As a small business owner, you might have been approached by an independent contractor or freelancer who wants to work for your company; however, they ask you to fill out their Internal Revenue Service W-9 form in order for them to get paid.
But, what is form W-9?
After extensive research, our team of legal experts and business professionals will provide you with comprehensive steps on how you could fill out a W9 form for your LLC.
Quick Summary:
- To fill out a W9 for an LLC, individuals are required to provide their personal information - Tax Identification Number (TIN), legal name, address and business name.
- Determine your LLC's tax classification, requirements and liabilities.
- A W9 is a supplemental document attached to the 1099 form.
What is Form W-9?
Form W-9, Request for Taxpayer Identification Number and Certification, is a form that must be completed by people and businesses who receive money from you. It is used to:
- Determine if they're eligible to work in the US
- Determine them as a US person or Foreign National Identity and what type of taxpayer they are (business, individual, etc.)
Anyone who receives income from you must provide you with their taxpayer identification number (TIN) and certify that it is correct. This includes:
- Sole proprietorship
- Corporation
- S corporations
- Partnership
- Limited Liability Company (LLC)
You need to understand that filling out a W9 form is required by the IRS for people who receive $600 or more in compensation from your company in a year and are not employees (note: an LLC member counts as an employee).
Filling Out a W-9 Form
Filling out a W-9 form will require individuals to provide their legal name, official company name and determine which tax classification the entity falls into.
Line 1: Legal business name
When filling out the first sections of the Form W-9, you must use your legal name as it appears in the IRS records and your papers.
Line 2: Name of your company or disregarded entity name
Enter the full record name as mentioned in the Internal Revenue Service records.
Line 3: LLC tax classifications
Let's go through each LLC federal tax classification and how to fill out Form W-9 for each one.
C-Corporation tax status (C)
A C-Corp is a limited liability company that elects to be taxed as a corporation by the IRS. This is the option of being taxed as a C corporation. Whether there is only one member or many, this status can be assigned to the LLC.
- If your LLC is taxed as a C corporation, please check the box on line 3 of IRS form 8832.
- On the left side of the screen, click on “Completed Forms” and then “Form 941.” To the right of the LLC box, type “C.”
- On line 1 of the form, include the legal name of the LLC as it appears on IRS documentation.
- TIN- Enter the EIN, employer’s identification number
S corporation tax status (S)
An LLC that wants to be classed as an S corporation by the IRS must fill out Form 2553.
This is a paperwork choice to be taxed as an S corporation. Whether there's a single member or many, this status may be granted.
- If your LLC is taxed as a C corporation, check the box on line 3 of Form 941 and write in "S" to the right of the LLC box.
- Name- Enter the legal name of the LLC, as it appears on IRS documentation on line 1 of the form.
- TIN- Enter the EIN, employer’s identification number
Partnership tax status (P)
All LLCs with more than one member that has not chosen to be treated as an S or C corporation for tax purposes will be treated as a partnership by default.
- LLCs with two or more members should check the box on line 3 of the Form W-9 and enter "P" to the right of the box if they are operating as a pass-through entity.
- Name- Enter the legal name of the LLC, as it appears on IRS documentation on line 1 of the form.
- TIN- Enter the EIN, employer’s identification number
Single-member LLC (disregarded entity)
The IRS does not consider a single-member LLC to be a separate entity from its owner. In this situation, single members must fill out their Form W-9.
- Unless the single-member LLC has chosen to be classified as a C or S corporation, it should enter its owner's tax classification on line 3.
- Name- Enter the legal name of the LLC’s owner, as it appears on official documentation on line 1 of the form.
- TIN- Enter the owner’s SSN, social security number
Other Things To Know About A Disregarded Entity
Any foreign business will be considered a disregarded entity and may have any of these LLC classifications:
- Foreign General Partnership (GP)
- Foreign Limited Liability Partnership (LLP)
- Foreign Limited Liability Company (LLC)
If you are a Foreign General Partnership (GP) or Foreign Limited Liability Partnership (LLP), check the fourth box on the W-9. Fill out lines A – D as instructed.
Finally, if you are a Foreign Limited Liability Company (LLC), check the fourth box on the W-9. Fill out lines A – D as instructed.
Line 4: Exemptions
Individuals or organizations that are not subject to backup withholding or FATCA reporting can indicate it on line 4. They may do so by entering any of the four correct codes on this line.
Line 5 & 6: Address
To register, you must first type in your complete address. Then, go through the three statements in Part 2 and sign them to verify that they are correct.
Part II: Certification
By electronically signing your Form W-9, you verify that the data is accurate.
What is Form 1099?
IRS Form 1099 is a type of information return that reflects a contractor's yearly earnings as reported by the employing business. The W9 form is furnished by contractors or freelancers to provide information to the entity they work for.
Essentially, the information provided by the W9 will be used for filing a 1099 tax form.
FAQs
What Is Backup Withholding?
Backup withholding is a type of withholding tax. The IRS requires it in specific situations, such as when you do not provide your correct name and TIN to the payer (seller) or when the payer has no record of receiving your TIN and cannot reach you at your home or business address.
Is a W-9 Needed for an LLC?
Yes, W-9 is needed for an LLC as a way of streamlining the process for businesses, if you are an LLC with no employees and don't need to file a tax return, then check the box on line 3.
However, if you have employees or want to report taxes, check the LLC box on line 1 and fill out Form W-9 as normal.
Who Fills Out a W9 Form?
Independent contractors, real estate businesses and mortgage payor are required to fill out a W9 form.
What Percentage of Your Income is Taxed If You Fail to Fill a W9 Form?
If you fail to fill a W9 form, by law, your client must withhold taxes from your income at a rate of 24%. Whereas, if you furnish a W9 form, only 10% of your earnings is taxable.
Filling Out W9 for LLC
To recap, filling out Form W-9 as an LLC is not too complicated. As an LLC, you must submit a W-9 form if someone (a buyer) requests it, and there may be penalties for failing to do so.
Therefore, follow the steps and fill them in according to your business structure.
If you found the article helpful, you may want to read 8 Best Online Services (2023 Ranked & Compared)
References:
- https://www.investopedia.com/articles/personal-finance/082714/filling-out-w9-form.asp
- https://www.irs.gov/forms-pubs/about-form-w-9
- https://www.investopedia.com/terms/w/w9form.asp
- https://www.bankrate.com/taxes/tax-brackets/#tax-bracket-2023
