholding can also kick in if you don’t provide a W-9 to the payer or provided an incorrect W-9 in the past. In that case, the payer will automatically implement backup withholding until you provide an updated W-9.
What is FATCA reporting for?
The Foreign Account Tax Compliance Act (“FATCA”) requires financial institutions to report foreign assets held by U.S. taxpayers to the IRS. Taxpayers may also need to report the foreign assets on their tax return using Form 8938.
The W-9 requester may indicate whether FATCA reporting applies, in which case you can provide a FATCA code on Line 4 of Form W-9 to indicate that you’re exempt from FATCA reporting.
If FATCA reporting applies, most taxpayers wouldn’t be exempt from FATCA reporting and wouldn’t select an exemption code. Even so, if FATCA reporting applies to you, you should review the list of FATCA exemption codes in the Form W-9 instructions.
FAQs
What happens if I don't fill out Form W-9?
If you don't provide a completed Form W-9 when requested, you might face backup withholding on your payments. This means the payer will withhold a part of your earnings for taxes, reducing the amount you receive upfront.
The IRS may also assess penalties:
- “Failure to furnish TIN” - $50 for not providing the correct TIN unless you have reasonable cause.
- “Civil penalty for false information with respect to withholding” - $500 if you make false statements that result in no backup withholding.
- “Criminal penalty for falsifying information” - More generally, making false certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.
My business is a single-member LLC. Do I need to provide my SSN or the LLC’s EIN on Form W-9?
If you're the sole owner of an LLC, you can use either your SSN or your EIN as a sole proprietor. Do not provide the LLC’s EIN. As a disregarded entity, the LLC’s income must be reported on your tax return.
I don't have an EIN or SSN. What do I put on Form W-9?
Generally, you need to have a SSN or EIN to fill out Form W-9. If you don't have one, you might need to apply for one through the IRS. If you are a resident alien and you do not have and are not eligible to get an SSN, your TIN is your IRS individual taxpayer identification number (ITIN)
I'm not a U.S. resident. Do I need to fill out Form W-9?
Non-U.S. residents usually do not fill out Form W-9. Instead, they might be required to complete Form W-8BEN or another relevant form for non-residents.
What if the LLC is owned by another single-member LLC?
Provide the name of the first entity that is not a disregarded entity.
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