The Purpose of Form W-9, Request for Taxpayer Identification Number and Certification

If you have a business, you may need to fill out IRS Form W-9

Fact checked by Suzanne Kvilhaug

Form W-9 from the Internal Revenue Service (IRS), Taxpayer Identification Number and Certification, is used by businesses to collect tax information from third parties such as contractors. The information collected on Form W-9 is then used by the business to fill out either Form 1098 or Form 1099 at tax time.

Key Takeaways

• IRS Form W-9 is most often used by businesses to collect tax information about contractors the business works with.
• The information on Form W-9 is used to fill out Forms 1098 and 1099 at tax time.
• Form W-9 collects information including name, address, tax classification, Social Security number or EIN, and withholding information.
• The person or company submitting Form W-9 must sign and date it. Willfully reporting incorrect information can result in fines or penalties.
• Because Form W-9 contains sensitive identification information, both parties should exercise caution when sending or storing it.

Purpose of Form W-9

IRS Form W-9 is used to gather taxpayer information from a vendor, contractor, or other non-employee that a business is working with. Compensation paid to non-employees must be reported to the IRS if it meets four requirements:

• A payment (or payments) was made to someone who is not an employee.
• Payment was made for services during business operations.
• The payment was made to an individual, partnership, estate, or (in some cases) corporation.
• The total payments made over a year were at least $600.

If these requirements are all met, the business must report the payments to the IRS on Form 1099-NEC Non-Employee Compensation. Form W-9 is used to gather the necessary taxpayer information to correctly fill out Form 1099-NEC, which the third party then uses to self-report their income to the IRS at tax time.

Note

Non-employee compensation was previously reported in Box 7 on Form 1099-MISC.

In addition to providing the information necessary for a business to report payments to a third party, it also protects the business. The party filling out Form W-9 must sign to certify that the information is true and correct. A signature on Form W-9 certifies:

• The tax identification number (TIN) provided, such as a Social Security number or Employer Identification Number (EIN)
• Any exemption from backup withholding
• The FATCA code used by the vendor

Form W-9 is not sent to the IRS. Instead, both the business and the third party should keep copies of it for their records.

Note

Both parties should use caution when sending or storing Form W-9, as it contains sensitive taxpayer information.

Form W-9 can be used for tax reporting in other situations as well. It can be used by banks or other financial institutions to fill out Form 1099-INT (interest income), 1099-B (broker and barter transactions), or 1099-DIV (income from dividends and distributions). Taxpayers may also have to fill out Form W-9 in other situations when they receive income, such as:

• Real estate transactions, reported on Form 1099-S
• Canceled debt, reported on Form 1099-C
• Tuition reimbursements or payments, reported on Form 1098-T

If you are an independent contractor and refuse to fill out Form W-9, your client will withhold taxes from payments at a rate of 24% in order to avoid fines from the IRS.

Who Should Fill Out Form W-9?

Form W-9 is only used for taxpayers who are U.S. persons. This includes individuals who are both citizens and resident aliens, as well as U.S. partnerships, estates, corporations, or domestic trusts.

In general, those who need to fill out Form W-9 are non-employees.

If you are an employee, you will not need to fill out Form W-9 for your employer. Instead, you will fill out Form W-4 to provide your taxpayer information, which your employer will then use to withhold income taxes from your paycheck, as well as Social Security and Medicare taxes. You will then receive Form W-2 when it is time to file your tax return.

Warning

If you are classified as an employee, your employer should not ask you to fill out Form W-9. If an employer does so, it may be a sign that they are illegally trying to save money by classifying you as an independent contractor rather than an employee.

Independent Contractors

If you are an independent contractor, freelancer, or other non-employee, you do not have an employer withholding taxes from your paycheck. Instead, you will need to pay estimated taxes throughout the year to cover your income, Social Security, and Medicare taxes.

The businesses that you work with will collect Form W-9 from you when you begin working together, and this information will then be used to report your income from that business on Form 1099.

Once you receive any version of Form 1099 or 1098, you must report that income in your tax return and pay any remaining taxes due on it.

Financial Transactions

Even if you are not an independent contractor or freelancer, you may be asked to fill out Form W-9 for certain financial transactions. Financial institutions, such as banks or brokerages, may collect.

Form W-9 so they have customer taxpayer information on file when they need it to fill out forms such as Form 1099-INT or 1099-B. If you are involved in real estate transactions, the business you are working with may ask you to complete a W-9 as well.

Important

Before filling out and submitting Form W-9, always ensure that the person or institution requesting the form has a legitimate need for it. Beware of W-9 phishing scams sent via email or text. If you are not sure whether or not you should submit a form W-9, consult a tax professional.

Information on Form W-9

There are three sections of Form W-9, and it is used to collect eight pieces of taxpayer information:

• Line 1, Name of entity/individual: Enter the name shown on your tax return; this can be either an individual name or the name of an owner, sole proprietor, partnership, or other entity.
• Line 2, Business name: The line is only filled out if you have a trade name, business name, DBA, or other disregarded entity name.
• Line 3, Federal tax classification: Choose only one of individual/sole proprietor, C corporation, S corporation, partnership, trust/estate, or LLC (limited liability company); if you select LLC, fill out Line 3b to indicate whether it is a C corp, an S corp, or a partnership.
• Line 4, Exemptions: Indicate whether you are exempt from backup withholding or FATCA reporting.
• Line 5 and Line 6, Address: Enter your address, city, state, and ZIP code.
• Line 7, Account numbers: If requested, you may enter additional information such as client information for a bank or brokerage.
• Part I, Tax identification number (TIN): Your TIN may be a Social Security number (SSN) or an EIN.

Note

If you are a sole proprietor, you can enter either your SSN or EIN. If your business is a corporation or partnership, enter the business’s EIN. If your business is a single-member LLC that is a disregarded entity, you can use either your SSN or EIN but not the business’s EIN.

The final part of Form W-9 is Part II (Certification), where you must sign and date the form before submitting it.

Penalties for Incorrect Information on Form W-9

When you sign Form W-9, you are certifying that you have provided correct information to the best of your knowledge. If you provide false information or otherwise fail to comply with reporting requirements, you may be subject to penalties including:

• A fine of $50 for every failure to provide your correct TIN
• A fine of $500 for making a false statement that results in no backup withholding
• Criminal penalties, including fines and/or imprisonment, for willfully falsifying any information

However, these penalties can be waived if you are able to prove that you were not deliberately providing false information.

Penalties aren’t limited to the person filling out the W-9. Anyone requesting a W-9 may be subject to either criminal or civil penalties if they disclose or use tax identification numbers in a way that violates federal law.

The Bottom Line

Form W-9 is primarily used by independent contractors, freelancers, and other vendors to provide their taxpayer information to clients. This information is then used to fill out Forms 1099 and 1098, which are used for filing taxes and reporting income to the IRS.

Before submitting a W-9, the submitter must sign and certify that the information on it is correct. Deliberately providing false information on a W-9 can result in criminal and civil penalties. Anyone submitting or requesting a W-9 should store this information carefully to prevent it from being incorrectly used.