When Does Your Business Need A Form W-9?

An overview of how W-9 enables vendor-contractor tax compliance for businesses.

As of late, businesses have been hiring independent contractors to delegate work and get things done outside the business ecosystem at a faster pace. Businesses that hire these independent contractors are required to pay them with predefined compensations and variables. 

But prior to this, businesses are required to obtain the tax information from the vendor, such as the taxpayer identification number, name of the vendor/business, business details, and other information to onboard the vendor officially and add them to the vendor list.

Businesses solicit this information through Form W-9, an IRS informational return, which is designed to help businesses obtain this tax information, report the same information in the 1099 forms and process the payments in accordance with the predefined timelines. 

While this process may seem comprehensive, it is essential to follow this protocol to help validate the vendor from a regulatory compliance perspective and save your business from an additional tax burden and penalties.

So, How Does Form W-9 Help Businesses?

It’s been established that businesses need a W-9 to process vendor payments. However, W-9 also offers other intangible assets that are often overlooked. It enables a variety of compliance protocols and helps your business streamline reporting and regulatory operations. This will be discussed in detail as follows. 

Scenario #1: Obtaining tax information from vendors 

Form W-9 is used by businesses to obtain the tax information from the vendors through a legal and compliant capacity. The vendors are required to furnish their business details and tax information in the form accurately, sign it, and send the completed form back to the payer.

Scenario #2: Validating the incoming vendors 

The furnished information is validated against the IRS TIN Match database to check if the details match the IRS records in real-time. You can use Tax1099’s TIN Matching for quick and accurate TIN checks. The validation process enables you to check if the provided TIN and name combination is correct and valid. If the information doesn’t match the IRS records, it means that the vendor has provided the wrong information.

Scenario #3: Preventing IRS notices & penalties 

By validating the TINs against the IRS records, you are preventing your business from being assessed B-notices and penalties for reporting incorrect TINs. It is no secret that the IRS has accelerated its voluntary compliance operations and is after businesses that are willfully reporting incorrect information and evading taxes. Every incorrect TIN in this context would cost your business at least $250 in penalties.

Scenario #4: Accelerating regulatory reporting

In order to onboard a vendor; you are validating the vendor TIN and name information. To do that, you have to prioritize KYC operations. This requires you to identify and validate the tax information in a feasible yet effective manner. So, a simple informational form is changing the way you approach business, tax, and compliance. 

Are There Any Automated W-9 Solicitation Options?

Tax1099’s W-9 Solicitation powered with TIN Matching API allows you to identify, validate, and verify your vendors. 

Firstly, the W-9 forms can be scheduled to be sent on a predefined date to allow your vendors an interval period in which they can furnish the information, sign the form electronically, and get back to you.

Tax1099 will alert you when the forms have been updated with the digital signatures of the vendors. The latest information can be verified against the real-time IRS records to validate if the TINs are correct and valid. 

If correct, the TINs will be populated in the 1099 forms as needed in the future. If not, the W-9 forms will be rejected and the vendors will be required to furnish the correct TIN information this time around. 

This allows you to obtain accurate tax information from the vendors and report accurate vendor tax details in your 1099 forms, allowing you to establish regulatory reporting and tax compliance. Sign up here to get started.

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