IRS Form W-9 is useful in requesting an identification number for the taxpayer. Companies use the taxpayer IDs of their employees to inform the Internal Revenue Service (IRS) about the amounts they have paid their employees and charities need this taxpayer ID numbers to report donations from various individuals. Hence, it is the duty of all individuals to promptly complete form W-9 accurately and submit it to the person requesting this form.
Who Uses the W-9 Form?
All business entities hiring independent contractors usually request the contractors to fill out IRS Form W-9. Even nonprofit organizations send this form to their donors so that the donors could claim tax deductions for their donations.
This form contains spaces for personal or business names, addresses, business types, and taxpayer identification numbers (normally the social security numbers) or federal employer identification numbers (EINs). By signing and submitting this form, the payee or the signer is certifying that the ID number that the payee has entered as a taxpayer is correct and that he/she is actually a citizen of the United States, and that there is no backup withholding. The signing of this form is also a certification that the payee is a U.S. citizen, a resident alien, or an authorized representative of a corporation, partnership, or a company or other U.S. persons.
Is the W-9 Required?
If you either refuse or fail to present your taxpayer ID number when a business requests it, you would be liable for a penalization of $50, unless you are able to submit a proper reason to IRS. Further, the person making the payment has the right to withhold 28% from the person failing to submit form W-9 and forward that amount to IRS. The penalty for incorrect information on backup withholding is $500 for each incident of such incorrect information. If anyone presents false information to IRS, that person is liable for prosecution for criminal behavior and can even be sentenced. Similarly, if an individual or an organization receives form W-9 from a vendor or an employee and misuses that information (such information is legally considered as confidential), that individual or organization would be subject to civil as well as criminal penalties.
Business organizations and nonprofit organizations do not submit the completed form W-9 to IRS. However, they should complete it and keep it in their files. They should use the information on form W-9 to prepare form 1099 for reporting their income.
What is the Purpose of IRS Form W-9?
The main purpose of form W-9 is to help payees in avoiding any backup withholding. It is the responsibility of the payer to collect withholding taxes on specific payments reportable to IRS. Still, when the payees certify that they are not subject to any backup withholding on IRS Form W-9, they invariably receive the entire payment due to them from the payers. This process is similar to form W-4 certifications for withholding exemptions for employees.
All those who hire employees or contractors should fill out this form W-9 to ensure that they are citizens of U.S. and they attempt to work in this country with proper taxpayer ID number or correct social security number. The person receiving form W-9 need not send the information contained in that to IRS but should have it in the records for generating form 1099s and form W-2s. Legally, a U.S. person can be an individual as a genuine U.S. citizen or a legal resident. A U.S. person could also be a company, an association, a corporation, a trust, or an estate organized under the U.S. laws. All third parties have the legal right to collect identifying information so that they use such information when necessary in their filing of tax returns to IRS.