IRS Proposes NEW 1099-NEC form PLUS best practices for managing W-9 forms.

I recently had the pleasure of joining Debra Richardson on her weekly podcast to discuss the new proposed Form 1099-NEC form and best practices for managing the W-9/1099 form process. The IRS is looking to bring back Form 1099-NEC, last seen in 1982! They are looking to see nonemployee compensation payments reported separately on Form 1099-NEC and no longer in box 7 on Form 1099-MISC. Join us as we discuss the potential consequences of this change and how companies should be prepared.

We also talk about the best practices for managing the Form W-9/1099 process using W9manager. The goal at W9manager is to help companies complete their process each year before the season even starts. We all have better things to do in January! I encourage you to make your commute productive and learn while you drive!

Debra Richardson is an expert on managing the accounts payable process efficiently and securely. If you need expert advice in the payables area or just want to learn more, visit her site at www.debrarrichardson.com.

Does a W-9 form have to be signed?

Most companies ask for all W-9 forms to be signed.  However, it is a relatively unknown fact that the IRS does not require most W-9 forms to be signed (or certified.)  The certification instructions on the W-9 form state that generally for “payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN.”   As most companies outside of the financial sector don’t deal with financial transactions, they can reduce the time and effort of obtaining W-9 forms by not requiring a signature.

W-9 forms required to be signed by the IRS

There are three areas where a W-9 form needs to be signed.  Most of these do not relate to payments reported on a 1099-MISC.

Financial transactions

W-9 forms related to the following financial transactions are required to be signed. Interest accounts - bank interest (1099-INT) Dividend accounts (1099-DIV) Barter exchange accounts (1099-B) Broker accounts (1099-B) Original issue discounts (1099-OID) Patronage dividends (1099-PATR) Real estate transactions (1099-S)

"B" notice

The IRS also requires that a signed W-9 form is obtained when a company receives the first “B" notice from the IRS.  A “B Notice” (CP2100/A) is sent by the IRS when the name and the TIN number on a 1099 form issued by a company to a vendor do not match the IRS files or the files of the Social Security Administration.   Companies are then required to obtain a new W-9 form from their vendor and the new W-9 form must be signed.  If a company has not received any of these notices, this signature requirement is not applicable.

FATCA payments

U.S. companies that make payments subject to FATCA rules that are paid to a foreign corporation, insurance company, bank or other related foreign financial institution could be required by the IRS to withhold 30% of the gross payment.  However, this withholding requirement can be avoided if the company receives a signed W-9 form.  By signing the W-9 the signer certifies under the penalty of perjury that they are “a U.S. citizen or other U.S. person.”  This W-9 certification tells the company that FATCA does not apply and the payment is subject to the standard 1099 guidelines.  Note that this applies to payments made in the course of a trade or business. If no documentation is obtained from the vendor, the U.S. company will be required to apply the FATCA presumption rules.   These rules require the company to assume that the vendor is a foreign individual or company and withhold 30%. What is a FATCA payment? FATCA payments are typically financial transactions such as loan interest, stock dividends, financial services fees, annuity payments, and life insurance premiums.  They also include gross proceeds from the sale or other disposition of any property of a type that can produce U.S. source interest or dividends.  The payment is typically made to a foreign corporation, insurance company, bank or other related foreign financial institution.  For additional information visit the IRS's FATCA page.

W9manager

At the start of creating every W-9 form, W9manager asks the question “Is the named individual or entity on this Form W-9 a U.S. citizen or a U.S. person?”  A user can only continue creating a W-9 form if they answer “Yes” to this question.  This adds an additional level of assurance that the person or entity creating the W-9 form using W9manager is a US person.

Best practice

W9manager recommends that companies request an unsigned W-9 unless there is a specific requirement for a signature.  This practice will greatly help speed up the W-9 collection process as anyone in the vendor’s accounting department can complete the W-9 request.   Otherwise, there may be a delay while the accounting department works to get an authorized person to sign the form.  Create and send your own W-9 form using W9manager today!  It’s always free.

Additional references

Listed below are some additional technical reference related to W-9 form signature requirements.

Form W-9 Instructions, Part II. Certification

The instructions for Form W-9 include a specific section related to the signature (certification) requirements. To establish to the withholding agent that you are a U.S. person, or resident alien, sign Form W-9. You may be requested to sign by the withholding agent even if item 1, 4, or 5 below indicates otherwise. For a joint account, only the person whose TIN is shown in Part I should sign (when required). In the case of a disregarded entity, the person identified on line 1 must sign. Exempt payees, see Exempt payee code, earlier.

Signature requirements.

Complete the certification as indicated in items 1 through 5 below.
  1. Interest, dividend, and barter exchange accounts opened before 1984 and broker accounts considered active during 1983. You must give your correct TIN, but you do not have to sign the certification.
  2. Interest, dividend, broker, and barter exchange accounts opened after 1983 and broker accounts considered inactive during 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form.
  3. Real estate transactions. You must sign the certification. You may cross out item 2 of the certification.
  4. Other payments. You must give your correct TIN, but you do not have to sign the certification unless you have been notified that you have previously given an incorrect TIN. “Other payments” include payments made in the course of the requester’s trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services, payments made in settlement of payment card and third party network transactions, payments to certain fishing boat crew members and fishermen, and gross proceeds paid to attorneys (including payments to corporations).
  5. Mortgage interest paid by you, acquisition or abandonment of secured property, cancellation of debt, qualified tuition program payments (under section 529), ABLE accounts (under section 529A), IRA, Coverdell ESA, Archer MSA or HSA contributions or distributions, and pension distributions. You must give your correct TIN, but you do not have to sign the certification.

Form W-9 Form, Certification Instructions

The certification instructions detailed on Form W-9 state that “For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN.”

Instructions for the Requester of Form W-9, Electronic System

The Instructions for an electronic system state “For Forms W-9 that are not required to be signed, the electronic system need not provide for an electronic signature or a perjury statement.”

Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s)

The IRS notes under the First “B” Notice section, page 12, that “it is your responsibility to send the appropriate “B” Notice to the payee, when required, to obtain the correct Name/TIN. This information may not be solicited by telephone. You need a TIN that the payee certifies as correct on Form W-9 in order to stop current backup withholding or prevent backup withholding from starting.”

FATCA Presumption Rules

The Instructions for the Requester of Forms W-8 includes a section that explains the IRS presumption rules.  These rules state that “if you do not receive a valid Form W-8 or Form W-9 that you may rely upon under the due diligence requirements, or cannot otherwise determine whether a payment should be treated as made to a U.S. or foreign person, you must apply the presumption rules provided in the Regulations under sections 1441, 1446, 1471, 6045, and 6049. If the presumption rules are applied to treat a person as a foreign person, the 30% withholding rate applies and cannot be reduced (for example, no treaty rate). You may not rely on the presumption rules if you have actual knowledge that a higher withholding rate is applicable. If you determine that you are making a withholdable payment to an entity and cannot reliably associate the payment with a Form W-8 or other permitted documentation that is valid for chapter 4 purposes, you are required to treat the entity payee as a nonparticipating FFI.” Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. This article is also not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Top 5 mistakes made on W-9 forms

I’ve been a CPA for over 20 years now and have seen mistakes on W-9 forms every one of those years.  It seems like a simple form at first glance, but the W-9 form itself has 6 pages of instructions with almost 6,000 words.  Behind those condensed instructions on the W-9 form is a massive set of IRS tax code regulations.  Helping vendors and independent contractors create a correct and complete W-9 form is one of the reasons we started W9manager.

#5 - The name on line 1 of the W-9 form is blank

At times vendors can become confused between the names on line 1 and line 2.  They can mistakenly fill in only the business name on line 2 and leave line 1 blank.  Line 1 is the legal name that the business or individual uses on their federal tax return and is required by the IRS.  It is imperative that the name on Line 1 and the taxpayer identification number (typically an EIN or SSN) given on the W-9 form match to the IRS’s records. This will ensure that the IRS can apply any 1099 information received to the correct taxpayer account.  If they don’t match, the IRS won’t have confidence in the information provided and will send an error notice back to the reporting company.  This could lead to a 24% deduction in the vendor’s payment moving forward to satisfy IRS backup withholding requirements. When using our guided form in W9manager, the user is required to complete line 1.  It is a required field and the user cannot continue to the next section until complete.

#4 - The W-9 form is not signed

Not all W-9 forms are required to be signed, but the best practice is to require that all vendors sign them unless the company understands all the situations in which a signature is required.  Vendors send in W-9s that aren’t signed and the accounting department at the company receiving the W-9 doesn’t always check for this. When using our guided process in W9manager, a signature can be required when a W-9 form is sent to your vendor. As an added benefit, one user can complete the W-9 form and then send it to another user to sign.

#3 - The tax classification is not checked

Another mistake we see is a W-9 form without any tax classification checked. Line 3 of the form requires that the person completing the form check the appropriate box for the federal tax classification of the entity or person noted on line 1. This helps the company making the payment to the vendor (the payee) to determine if the payment is reportable on a 1099 form. Without this information, the payee will have to assume a 1099 is required for all reportable payment made to the vendor. They won’t be able to exclude entities that are often exempt from receiving 1099s. The first step users must do when creating a W-9 form in W9manager is to select their tax classification. They are not able to move to the next step without selecting a valid option.

#2 - Disregarded entity used on line 1 of the W-9 form

One of the most misunderstood concepts of the W-9 form is a disregarded entity. And consequently, because companies don’t understand this concept, listing the disregarded entity on line 1 is one of the biggest mistakes made on W-9 forms. When the disregarded entity name and TIN is then reported on a 1099 it can lead to the reporting company receiving a large number of CP2100 notices from the IRS.  These notices require the company to request a new corrected W-9 form from their vendor or start backup withholding 24% on the vendor's future payments. A disregarded entity is an entity that the IRS “disregards” for tax purposes or completely ignores. The IRS looks to the owner of the entity and all the tax liability flows to the owner of the entity. The best example is an LLC that is owned by one individual. The IRS “disregards” the LLC and requires that the individual owner’s information be provided on the W-9 form. For more information on disregarded entities, see our blog article, What is a Disregarded Entity? When completing a W-9 on W9manager users work through a multistep process to determine if they are a single-member LLC.  If they determine that this is the case, W9manager directs them to use the owner of the LLC on the W-9 form.  This process helps to reduce the number of disregarded entities listed on line 1.

W-9 form mistake #1 - The type of limited liability company is not provided

The number one mistake we have seen vendors make on a W-9 forms is forgetting to include the type of LLC. This is critical as it determines whether the LLC can be treated like a C or S corporation for 1099 reporting purposes. Most payments made to C or S corporations are not required to be reported to the IRS on a 1099.   However, payments made to LLCs that are partnerships or owned by an individual person are often reported. One of the steps that users are guided through when completing a W-9 on W9manager is to select the type of LLC that they have. We ask them if they have filled out Form 2253 or 8832 with the IRS to be taxed as an S Corp or C Corp. If they select one of these options, we note their LLC tax classification as S or C respectively. If they have not filed either form, we then ask them if they are a single or multi-member LLC.  Multi-member LLCs are treated as a partnership and single-member LLCs are asked to use the owner’s information.

Additional References

For additional help, see the 2019 Form W-9 and instructions.

Use W9manager’s guided process to create your W-9.  It's always free!

W9manager.comIn conclusion, we feel that all of the top 5 mistakes made on W-9 forms can be avoided when creating a W-9 form using W9manager. Use W9manager’s guided step-by-step process to help create the most correct and complete W-9 form.   It is always free to create and send your W-9 form.  W9manager is not just another blank PDF form site.  Every step of the way has contextual help buttons tailored to your specific circumstance.  The W-9 form is then electronically signed and sent securely sent to the requester. You can then store your W-9 form centrally using W9manager.  Log into your account later and send it as needed.  If you need to create multiple W-9s for more than one company or individual, W9manager allows you to create multiple companies to manage them separately.  Finally, you can also use your mobile phone to send your W-9 from anywhere, to anyone, at any time. Create and send your W-9 form with W9manager today!   Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

How to fill out a W-9 form

What is a W-9 form and why is my customer asking for it!

So one of your customers has asked you to complete a W-9 form before they can pay you.  Why do they need this form that asks for your tax classification and tax ID number!  The short answer is - the IRS.  The IRS requires companies to add up all the "reportable" payments made to vendors and independent contractors during the calendar year and report these payments to the IRS.   This requirement is similar to the way that companies have to report all wages paid to employees. These payments are typically reported to the IRS on Form 1096 and to the vendor or independent contractor on Form 1099.  The combination of your tax classification (for example - individual, corporation or LLC) and the type of payment made (for example - payments for services, attorneys fees or rent)  determines what must be reported to the IRS.  Payments for "services" to "individuals" are reportable.  However, most payments to "corporations" for "services" are not reportable.  Your social security number or employer identification number is needed to specifically identify you to the IRS. The whole process of this reporting is called "information reporting."  In essence, the IRS is requiring companies to track and then "report" payment "information" that would typically be considered income on your income tax return.  What does the IRS do with this information?  They compare the income reported on the vendor or independent contractor's income tax return against all the income reported on the 1099 and W-2 forms.  If the income reported on the tax return is less than the sum of income reported on the 1099 and W-2 forms the tax return could be flagged to review for under-reported income and consequently underpaid taxes.

Stop using your Social Security Number!

If you work as an independent contractor or sole proprietor you can use an Employer Identification Number (EIN) on your W-9 form and avoid using your Social Security number (SSN).  Apply for an instant EIN number for free at irs.gov.  Online hours for the IRS EIN service are Monday - Friday, 7am to 10pm EST.  Note that independent contractors are considered sole proprietors by the IRS and eligible for an EIN number.  It is also not necessary to have employees to obtain an EIN.

U.S. person

The W-9 form should only be completed by what the IRS calls a "U.S. person".  Some examples of U.S. persons include an individual who is a U.S. citizen or a U.S. resident alien.  Partnerships, corporations, companies, or associations created or organized in the United States or under the laws of the United States are also U.S. persons. If you are not a U.S. person you should not use this form.    You will likely need to provide Form W-8. To get started, download the latest W-9 form from the IRS website. Check the date in the top left corner of the form as it is updated occasionally by the IRS.  The current revision should read "Rev. October 2018".  Click anywhere on the form and a menu appears at the top that will allow you to either print or save the document.  If the browser you are using doesn’t allow you to type directly into the W-9 form then save the form to your desktop and reopen using Adobe Acrobat Reader.

How to fill out your W-9 form

From W-9 Main Section  Line 1 - Name:  This line should match the name on your income tax return.  This the legal name of your as an individual or as a company. Line 2 – Business name:  This line is optional and would include your business name, trade name, DBA name, or disregarded entity name if you have any of these.  You only need to complete this line if your name here is different from the name on line 1.  The purpose of line 2 is to help identify your company to your customer if the name on Line 1 is not one commonly known by your customer.  See our related blog, What is a disregarded entity? Line 3 – Federal tax classification:  Check ONE box for your U.S. federal tax classification.  This should be the tax classification of the person or entity name that is entered on line 1.  See our related blog, What is the difference between an individual and a sole proprietor? Limited Liability Company (LLC).  If the name on line 1 is an LLC treated as a partnership for U.S. federal tax purposes, check the “Limited liability company” box and enter “P” in the space provided. If the LLC has filed Form 8832 check the "Limited liability company" box and in the space provided enter "C" for C corporation.  If the LLC has filed Form 2553 to be taxed as an S corporation, check the “Limited liability company” box and in the space provided enter “S” for S corporation. If the LLC is a single-member LLC (a disregarded entity), do not check the “Limited liability company” box; instead select the tax classification of the owner of the LLC.  If the owner of the LLC is another single-member LLC select the first owner that is not a single-member LLC.  See our related blog, What tax classification should an LLC select? Other (see instructions) - This line should be used for classifications that are not listed such as nonprofits, governmental entities, etc. Line 4 - Exemptions:  If you are exempt from backup withholding enter your exempt payee code in the first space.  If you are exempt from FATCA reporting enter your exemption from FATCA reporting code in the second space.  Generally, individuals (including sole proprietors) are not exempt from backup withholding.  See the "Specific Instructions" for line 4 shown with the W-9 form for more detailed information on exemptions. Line 5 – Address:  Enter your address (number, street, and apartment or suite number). This is where the requester of the W-9 form will mail your information returns to. Line 6 – City, state and ZIP:  Enter your city, state and ZIP code. Line 7 – Account numbers:  This is an optional field to list your account number(s) with the company requesting your W-9 such as a bank, brokerage or vendor.   We recommend that you do not list any account numbers as you may have to provide additional W-9 forms for accounts you do not include. Requester's name and address:  This is an optional section you can use to record the requester's name and address you sent your W-9 to.

Third Step - Enter your TIN number

Part I - Taxpayer Identification Number (TIN):  Enter in your taxpayer identification number here.  This is typically a social security number for an individual or sole proprietor and an employer identification number for a company.   See our blog, What is a TIN number?

Forth Step - Sign your W-9 Form

Part II - Certification:  Sign and date your form.

Use W9manager’s guided process to create your W-9.  It's always free!

W9manager.comWhy go through the hassle and uncertainty of creating and sending a paper W-9 form.  Use W9manager’s guided step-by-step process to help create the most correct and complete W-9 form.   It is always free to create and send your W-9 form.  W9manager is not just another blank PDF form site.  Every step of the way has contextual help buttons tailored to your specific circumstance.  The W-9 form is then electronically signed and sent securely sent to the requester. You can then store your W-9 form centrally using W9manager.  Log into your account later and send it as needed.  If you need to create multiple W-9s for more than one company or individual, W9manager allows you to create multiple companies to manage them separately.  Finally, you can also use your mobile phone to send your W-9 from anywhere, to anyone, at any time. Create and send your W-9 form with W9manager today! Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

What is a TIN number?

A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS.

Taxpayer Identification Numbers

  • Social Security Number "SSN"
  • Employer Identification Number "EIN"
  • Individual Taxpayer Identification Number "ITIN"
  • Taxpayer Identification Number for Pending U.S. Adoptions "ATIN"
  • Preparer Taxpayer Identification Number "PTIN"

Do I Need One?

A TIN must be furnished on returns, statements, and other tax related documents. For example a number must be furnished:
  • When filing your tax returns.
  • When claiming treaty benefits.
A TIN must be on a withholding certificate if the beneficial owner is claiming any of the following:
  • Tax treaty benefits (other than for income from marketable securities)
  • Exemption for effectively connected income
  • Exemption for certain annuities

When Claiming Exemptions for Dependent or Spouse:

You generally must list on your individual income tax return the social security number (SSN) of any person for whom you claim an exemption. If your dependent or spouse does not have and is not eligible to get an SSN, you must list the ITIN instead of an SSN. You do not need an SSN or ITIN for a child who was born and died in the same tax year. Instead of an SSN or ITIN, attach a copy of the child's birth certificate and write Died on the appropriate exemption line of your tax return.

How Do I Get A TIN?

SSN

You will need to complete Form SS-5, Application for a Social Security Card (PDF). You also must submit evidence of your identity, age, and U.S. citizenship or lawful alien status. For more information please see the Social Security Administration website. Form SS-5 is also available by calling 1-800-772-1213 or visiting your local Social Security office. These services are free.

EIN

An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to identify a business entity. It is also used by estates and trusts which have income which is required to be reported on Form 1041, U.S. Income Tax Return for Estates and Trusts. Refer to Employer ID Numbers for more information. The following form is available only to employers located in Puerto Rico, Solicitud de Número de Identificación Patronal (EIN) SS-4PR (PDF).

ITIN

An ITIN, or Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number "9", formatted like an SSN (NNN-NN-NNNN). To obtain an ITIN, you must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number. The Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. You may either mail the documentation, along with the Form W-7, to the address shown in the Form W-7 Instructions, present it at IRS walk-in offices, or process your application through an Acceptance Agent authorized by the IRS. Form W-7(SP), Solicitud de Número de Identificación Personal del Contribuyente del Servicio de Impuestos Internos is available for use by Spanish speakers. Acceptance Agents are entities (colleges, financial institutions, accounting firms, etc.) who are authorized by the IRS to assist applicants in obtaining ITINs. They review the applicant's documentation and forward the completed Form W-7 to IRS for processing. NOTE: You cannot claim the earned income credit using an ITIN. Foreign persons who are individuals should apply for a social security number (SSN, if permitted) on Form SS-5 with the Social Security Administration, or should apply for an Individual Taxpayer Identification Number (ITIN) on Form W-7. Effective immediately, each ITIN applicant must now:
  • Apply using the revised Form W-7, Application for IRS Individual Taxpayer Identification Number; and
  • Attach a federal income tax return to the Form W-7.
Applicants who meet one of the exceptions to the requirement to file a tax return (see the Instructions for Form W-7) must provide documentation to support the exception. New W-7/ITIN rules were issued on December 17, 2003. For a summary of those rules, please see the new Form W-7 and its instructions. For more detailed information on ITINs, refer to:

ATIN

An Adoption Taxpayer Identification Number (ATIN) is a temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return. Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions is used to apply for an ATIN. (NOTE: Do not use Form W-7A if the child is not a U.S. citizen or resident.)

PTIN

Beginning January 1, 2011, if you are a paid tax preparer you must use a valid Preparer Tax Identification Number (PTIN) on returns you prepare. Use of the PTIN no longer is optional. If you do not have a PTIN, you must get one by using the new IRS sign-up system. Even if you have a PTIN but you received it prior to September 28, 2010, you must apply for a new or renewed PTIN by using the new system. If all your authentication information matches, you may be issued the same number. You must have a PTIN if you, for compensation, prepare all or substantially all of any federal tax return or claim for refund. If you do not want to apply for a PTIN online, use Form W-12, IRS Paid Preparer Tax Identification Number Application. The paper application will take 4-6 weeks to process. If you are a foreign preparer who is unable to get a U.S. Social Security Number, please see the instructions on New Requirements for Tax Return Preparers: Frequently Asked Questions.

Foreign Persons and IRS Employer Identification Numbers

Foreign entities that are not individuals (i.e., foreign corporations, etc.) and that are required to have a federal Employer Identification Number (EIN) in order to claim an exemption from withholding because of a tax treaty (claimed on Form W-8BEN), need to submit Form SS-4 Application for Employer Identification Number to the Internal Revenue Service in order to apply for such an EIN. Those foreign entities filing Form SS-4 for the purpose of obtaining an EIN in order to claim a tax treaty exemption and which otherwise have no requirements to file a U.S. income tax return, employment tax return, or excise tax return, should comply with the following special instructions when filling out Form SS-4. When completing line 7b of Form SS-4, the applicant should write "N/A" in the block asking for an SSN or ITIN, unless the applicant already has an SSN or ITIN. When answering question 10 on Form SS-4, the applicant should check the "other" block and write or type in immediately after it one of the following phrases as most appropriate: "For W-8BEN Purposes Only" "For Tax Treaty Purposes Only" "Required under Reg. 1.1441-1(e)(4)(viii)" "897(i) Election" If questions 11 through 17 on Form SS-4 do not apply to the applicant because he has no U.S. tax return filing requirement, such questions should be annotated "N/A". A foreign entity that completes Form SS-4 in the manner described above should be entered into IRS records as not having a filing requirement for any U.S. tax returns. However, if the foreign entity receives a letter from the IRS soliciting the filing of a U.S. tax return, the foreign entity should respond to the letter immediately by stating that it has no requirement to file any U.S. tax returns. Failure to respond to the IRS letter may result in a procedural assessment of tax by the IRS against the foreign entity. If the foreign entity later becomes liable to file a U.S. tax return, the foreign entity should not apply for a new EIN, but should instead use the EIN it was first issued on all U.S. tax returns filed thereafter. To expedite the issuance of an EIN for a foreign entity, please call (267) 941-1099. This is not a toll-free call.

References/Related Topics

What is the purpose of Form W-9?

Form W-9 is an IRS created form used by an individual or an entity, like a company, to request the taxpayer identification number (TIN) and other information from parties they have paid.  A TIN number is typically an individual’s social security number or a company’s employer identification number.  The purpose of Form W-9 is to provide the TIN number needed to complete an "information return". 

Information return

An information return, like Form 1099-MISC, is used to communicate to the IRS reportable payments made to certain parties in the normal course of business.  A common reportable payment is one in excess of $600 paid to an independent contractor.  In this case, the company would ask the independent contractor to complete and return a Form W-9.  Please note Form W-9 should only be used if you are a U.S. person (including a resident alien) or company.

Federal tax classification

Form W-9 also asks for a party's federal tax classification.  This is helpful to the W-9 requester as certain types of payments made to specific entities do not need to be reported to the IRS on an information return.  In addition, the tax classification can be used along with the exempt payee code to determine that backup withholding is not required.

Backup withholding if Form W-9 is not provided

Another purpose of Form W-9 is to help ensure that full payment is received for goods and services sold.  If Form W-9 is not provided to the individual or entity that requests it, future payments can be subject to having part of the payment withheld (known as backup withholding) and remitted directly to the IRS.  This is similar to the way federal tax is withheld from an employee paycheck.  The current backup withholding rate is 24%.  In most cases, just remitting Form W-9 to the requester eliminates any requirement for backup withholding.

IRS review

The IRS summarizes the total payments reported on information returns and compares the total amount to the income reported on the taxpayer's income tax return.  If there are discrepancies the IRS may request further information from the taxpayer or initiate an audit.

The following is listed under “Purpose of Form W-9" in the IRS Form W-9 "General Instructions" section

An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return. Examples of information returns include, but are not limited to, the following: • Form 1099-INT (interest earned or paid) • 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 (canceled debt) • Form 1099-A (acquisition or abandonment of secured property) Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN. If you do not return Form W-9 to the requester with a TIN, you might be subject to backup withholding.  See Form W-9 and instructions here.

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What names should LLCs use when completing Form W-9

In the instructions section of IRS Form W-9 there is a "Specific Instructions" paragraph that provides guidance to LLCs with more than one member.  Line 1 is mandatory.  Line 2 is optional. Line 1 You must enter one of the following on this line; do not leave this line blank. The name should match the name on your tax return.  c. Partnership, LLC that is not a single-member LLC, C Corporation, or S Corporation. Enter the entity's name as shown on the entity's tax return on line 1 and any business, trade, or DBA name on line 2. Line 2 If you have a business name, trade name, DBA name, or disregarded entity name, you may enter it on line 2. See our blog article on Disregarded Entities for more information on LLCs with only one member.  

What is a disregarded entity?

Here is the IRS definition of a disregarded entity from the "Specific Instructions" section of Form W-9: Disregarded entity. For U.S. federal tax purposes, an entity that is disregarded as an entity separate from its owner is treated as a “disregarded entity.”  See Regulations section 301.7701-2(c)(2)(iii). Enter the owner's name on line 1. The name of the entity entered on line 1 should never be a disregarded entity. The name on line 1 should be the name shown on the income tax return on which the income should be reported. For example, if a foreign LLC that is treated as a disregarded entity for U.S. federal tax purposes has a single owner that is a U.S. person, the U.S. owner's name is required to be provided on line 1. If the direct owner of the entity is also a disregarded entity, enter the first owner that is not disregarded for federal tax purposes. Enter the disregarded entity's name on line 2, “Business name/disregarded entity name.” If the owner of the disregarded entity is a foreign person, the owner must complete an appropriate Form W-8 instead of a Form W-9.  This is the case even if the foreign person has a U.S. TIN. This definition has significance for LLCs that only have one owner/member.  These entities are referred to as "single member LLCs" because they only have one member.  They are also considered a "disregarded entity" because the IRS looks past the LLC to the one owner/member for federal tax purposes.   Due to this the IRS requires the LLC to check the box "Individual/sole proprietor or single-member LLC" on the W-9. The name on line 1 should be the single owner/member's name and NOT the LLC's name.  The LLC's name would go on line 2.  The TIN number used in Part I should be the SSN or EIN number of the single member and not the LLC. One last thing to note, if the owner of a single member LLC is another single member LLC, the IRS looks past the second owner (or more) until it gets to an individual or entity that is not disregarded for tax purposes.

Are electronic W-9s legal?

Yes, electronic W-9s are legal as long as IRS guidelines are followed.  Here is what the IRS says about the electronic submission of Forms W-9 in their Instructions for the Requester of Form W-9. Electronic Submission of Forms W-9 Requesters may establish a system for payees and payees' agents to submit Forms W-9 electronically, including by fax. A requester is anyone required to file an information return. A payee is anyone required to provide a taxpayer identification number (TIN) to the requester.

Electronic system

Generally, the electronic system must: Ensure the information received is the information sent, and document all occasions of user access that result in the submission; Make reasonably certain that the person accessing the system and submitting the form is the person identified on Form W-9, the investment advisor, or the introducing broker; Provide the same information as the paper Form W-9; Be able to supply a hard copy of the electronic Form W-9 if the Internal Revenue Service requests it; and Require as the final entry in the submission an electronic signature by the payee whose name is on Form W-9 that authenticates and verifies the submission. The electronic signature must be under penalties of perjury and the perjury statement must contain the language of the paper Form W-9.

IRS Tip

For Forms W-9 that are not required to be signed, the electronic system need not provide for an electronic signature or a perjury statement.

For more details, see the following.

Announcement 98-27, which is on page 30 of Internal Revenue Bulletin 1998-15 at www.irs.gov/pub/irs-irbs/ irb98-15.pdf. Announcement 2001-91, which is on page 221 of Internal Revenue Bulletin 2001-36 at www.irs.gov/pub/irs-irbs/ irb01-36.pdf.