The W-9 form is a requirement by the Internal Revenue Service (IRS) for companies to report all “reportable” payments made to vendors and independent contractors during a calendar year. The combination of the tax classification and the type of payment made determines what must be reported to the IRS.
The process is called “information reporting,” and it is used to track and report payment information that would typically be considered income on an income tax return. Independent contractors and sole proprietors can use an Employer Identification Number (EIN) on their W-9 forms to avoid using their Social Security number (SSN). The W-9 form should only be completed by a “U.S. person.”
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, 7 am to 10 pm EST. Note that independent contractors are considered sole proprietors by the IRS and are eligible for an EIN number. It is also not necessary to have employees 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
Line 1 – Name: This line should match the name on your income tax return. This is the legal name of you 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 the FATCA reporting code in the second space. Generally, individuals (including sole proprietors) are not exempt from backup withholding.
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.
In conclusion
The W-9 form is a necessary document required by the Internal Revenue Service (IRS) for companies to report all reportable payments made to vendors and independent contractors during a calendar year. The combination of the tax classification and the type of payment made determines what must be reported to the IRS. The IRS requires companies to track and report payment information that would typically be considered income on an income tax return.
FAQ
What is a W-9 form?
It is a form used by companies to report payments made to vendors and contractors to the IRS.
Why is the W-9 form required?
The IRS requires companies to report payments made to vendors and contractors to track and report payment information.
What is “information reporting”?
It is the process of tracking and reporting payment information that would typically be considered income on an income tax return.
Can you use an EIN instead of an SSN on the W-9 form?
Yes, independent contractors and sole proprietors can use an EIN to avoid using their SSNs.
What is a U.S. person?
A U.S. person is an individual who is a U.S. citizen or a U.S. resident alien, or a partnership, corporation, company, or association created or organized in the United States.
How can you obtain an EIN number?
You can apply for an instant EIN number for free at irs.gov.
What should you do if you are not a U.S. person?
You should not use the W-9 form and likely need to provide Form W-8.
How do you fill out your W-9 form?
You need to fill out your legal name, business name, federal tax classification, exemptions, address, city, state, and ZIP.
What is the purpose of Line 2?
Line 2 is optional and would include your business name, trade name, DBA name, or disregarded entity name if you have any of these.
What should you do if you are exempt from backup withholding?
Enter your exempt payee code in the first space and your exemption from the FATCA reporting code in the second space on Line 4.