If you are a client who hires independent contractors, you may need to request a W-9 form from them. In July 2023 the IRS has provided a draft version of an updated W-9 form. The draft form can be found by clicking here.
What You Need to Know About the W-9 Form?
A W-9 form is an IRS document that collects the contractor’s name, address, tax identification number, tax classification. In addition, it collects certification that they are not subject to backup withholding or foreign account tax compliance act (FATCA) reporting. The W-9 form helps you report the payments you make to the contractor on a 1099-NEC form at the end of the year.
Why Do You Need a W-9 Form from Your Contractor?
The main reason is to verify their identity and tax status. If you pay a contractor over $600 in a year, you must report it to the IRS and the contractor. In conclusion, the W-9 form helps you accurately complete the 1099-NEC form, avoiding penalties or audits.
How Do You Request a W-9 Form from Your Contractor?
The best practice is to ask for it before you make the first payment to them. You can send them a copy of the W-9 form by mail, email, or fax. Or you can direct them to download it from the IRS website. In addition, you should also let them know why you need the form and when you expect to receive it back. You can also include a deadline for returning the form and a reminder of the consequences of not providing it, such as withholding taxes from their payments or even possibly terminating their engagement.
What Do You Do With the W-9 Form Once You Receive it?
It is recommended that you review the form for completeness and accuracy. Make sure it matches the information on your contract and invoices. You should also keep a copy of the form in your records for at least four years after the last payment you make to the contractor. You do not need to send the W-9 form to the IRS, but you will use it to prepare the 1099-NEC form that you will send to both the IRS and the contractor by January 31 of the following year.
What Is New on the W-9 Form Updated?
A new section, line 3b, has been added to the form. This line needs to be filled out by entities that pass income and losses to their partners, owners, or beneficiaries (known as flow-through entities). They need to indicate if they have any foreign partners, owners, or beneficiaries, either directly or indirectly. This information is required when the flow-through entity provides a Form W-9 to another similar entity. The purpose of this change is to help the flow-through entity know about its indirect foreign partners, owners, or beneficiaries. This way, it can meet any reporting requirements related to them.
The W-9 form is crucial for tax compliance and avoiding issues with the IRS or contractors. Request it early, review it thoroughly, and store it securely to maintain a smooth relationship with your contractors.
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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.