To bring more and more businesses of the service sector within the tax ambit and prevent tax evasion IRS uses the information provided by business owners gathered through the W9 form. All small business owners must have a clear idea about what is w9 form is and use it to collect taxpayer information from the contractors whose services they hire. As part of the IRS returns, businesses must furnish the information gathered from the contractors in the prescribed form and transcribe it in the IRS information return. The full name of the IRS form W-9 is Request for Taxpayer Identification Number and Certification, which explains the w9 form meaning. The form is applicable for all vendors hired by businesses like contractors or freelancers.
Why should businesses know what is w9 form?
Businesses must know what is a w9 form, and its purpose to comply with the IRS requirements. It will help provide the information accurately and in the desired manner.
Although the responsibility of paying taxes on their income rests with the contractors, IRS wants to be sure that they pay their taxes in full by keeping a tab on all payments they receive. Businesses that hire independent contractors must pay them in full without holding back income tax or pay Social Security Taxes or Medicare like they do for their employees. The contractors must fulfill their obligations by paying taxes on their earnings. However, IRS wants to keep close track of the contractors’ whereabouts by gathering the tax-related information from businesses they serve. It provides double-check of the declarations given to the IRS by the contractors.
Businesses must use another Form 1099-Misc
In addition to providing the Taxpayer Identification Number of contractors to IRS, small businesses must keep IRS informed about all payments made to freelancers and contractors if they pay them more than $600 a year. As told earlier, the IRS wants to track all payments received by contractors to verify them with their tax returns to plug all gaps and prevent tax evasion. IRS does not want to leave anything to chance or trust but depends on evidence only to ensure that the contractors do not evade tax by any means.
In addition to providing the Taxpayer details of contractors to IRS based on the information gathered from contractors in w9 form, small business owners must also report all payments made to contractors in a tax year. They must mention all details of payments above $600 made to contractors and submit it to IRS by using the form 1099-Misc.
Information contained in Form W9
The information sought in Form W9 includes the independent contractor’s name, business name (if different), and business entity (partnership, proprietorship, S Corporation, C Corporation, Limited Liability Company, trust/estate, or other). In addition, the details of the businesses’ Social Security Number for sole proprietorship businesses that do not have a separate tax ID number and the tax identification number for all other types of businesses are necessary.
The person filing the form must certify that they do not come under the purview of backup withholding. Most taxpayers do not fall in the category that calls for backup withholding. But if the company hiring the contractor belongs to that category, they must withhold income tax from that contractor @ 24% for the tax years 2018-2025. The company must then send it to the IRS.
Since Form W9 contains sensitive information like the tax identification number and the social security number, the parties involved in the information exchange must take adequate peculations to prevent identity theft.
Who retains the Form W9?
The company that collects From W9 from contractors must retain the form and never pass it on to IRS. IRS needs the information contained in the form and not the form. Companies use the information provided in the W9 form to submit their return in Form 1099-Misc to IRS when declaring the details of payment made to the contractor during the tax year. The contractors, too, must not send the form W9 to IRS in any circumstances.
Assuming that most business owners know what is w9 form is, those who still want to know to get the answer on reading this article.
