Why is my customer asking for Form W-9?An entity (u201cthe payeru201d) that makes payments in the normal course of their business is required to report certain specific payments to both the IRS and to the person or entity paid (u201cthe vendoru201d) at the end of each year. This is typically done using Form 1099. The IRS calls this u201cInformation Reportingu201d and the process is similar to the way that employers report wages on Form W-2.Therefore, when the payment for a product or service is required to be reported on Form 1099, the payer must have the vendoru2019s taxpayer identification number (TIN). The TIN is the way the IRS identifies the vendor in their records. The TIN is typically a social security number (SSN) or an employer identification number (EIN).When the IRS receives the payment information on Form 1099 they compare that information to the income the vendor reported on their income tax return. If the vendoru2019s tax return does not include all the payments reported on Form 1099 then the IRS will likely take steps to determine why all income earned was not reported.Consequence of not submitting a W-9If the payer does not receive a TIN number from the vendor, the payer will not be able to specifically identify the vendor on Form 1099. The IRS will then require the payer to reduce their payment to the vendor by 24% and remit this amount to the IRS (See our blog on backup withholding).The IRS will hold the payer responsible for this 24% if they donu2019t obtain the TIN number or withhold 24%. Additional penalties and interest could also be assessed on top of the 24%. Therefore, most payers put procedures in place to obtain the vendoru2019s TIN number in advance of making any payment. Requesting Form W-9 to be completed is the standard process that the IRS has created for payers to obtain the TIN number.CONCLUSION: Vendors are not required to submit a Form W-9, however, the likely result would be a 24% reduction in the payment to them by their customer.Examples of Information ReturnsExamples of information returns that use information from Form W-9 include, but are not limited to, the following:u2022 Form 1099-INT (interest earned or paid)u2022 Form 1099-DIV (dividends, including those from stocks or mutual funds)u2022 Form 1099-MISC (various types of income, prizes, awards, or gross proceeds)u2022 Form 1099-B (stock or mutual fund sales and certain other transactions by brokers)u2022 Form 1099-S (proceeds from real estate transactions)u2022 Form 1099-K (merchant card and third-party network transaction)u2022 Form 1098 (home mortgage interest), 1098-E (student loan interest), 1098-T (tuition)u2022 Form 1099-C (canceled debt)u2022 Form 1099-A (acquisition or abandonment of secured property)Use Form W-9 only if you are a U.S. person (including a resident alien), to pryour correct TIN.For more information on Form W-9 visit our blog at https://www.w9manager.com.