The Consequences of Failing to Provide a Correct W-9 Form

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The IRS W-9 Form is a tax document used in the United States to provide a taxpayer identification number (TIN) to a person or entity requesting it. Individuals and businesses commonly use this form to provide their TIN to third parties, such as banks or other financial institutions, for tax reporting purposes. The information on the W-9 Form is used to make other tax forms, like the 1099 series, which reports income other than salaries and wages.

Failing to Provide a Correct W-9 Form
Failing to Provide a Correct W-9 Form

The IRS has said that people and businesses will have to pay fines if they don’t fill out and send in the W-9 Form correctly.

If a taxpayer fails to provide their correct tax identification number, they may be subject to a $50 penalty for each instance of non-compliance. This penalty can be dropped if the taxpayer can show that they didn’t follow the rules on purpose.

In addition, providing incorrect information that leads to incorrect withholding can result in a civil penalty of up to $500. Continued non-compliance can result in criminal penalties, including fines and imprisonment.

Requesters of taxpayer information, like banks or financial institutions, can also face civil or criminal penalties if they share or use taxpayer identification numbers (TINs) in a way that breaks federal law.

What is backup withholding?

One potential consequence of failing to provide a correct TIN on a W-9 form is being subject to backup withholding. This means that the person or entity paying you must withhold a portion of your income and remit it to the IRS as a tax payment form. The current backup withholding rate is 24% of your income. If you are subject to backup withholding, this can cut your income by a lot.

How to avoid backup withholding

You can take a few steps to avoid being subject to backup withholding. Firstly, ensure that you provide a correct TIN on your W-9 form. This includes ensuring that your TIN is accurate and matches your tax return’s name and social security number (SSN) or employer identification number (EIN).

Secondly, promptly submit your W-9 form to the person or entity requesting it. The person or entity paying you is required to start backup withholding if they have yet to receive a correct TIN from you within 15 days of requesting it, so it’s essential to submit your W-9 form as soon as possible.

Finally, if you receive a notice from the IRS indicating that you are subject to backup withholding, take steps to correct the issue as soon as possible. This may involve providing the correct TIN on a new W-9 form or contacting the IRS to resolve any discrepancies or problems with your TIN.

Conclusion:

Failing to provide a correct TIN on a W-9 tax form can result in being subject to backup withholding. This can significantly reduce your income and can be avoided by accurately and timely completing the W-9 form. It’s important to make sure your W-9 form is correct, so you don’t have to deal with backup withholding.