We recently wrapped up the yearly task of filing hundreds of 1099s on behalf of our clients. We determined which of our clients’ vendors received a 1099 based on the Form W-9 we requested from them. (Check out our separate blog post covering 1099s – who needs them, what they’re for, when they’re required, and more.)
If you’re new in business or haven’t been asked for a W-9 yet, it’s a good idea to fill one out now so that you can provide one when requested. Many companies will not issue payment to a vendor until they’ve received a W-9 – a practice we fully support!
In theory, the W-9 is a simple one-page form – but somehow, it still manages to be confusing! The IRS has 5 pages of instructions with Form W-9, as well as 7 pages of instructions for those requesting the form from a vendor. You’re more than welcome to read it all for yourself – or, you can follow this guide, which breaks it down line by line and highlights some of the most common mistakes we see on W-9s.
Before You Begin
Before we look at the form, there are a few items you can bring to the table that will make filling it out a breeze:
- Your business structure
- Do you have a sole proprietorship? Partnership? S-corp? LLC?
- Type of tax return you file for your business
- Does it all run through your personal 1040 return, usually on Schedule C or E? Do you file a separate 1120, 1120S, or 1065 return for your business?
- Your social security number and/or TIN (taxpayer identification number) or EIN (employer identification number)
Filling out Form W-9
Line 1 – Name of entity/Individual
As the form says, if you’re a sole proprietor or disregarded entity, enter your full name as it appears on your 1040 tax return.
If you’re an entity, enter your entity’s name as it appears on your entity’s 1120, 1120S, or 1065 tax return.
In case you don’t know whether you have a disregarded entity, a disregarded entity is a business entity that: (1) has a single owner, (2) is not organized as a corporation, and, (3) has not elected to be taxed as a separate entity for federal tax purposes. The most common disregarded entity is the single member limited liability company.
Warning: Whatever you do, fill out this line. Do not leave it blank.
Line 2 – Business name/disregarded entity
If you entered your full name on line 1, enter your business name, trade name, DBA name, or disregarded entity name here.
If you file a 1120 or 1065 tax return, you entered your corporation name on line 1, so leave this line blank.
Line 3a – Check a box!
Knowing your business structure and tax return form makes this a piece of cake – just check the correct box.
Some hints, based on which tax return you file:
- 1040 and/or Single member LLC
- Individual/sole proprietor
- 1065
- Partnership or LLC taxed as Partnership
- 1120
- C corporation or LLC taxed as C corporation
- 1120S
- S corporation or LLC taxed as S corporation
Warning: Check only one box in this section.
Line 3b
The instructions on this line are fairly straightforward.
Line 4
This field is usually left blank. However, if your business has exemptions, refer to the instructions on page 3-4 to find the correct code for your situation.
Lines 5 and 6 – Address
Pretty sure you can handle this one on your own without further explanation. 🙂
Line 7 and Requestor’s name and address (optional)
Both of these boxes are optional. If the party requesting the W-9 would like this information included, feel free to fill it in. Otherwise, keep it vanilla so that you can copy this form for anyone requesting it.
Part 1 – Taxpayer Identification Number (TIN)
If you put your name on line 1, you must enter your social security number here, even if you have an EIN for your sole proprietorship.
If you are a corporation, you will enter the EIN of your corporation.
Warning: This is the part of the W-9 where we see the most mistakes and mismatches. We’ll discuss what happens when the IRS flags a mismatch in just a bit.
Part 2 – Certification
Hold up your right hand and read the statements in this section out loud. Just kidding – you don’t have to go quite that far, but give this section a decent skim to make sure you know what you’re attesting to.
Put your John Hancock on the line, write the date, and you’re done!
The great thing is that once you fill this out, you won’t need to fill it out again, as long as your business structure and address stays the same. If someone requests the document from you, just make a copy of the original and send it off – whether by mail (for that old-school charm!), securely online (because it’s the 21st century!), or even by fax (yes, fax machines still exist, especially in banks and medical offices, and surprisingly, they’re pretty secure!).
Common Mistakes
In the months after filing 1099s, we inevitably receive a few letters from the IRS. These are CP2100 or CP2100A notices, which let us know that the vendor’s name and/or TIN on the 1099 didn’t match IRS records.
If we receive one of the notices, we are required to follow up with the vendor to request a corrected W-9. If the vendor doesn’t respond within 30 days, we would begin backup withholding of 24% from future payments. It pains us to do this, which is why we emphasized certain areas of the form. These are the most common mistakes on W-9s:
- Picking the wrong tax classification
- Checking LLC, but not indicating whether it’s C, S or P
- Using an old address
- Leaving out your SSN or EIN
- Forgetting to sign
We know that filling out a W-9 isn’t the most exciting part of doing business, but it’s a necessary step to ensure you get paid without any IRS headaches down the road. If you have any questions on filling out your W-9, feel free to ask us. Once you’re confident that you filled it out correctly, you can get back to doing what you do best – growing your business and cashing those checks.