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5 Most Common W-9 Form Mistakes

Top 5 Form W-9 errors

Hi, I’m John Croyle the founder of W9manager. On this video, we’re going to talk about the five most common mistakes made on w-9 forms. I’ve been a CPA for over 20 years now and I’ve 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 six pages of instruction with almost 6,000 words.  And 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 that we started W9manager.  So, let’s look at the five most common mistakes made on w-9 forms.

Number Five. The name on line one of the W-9 form is blank.  At times vendors can become confused between the names on line one and line two. They can mistakenly fill in only the business name on line two and leave line one blank.  Line one is the legal name that the business or individual uses on their federal tax return and it is required by the IRS. So, it’s imperative that the name on line one 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 payments moving forward to satisfy the IRS backup withholding requirements. When using our guided process in W9manager the user is required to complete line one. It is a required field and the user cannot continue to the next section until complete.

Number Four. The W-9 form is not signed. Not all W-9 forms are required to be signed but best practice is to require that all vendors sign their W-9 unless the company understands all the situations in which a signature is required. Vendors often send in W-9s that aren’t signed and it’s easy to miss this when initially received. When using our guided process in W9manager you can require that all W-9s are signed and if a user is not the signer, they can send it to another user to sign.

Number Three. The tax classification is not checked. Another mistake we frequently see is a W-9 form without any tax classification checked. Line three 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 one. This helps the company making the payment to the vendor determine if the payment is reportable on a 1099 form. Without this information the company will have to assume that a 1099 is required for all reportable payments made to the vendor and they won’t be able to exclude entities like corporations that are often exempt from receiving 1099 forms.

Number Two. A disregarded entity listed on 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 using the disregarded entity’s information 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, or error notices, from the IRS. These notices require that the company request a new corrected W-9 form from their vendor or start backup with holding 24% on all future payments to the vendor. 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 and reporting flows to the owner of the entity. The best example is an LLC that is owned by one individual, also known as a single member LLC. 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” and it’s linked in the description below. And the number one W-9 mistake – the type of limited liability company is not provided.

The Number One mistake we have seen vendors make on a W-9 form is forgetting to include the type of LLC that they are. 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. All of the top five mistakes made on W-9 forms can be avoided when creating a W09 form using W9manager. It’s always free to create, save, and send your W-9 form. And W-9 manager is not just another blank PDF form site. We walk users through a guided step-by-step process with contextual help buttons on every question.

Thanks for watching this video!