Everyone has to report their income to the Internal Revenue Service (IRS) using their taxpayer identification number to make sure their income, withholding, and credits are recorded correctly. Meanwhile, small business owners and individuals who provide a service to someone else must complete a W-9 form to record this taxpayer ID and other information.
This article gives information about the W-9 form for both businesses requesting this form and those who must complete it.
- The purpose of IRS Form W-9 is to report a payee’s taxpayer identification number (TIN) so the payer can include this information on an annual tax report form.
- This form is used for independent contractors, freelancers, gig workers, and other non-employees who provide services to someone else.
- Form W-9 is signed by the person completing it and it’s kept by the requesting party.
- It’s important to report a correct TIN because an incorrect or missing TIN can result in IRS penalties and delays in processing returns.
What Is Form W-9?
IRS Form W-9 is used to provide a taxpayer identification number (TIN) for various types of payees. A common type of payee who must complete a W-9 is a non-employee who provides services to others, including sole proprietors, independent contractors, and freelancers.
Form W-9 may also be used to report taxpayer IDs for:
- Real estate transactions
- Mortgage interest
- Buying or abandoning secured property
- Cancellation of a debt
- Contributions to an IRA
The IRS calls the business that needs the form the “requester” because they must request that the payee (the business or person being paid) complete the form.
Who Uses Form W-9 and Why?
To know if someone must complete a Form W-9, you must first determine if they are a “U.S. person.”
U.S. persons include:
- U.S. citizens
- Resident aliens
- Domestic trusts
Next, you must know if the payee is an employee. W-9 forms are not used for employees; they must complete a W-4 form at hire to give their taxpayer ID number and other information for tax purposes.
Non-employees, however, must complete a W-9 form. These are individuals who are in an independent trade, business, or profession who provide services to others. Examples are doctors, accountants, contractors, and subcontractors. Independent contractors are self-employed and are not considered employees, as are freelancers, They are usually paid by the job or project instead of receiving an hourly wage or a salary.
The distinction between a non-employee and an employee has to do primarily with the level of control over the work being done. An independent contractor, for instance, is classified as such if the payer has the right to control or direct only the result of the work, not what or how it will be completed. If you aren’t sure if you or someone you have working for you is an employee or non-employee, see this article from the IRS on determining employee vs independent contractor status.
For example, if your business hires a cleaning service or freelance web designer, you must request that the service provider complete a W-9 form. Anyone who is not an employee and provides services to a business must complete this form at hire.
W-9 forms are often used to prepare several types of “1099 forms” that provide information on various types of payments to the IRS. Some common types of 1099 forms used by businesses include:
- Form 1099-NEC for payments to non-employees
- Form 1099-DIV for dividends received
- Form 1099-MISC for various types of income including prizes or awards
- Form 1099-K merchant card and third-party network transactions
You must have payees complete a W-9 before beginning to pay them, so you can use the taxpayer ID on the first, and all, payments.
How To Fill Out Form W-9
You must complete Form W-9 as soon as you begin to be paid for services as a non-employee or in other situations when the form is requested. The form has sections for identification, for recording the taxpayer ID, and for certifying important information.
Payee Identification Information
Line 1: Name of the person (payee). If your business is a sole proprietorship or single-owner LLC, enter your name, not a business name.
The name on Line 1 must match the name the IRS associates with your taxpayer ID number. For example, if you are using your Social Security number (SSN) as your taxpayer ID, your name as it appears on your Social Security card must match your name on Line 1.
Line 2: Business name, if different from the personal name. This can be your business or trade name, sometimes called a “doing business as” (DBA) or fictitious name.
Line 3: Type of business. Enter your business tax status. The process is pretty straightforward, except for limited liability companies (LLCs). Multiple-member (owner) LLCs are usually taxed as partnerships and single-member LLCs are usually taxed as sole proprietors. LLCs may also elect to be taxed as corporations or S corporations.
The “Individual/sole proprietor or single-member LLC” designation is for sole proprietors and for single-owner businesses that haven’t registered with their state. Use this classification if you have a single-member (owner) LLC unless it’s taxed as a corporation or S corporation.
If you have a multiple-member LLC or your single-member LLC is taxed as a corporation or S corporation, first check the box for limited liability company, then enter the tax classification as P for partnership (the usual designation for multiple-member LLCs, C for corporation, or S for S corporation).
Line 4: Exemption codes. These are specific codes for exempt payees and exemption from backup withholding and FATCA reporting (explained below). The Form W-9 instructions include types of exemption codes.
Usually, individuals, including sole proprietors, are not exempt from backup withholding, while corporations are usually exempt, except for attorney fees and payment card payments, and some other less usual types of payments.
The Foreign Account Tax Compliance Act (FATCA) of 2010 set up requirements for taxpayers reporting foreign assets. These foreign assets don’t include U.S. investments, but they do include assets maintained at institutions outside the U.S., stocks and bonds, real property held by non-U.S. persons, and other assets.
Holders of these foreign assets are subject to report the value of these assets on IRS Form 8938 if they are above a certain level.
Checking the FATCA box on Form W-9 certifies that the individual is not subject to this reporting requirement.
If you hire non-employees, you need to know about backup withholding requirements. Backup withholding is not a standard action, except when the IRS requires it. If you as a requester receive a backup withholding notice from the IRS, you must immediately withhold 24% for federal income tax from payments to the payee, continuing until the IRS says you may stop this withholding.
Payments to non-employees are subject to backup withholding if the payee
- Doesn’t furnish a TIN
- Doesn’t certify the TIN when required
- The IRS says the TIN is incorrect
- The IRS says the payee didn’t report interest and dividends
- The payee didn’t certify to the requester that they are not subject to backup withholding (on line 4)
Part I: Taxpayer ID Number
The payee’s taxpayer ID number must be one of these types of numbers:
- SSN for an individual or a sole proprietor
- Employer identification number (EIN) for a business. An EIN is a tax identifier for a business; it’s required for most small businesses, even if they don’t have employees.
If you are a sole proprietor and you have an EIN, you cen enter either number. If you own a single-member LLC and it’s not taxed as a corporation or S corporation, enter your SSN as the owner, not the EIN for the LLC.
Some individuals don’t have an SSN. They can use an individual taxpayer identification number (ITIN), a tax processing number for nonresident and resident aliens, their spouses, and dependents.
If you don’t have an SSN and are applying for an ITIN, write “Applied For” in the space for the taxpayer ID number. You generally have 60 days to get a taxpayer ID and give it to the requester.
Part II: Certification
Form W-9 includes several statements that the payee must certify, on penalty of perjury:
- That the taxpayer ID number is correct
- That the person is not subject to backup withholding, or that they have been notified by the IRS that they are subject to backup withholding, or that they have been notified by the IRS that they were, but are no longer, subject to backup withholding
- That they are a U.S. citizen or other U.S. person, as defined by the IRS
- That they are exempt from FATCA reporting
Some types of accounts and transactions don’t require a signature on the certification or they may be modified. See the detailed instructions on Form W-9 for more details. When you have completed Form W-9, give it to the requester. Payees or requesters may not be required to submit Form W-9 to the IRS, but they must make sure the information is correct.
Frequently Asked Questions (FAQs)
Where do I get a Form W-9?
Because Form W-9 doesn’t have to be filed with the IRS, you can print out this form directly from the IRS and have the payee complete the printed form. Payess can also use the fillable form to include the information then print out the completed form and sign it.
How do I sign Form W-9 electronically?
The IRS says that requestors may set up a system to submit W-9 forms electronically, including an electronic signature. The system must meet IRS requirements.
You may be able to use a service like Adobe or DocuSign (for a fee) if your business wants to allow payees to sign the form this way. Protect the information on this form by using an encrypted email, hand delivery, or mail.