W-9 Tax Form Advanced Issues
Now that the key points have been covered, we can get to the fine print. Here are a few advanced issues that could come into play concerning Form W-9.
Backup Withholding
Backup Withholding
- Backup withholding occurs when the contractor makes mistakes in completing the W-9 tax form (e.g. failed to provide a valid ID number) or did not sign the form certifying W-9 exempt status. When this happens, payments made to the contractor or vendor must be withheld, and a percentage of such payments must be paid to the IRS. To avoid these penalties, make sure your contractors and vendors provide you with their correct taxpayer identification numbers, and that all of the information they enter fulfills the W-9 form purpose and is accurate. If the requester of a taxpayer identification number misuses the number in violation of federal law, civil and criminal penalties may apply.
Specific Instructions for Various Entities Completing the W-9
- Individual - Enter the name shown on your income tax return.
- Sole Proprietor - On the “Name” line, enter the name shown on your income tax return. On the “Business name/disregarded entity name” line, enter your business, trade, or “doing business as (DBA) name”.
- Partnership, C Corporation (Corporation that is taxed separately from its owners), or S Corporation (Corporation that is taxed through its shareholders) - On the “Name” line, enter the entity’s name. On the “Business name/disregarded entity name” line, enter your business, trade or DBA name.
- Disregarded Entity - On the “Name” line, enter the owner’s name (If the owner is a foreign person, a W-8 form must be completed). On the “Business name/disregarded entity name” line, enter the disregarded entity’s name.
- Limited Liability Company (LLC) - If the person listed on the “Name” line is an LLC, check the “Limited liability company” box and enter the tax classification code in the space provided. If you are an LLC that is treated as a partnership for federal tax purposes, enter “P”. If you are an LLC that has filed a Form 8832 or a Form 2553 to be taxed as a corporation, enter “C” for C Corporation, or “S” for S corporation.
- Other Entities - On the “Name” line, enter your business name as shown on required federal tax documents. On the “Business name/disregarded entity name” line, you may enter any business, trade or DBA name.
- Exempt Payees - Corporations are exempt from backup withholding for certain payments (such as interest and dividends), but should still respond to the W-9 form request to avoid possible erroneous backup withholding.