Form W-9 For 2021 -Everything You Need To Know

If you or your business works with independent contractors or vendors, the Form W-9 should definitely be a part of your IRS Tax Form repertoire. This form is a great tool for maintaining your IRS compliance, especially when it comes time to file your Form 1099 at the end of the year.

Form W-9 — An Overview

Form W-9, the Request for Taxpayer Identification Number and Certification, is used to collect certain important tax information from your independent contractors and vendors. This information includes their legal name, address, and Taxpayer Identification Number (TIN). As the payer, you will need to have this information on file for each of your independent contractors and vendors. By IRS standards, this individual or vendor is now your payee, and you are their payer.

Who needs to fill out W-9?

The IRS requires any US resident that performs tasks for a business or individual but is not classified as an employee to complete the Form W-9. This form is not one that is ever submitted to the IRS. Rather, the IRS designed this form to simplify the process for business owners and individuals to request the TIN from other individuals, businesses, or financial institutions that they are working with.

Use Form W-9 to request the correct Taxpayer Identification Number (TIN) from the vendor, independent contractor, or any individual or business that you are required to file an informational return to the IRS on behalf of. Some of these payments include

• Income paid to any of your vendors/independent contractors.
• Real estate transactions.
• Mortgage interest paid to you.
• Acquisition or abandonment of secured property.
• Cancellation of debt.
• Contributions made to an IRA account.

When to request a W-9 form?

As a general rule, anytime your business hires an individual or entity that is not on your payroll, you should request a Form W-9 for them. Especially if you are paying them $600, or more. In this case you are required to file a Form 1099-NEC for non-employee compensation or a Form 1099-MISC for miscellaneous payments. Without their correct TIN, filing Forms 1099 successfully on their behalf is impossible.

Information required to fill out Form W-9 for 2021

On the W-9 tax Form, the payee, or individual who is required to complete this form, should enter the following information.

• Name
• Address
• Tax Classification with the IRS
• TIN
• Indicate if they are subject to backup withholding
• Indicate if they are exempt from backup withholding using the appropriate codes
• Indicate if they are a US citizen or resident

Backup withholding

When you request a Form W-9 from your independent contractor or vendor and they fail to provide the correct information, mainly their correct TIN, backup withholding must be initiated. The IRS requires payers that don’t have the correct TIN on file for an individual or business entity, they must withhold 24% of payments. This amount is withheld by the payer and deposited with the IRS.

FATCA Reporting

Under the Foreign Account Tax Compliance Act, participating financial institutions are required to report all information regarding the US citizens who have assets with them. There are many cases where payees are exempt from FATCA reporting, there are also certain cases where payees are exempt from backup withholding. Payees that are in fact exempt can indicate this on line 4 of the W-9, using a series of 13 different codes. For example, an exempt corporation should enter code 5 on line 4.

Penalties for failure to furnish or furnishing incorrect TIN

In addition to backup withholding, there is a penalty for payees that fail to provide their correct TIN to their payer. These payees are subject to a penalty of $50 each time they fail to provide their TIN upon request, unless they are able to provide a reasonable cause as to why they have failed to provide their information. Additionally, there is a civil penalty for providing false information. Payees that purposely provide a false or incorrect TIN are subject to a penalty of $500.

How can TaxBandits help with the Form W-9 process?

The Form W-9 process is an outdated one, payers must mail or fax their payee a paper copy of the Form W-9 and wait for them to complete it and fax or mail it back. With all the daily business they are already juggling, this process can stretch out for weeks, especially if the payee submits the W-9 with incorrect information. In this case the whole process basically starts over.

With TaxBandits, you can skip the monotony of this process by taking it into the modern age. Our application allows you to request, provide, e-sign and submit the Form W-9. Here is how it works. The Payer will request the Form W-9 through their TaxBandits account. Then, their payee will receive an email invitation to complete and e-sign their form.

Once complete, the payee can submit their Form W-9 and the payer will receive a notification from TaxBandits. Any errors can be easily corrected and the process now takes minutes instead of weeks! The Form W-9 is then available to the payer and payee through their TaxBandits accounts.

To learn more about our streamlined process, click here!