Do LLCs Need to Provide or Receive W-9s?

Completion of form W-9 is an IRS requirement.

Form W-9, the Request for Taxpayer Identification and Certification, is one of the Internal Revenue Service’s most widely used forms. Large companies, financial institutions and other organizations often ask their service providers, suppliers and independent contractors to submit this form. Companies use the information on W-9s to track payments made and to compile 1099s for a given tax year. Small businesses of any type, including LLCs, should comply with a request to submit a W-9.

 

Form W-9 Purpose

The IRS requires that certain people file information returns for various transactions, such as income paid to others, real estate sales and purchases and debt cancellations. Such people must obtain the correct taxpayer identification number, or TIN. For corporations and other separate legal structures, the employee identification number, or EIN, is required. The W-9 form is how these people obtain the taxpayer information they need. At the end of the year, requesting entities use the information to complete the 1099 form, which is due by February 15 following the end of the preceding tax year.

 

W-9 Applies to U.S. Persons

Form W-9 only applies to U.S. persons. According to the IRS, for federal tax purposes the definition of a U.S. person includes individuals who are U.S. citizens or resident aliens. A “U.S. person” also includes corporations, partnerships and limited liability companies created or organized in the U.S. or under U.S. laws. Hence, LLCs do need to complete W-9s when requested.

 

Backup Withholding

If you do not complete a W-9 when requested, payments made to your LLC may be subject to backup withholding. A completed W-9 must include the TIN or EIN and the signature of a member or representative certifying that the information is true and correct. Because having the W-9 on file prevents this backup withholding, you may wish to submit a completed W-9 with your initial invoice to any entity to which you expect to provide more than $600 in services.

 

Obtaining W-9s from Service Providers and Contractors

If you operate your business as an LLC, like other “U.S. persons”, you are required to file information reports, or 1099s, for all payments made to service providers and independent contractors. Therefore, you need to request a W-9 from all applicable individuals and entities, including other LLCs. If you do not, the law requires that you withhold 28 percent of the money paid to that individual or entity. Obtaining W-9s ensures your compliance with IRS regulations.

 

 

References