What Is a W-9 Form? Who Can Use It and How to Fill It Out

IRS Form W-9 is used by taxpayers to verify their TIN and to confirm that they are not subject to backup withholding. It was introduced in 2010 and has been a mandatory tax document ever since. The W-9 is a common tax form, so most US taxpayers are required to complete it annually.

So, what is a W-9 Form for business? What is a W-9 Form for a nonprofit? How to fill out a W-9? Continue reading to learn all about the purpose, use cases, and everything else there is to know about this form.

What Is the Purpose of a W-9 Form?

What is a W-9 Form used for? IRS Form W-9 is a formal request for information used to verify a taxpayer identification number (TIN). This document is essential for certain financial and tax-related transactions, as it is the easiest way to safely transfer tax information from one party to another.

In practice, Form W-9 is mainly used to prove that a person is a US taxpayer and to confirm tax information, including their name, address, and TIN. It is also used in cases where an employer needs to obtain the employee’s TIN in order to file an information document with the IRS. In most cases, a person’s Social Security Number can be used as a taxpayer identification number.

The W-9 itself has nothing to do with withholding the taxes you have to pay, but it contains information about the taxes based on income that affect your federal tax return and taxable income.

Form W-9 Use Cases

A W-9 Form is used in different scenarios, but the most important one is tax reporting. It plays a key role in generating 1099 forms, which include data about TIN owners’ sources of income. Note that the data in the 1099 Form is not limited to what’s reported in the W-9. The 1099 Form is issued when the income threshold of $600 is reached — anything below this level is still reported as income but does not require a 1099.

There are several more specific uses for a W-9. For example, filling the form may be required in some specific scenarios like prize winnings or real estate transactions. What is a W-9 form used for in real estate? With the tax data it contains, a W-9 can verify the identities and establish the tax status of the parties involved in a legal estate transaction. And what is a W-9 form for insurance claims? Its main use is handling medical bill denials. If the denial results from incorrect information, applicants can submit the form to their insurance company to verify their TIN.

As for how often you need to obtain a W-9, it largely depends on your economic activity. The document stays valid until any of the information provided becomes incorrect.

Step-by-Step Guide to Filling Out Form W-9

Form W-9 is one of the easiest tax documents to complete. So, how to fill out a W-9? Here’s a step-by-step instruction.

Step 1: Enter Your Name

On the first line, you must identify yourself as a taxpayer by entering your name as it appears on your tax return.

Step 2: Enter Business Name

On the second line, enter the name of your business. If you are not using your personal name as your business name, enter the name of your company instead.

Step 3: Specify the Type of Business Entity

Select the type of legal entity you are. Review the options available and select the one that is relevant to your business. If you cannot decide on the type of legal entity, check out the relevant table on any IRS resource.

Step 4: Enter Specific Codes (If Any)

In most cases, you do not need to complete line 4. However, if there is an exempt payee code or an exemption from FATCA reporting code, you should enter it here.

Step 5: Provide Your Full Address

In lines 5 and 6, you must provide your address. It must be the same as the one on your tax returns.

Step 6: Fill In the Information About the Requesting Person (Optional)

Completing line 7 is optional. Here, you can enter the name and address of the requesting person and list the relevant account numbers.

Step 7: Part I — TIN

Here, you must enter your business’s tax identification number — this can be either your social security number (for individuals) or your employer identification number (for other entities).

Step 8: Part II — Certification

Your final step is to confirm that all the information provided is correct. This is mandatory before signing the document. Review all the statements provided one more time, and sign your Form W-9.

Who Is Required to Fill Out a W-9 Form?

Form W-9 comes into play when certain types of payments are expected between two parties, whether freelancers or small business owners. This document must be completed by one party and provided to the other — in general, it is independent contractors who must complete a W-9 in such cases.

You may also find some other situations where using Form W-9 is unavoidable. For example, bank representatives or lenders may require you to submit a W-9 when opening a new account. What's more, if you are entering a contest with a chance to win a prize, you may be obliged to fill out a W-9, as your winnings may constitute taxable income.

Form W-9 may also become critical when a taxpayer is dealing with 1098 and 1099 forms, such as mortgage payments, real estate sales, student loans, debt repayments, and so on. In all these cases, the other party may request your tax information through a W-9.

What Should You Keep In Mind When Completing Form W-9?

Read Everything Carefully Before You Sign

Always double-check all the information provided! You should read all the text on your W-9 Form, including the fine print. You may discover that you don’t have to complete and sign this document at all.

Security Is a Must

Do not provide the form to any individual requesting it. You should clearly understand why you are being asked for this document and what your data will be used for. W-9 is a document that contains a lot of sensitive information and should be treated as such.

Be Prepared for Possible Penalties for Any Violations

You will be subject to a $500 fine for each false statement and a $50 fine for failure to provide the correct TIN. Keep in mind that if a court rules that you purposefully provided false information in a W-9, you may be subject to other penalties and criminal sanctions, including jail time.

Take Care of Returning the W-9

You should handle the delivery of a filled W-9 with care. If you cannot deliver the document in person, the postal service is perhaps the best alternative. If you want to send the form via email, you must ensure the document is encrypted.

Conclusion

So, what is a W-9 Form, and how to get a W-9? Form W-9 is a critical financial document that helps companies obtain important information from payees to prepare IRS returns. This document is used when an individual or business must report their earnings. The W-9 plays an extremely important role in tax reporting and financial transactions, and you should handle it responsibly to avoid potential fines.