This form is crucial for the interaction between the company and the contract workers, freelancers or self-employed persons. The main purpose is to verify the legitimacy of the transaction and that all the taxes are paid.
W-9 form are required when the company pays a certain amount of money to the vendor within a fiscal period. Details and money limits are listed in the following table.
|Type of Business Interaction||Total Payment for the Fiscal Year|
|Labor and Services||over $600|
|Direct Sales||over $5,000|
If the sum paid to the contractor exceeds the stated limit, these payments should be reported to the Internal Revenue Service. To complete the information return, the financial institutions request vendors to fill in W-9 which contains all the necessary details such as:
- Social Security number or Tax Identification number.
Some other kinds of information can be requested as circumstances require.
Deadlines: When is a W-9 Necessary?
It is up to the submitter to decide when W-9 forms are due. However, most companies will hold payment until the vendor submits the completed paper. There may also be a $50 penalty if the paperwork is not completed.
The range of cases in which the service providers have to submit this document includes:
- interest on the mortgage paid;
- payments to an individual retirement arrangement;
- certain deals involving real estate;
- debt defiance;
- abandonment or acquisition of secured assets.
Both parties of the transaction are interested in the paperwork completion. This protects the customer from paying to unabiding vendors who are involved in tax evasion. The service provider also stands to benefit as the client can be sure that the business is safe to pay.