Form W-9 Best Practices

By Sean Sutton
Read Time: 3 minutes
TAINA Technology, w9, w9 form, w-9, w-9 form, form w-9, TIN, Tax Identification Number, IRS, Internal Revenue Service

W-9 Form Best Practices

The W-9 form serves as a conduit for taxpayer identification. Its primary function is to collect the Taxpayer Identification Number (TIN), either the Social Security Number (SSN) or Employer Identification Number (EIN), from the taxpayer. This facilitates accurate reporting and adherence to regulatory compliance by the requestor. This form, mandated by payers to ensure comprehensive record-keeping, continues to be emphasized with a crucial role in fiscal governance.


Best Practice for FI collection of Form W-9

Financial institutions have stringent compliance requirements, especially when it comes to collecting taxpayer information like the W-9 form. Here are some best practices they typically follow:


1.) Identify When to Collect Form W-9:

The Internal Revenue Code (IRC) Section 6109 requires the collection of TINs for various tax reporting purposes. Additionally, certain categories of income necessitate a certified TIN to prevent backup withholding. If a payee fails to furnish a valid TIN or provides an erroneous one, the payer may be obligated to withhold a portion of the payment as backup withholding, as stipulated in Internal Revenue Code (IRC) Section 3406.

The IRS requires the collection of W-9 forms in scenarios involving income reporting. This primarily encompasses earnings from interest, dividends, and other payments reported on Forms 1099. It also includes engagements with independent contractors and the establishment of specific financial accounts.

Firms which need to collect a certified TIN on a W-9 form must clearly communicate to customers or clients why the W-9 form is necessary, what it will be used for, and the legal requirements behind it. This helps foster understanding and cooperation. Aim to collect a W-9 form from customers as early as possible in the relationship, preferably at the account opening stage. This ensures compliance from the outset.


2.) Establish How to Collect W-9:

Provide secure channels for submitting W-9 forms from customers, such as online portals or encrypted email systems, to protect sensitive taxpayer information.

Firms may only need to collect a TIN directly instead of a W-9 form in situations where they have previously obtained the necessary information via a W-9 or other means. Additionally, there are cases where a firm may pay income under regulations which do not require a certified TIN.

However, it's important to note that the exact requirements can vary depending on the specific circumstances and legal regulations. In many cases, collecting a completed W-9 form is the preferred method for obtaining the necessary taxpayer information as it provides a standardized format and captures additional details that may be relevant for tax reporting purposes.


3.) Create Validation Procedures:

Implement validation procedures to ensure the accuracy of the information provided on W-9 forms. This process can be manual or through the use of 3rd party vendors. This may also include cross-referencing with other documents or utilizing the IRS TIN Match Program.

  • The IRS TIN Match Program is a service provided by the Internal Revenue Service (IRS) that allows authorized entities to match TINs with the IRS records.

  • This program is primarily used by businesses, financial institutions, and other entities to verify the accuracy of TINs provided by payees or account holders.
  • By verifying TINs through this program, entities can reduce the risk of errors, such as mismatches or discrepancies, in tax reporting and compliance.
    • Here's how the TIN Match Program typically works:
      • Request Submission: Authorized entities submit a request to the IRS to match the TINs they have on file with the TINs in the IRS database.
      • Response from IRS: The IRS compares the TINs provided in the request with its records. It then sends a response indicating whether each TIN matches the information in its database.
      • Verification Process: Upon receiving the response from the IRS, the requesting entity can verify the accuracy of the TINs on file based on the matching status provided by the IRS.
      • Correction or Follow-Up: If there are discrepancies or mismatches identified during the verification process, the entity can take steps to correct the information or follow up with the payees or account holders to obtain the correct TINs.

Overall, the TIN Match Program helps organizations maintain accurate records and comply with tax reporting requirements by verifying the validity of TINs provided by payees or account holders. It's an important tool in ensuring tax compliance and reducing the risk of penalties associated with incorrect or incomplete taxpayer information.

When a payer submits information returns to the IRS on Form 1099, they are required to include TINs for the payees. If the TIN provided does not match IRS records, the IRS will issue a CP2100 notice to the payer to alert them of the discrepancy; this is also known as “B-notice”.

The “B-notice” includes a list of payee TINs and mismatch codes which do not match IRS records and provides instructions for the payer on how to address the discrepancies. The payer is generally required to take specific steps to correct the errors, such as requesting a corrected TIN from the payee or providing additional information to the IRS.

Failure to address CP2100 notices and correct TIN discrepancies can result in penalties for the payer. Therefore, it's essential for payers to promptly review CP2100 notices and take appropriate action to ensure compliance with IRS regulations. Utilizing the TIN match tool provided by the IRS should reduce the volume of TINs identified on the CP2100 notice.


4.) Monitoring and Oversight

In addition to the TIN match option, a firm should:

  • Establish protocols for monitoring and updating customer information, especially in cases where there are changes in circumstances or account details.

  • Ensure staff members responsible for collecting W-9 forms are properly trained on compliance requirements and understand the importance of accurate record-keeping.
  • Offer support and assistance to customers who may have questions or concerns about filling out the W-9 form or providing taxpayer information.
  • Conduct periodic (at least annual) reviews of W-9 collection procedures to identify any areas for improvement and ensure ongoing compliance with regulatory requirements.
    • These are requested by the IRS when under audit.
  • Regularly review W-9 collection procedures to ensure they align with current regulations and legal requirements.


5.) Compliance

Maintain thorough documentation of the W-9 collection process and keep accurate records of all submitted forms for auditing purposes. This step is also important when a firm receives a 972CG penalty notice.

Form 972CG is a notice sent by the IRS to inform taxpayers of penalties assessed for late or incorrect filing of information returns, such as Forms 1099 and W-2G. A firm will find an overlap of accounts which were on the CP2100 the year before. Typically, 1099 reporting occurs for year 0, the CP2100 notice is issued in year 1, and the 972CG follows in year 2 after reporting.

The notice serves as a formal notification of the penalty amount and provides instructions on how to respond or appeal the penalty. Here's what you might find in a Form 972CG:

  • Penalty Information: The notice will detail the specific penalty assessed by the IRS, including the amount and the reason for the penalty.
  • Explanation: The notice will explain why the penalty was assessed, such as late filing or inaccuracies in the information return.
  • Instructions for Response: Form 972CG typically includes instructions on how to respond to the notice, including deadlines for any actions required.
  • Appeal Process: If you disagree with the penalty, the notice may outline the process for appealing the penalty decision.
  • Payment Instructions: If payment of the penalty is required, the notice will provide instructions on how to submit payment to the IRS.

Receiving a Form 972CG can be a serious matter, as it indicates that the IRS has identified issues with your information reporting compliance. It's essential to review the notice carefully and take appropriate action as instructed to address the penalties and avoid further consequences. If you believe the penalty was assessed in error, you have the right to appeal and provide any necessary documentation to support your case.

By following these best practices, financial institutions can effectively collect W-9 forms and ensure compliance with tax reporting regulations, aid in an abatement response to 972CG penalties, while safeguarding sensitive taxpayer information of their customers.


How can TAINA help?

We advise all our clients as best practice, to collect W-9 forms as it is a valid way to collect a certified TIN. This is regardless of whether the people that they will be paying will earn more than the 1099 reporting threshold in a calendar year.

The TAINA Platform continues to evolve to ensure we provide our clients with guaranteed reliable performance and robust compliance. With the help of Big 4, the TAINA platform has been updated to accept the W-9 2024 form which aligns with the latest IRS revisions.

TAINA also now offers seamless integration with the IRS TIN API, empowering our clients with real-time TIN checks for W-9 forms. This feature provides direct access to the official IRS TIN matching service within the TAINA platform, delivering significant benefits for TAINA clients.


If you have any questions about the W-9 form changes or TAINA's IRS TIN API please reach out to us.

If you would like to see how the TAINA W-8/W-9, FATCA, and CRS self-certification form Validation Platform can add value to your business, request a demo today.

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