Form W-9 Will Have a New Update for the 2023 Tax Year!

Are potential changes coming to the IRS Form W-9? Read this blog to find out!

2023 update to Form W-9

As we get closer and closer to the end of the year – and the upcoming 2023 tax season, now is the time to catch up on any IRS updates. Knowing this information ahead of time will help you understand any effects on your business. This will ultimately help you have a smoother tax season!

Form W-9 might not sound like your typical tax form, but it’s a big deal when it comes to filing 1099s and other info returns. Especially if you’re a contractor or a vendor. If you’re a vendor, you must furnish a W-9 to the businesses that hired you. Why? So they can properly report the payments made to you on a 1099.

While the structure of this form has remained the same for the past several years, there are changes on the horizon for the near future. The IRS released a draft version of Form W-9. While this form hasn’t been finalized yet, it provides an opportunity to prepare for the projected changes. 

What’s New on Form W-9, and What’s Not?

There aren’t many differences between the current version of Form W-9 and the new draft released by the IRS. However, the draft version introduces a new line, Line 3b. The original Line 3 has now been split into separate questions, appearing on Line 3a and Line 3b

IRS draft of Form W-9
IRS Draft of Form W-9

To see the complete IRS draft of Form W-9, click here.

While line 3a requires you to indicate your federal tax classification, line 3b comprises a checkbox that you should check if you have any foreign partners, owners, or beneficiaries. As per the instructions, this line is applicable to flow-through entities. 

As you can see in the draft above, Line 3a requires business entities to enter their federal tax classifications. These classifications include:

  • Individual / Sole Proprietor / Single-Member Limited Liability Company (LLC). 
  • C corporation
  • S Corporation
  • Partnership
  • Trust/Estate
  • LLC (the LLC must also indicate how they are treated for tax purposes, whether that be as an S-corporation, C-corporation, or Partnership). 

This new addition, Line 3b requires business entities to check this box if both of the following apply:

  • You checked “Partnership” or “Trust/estate” on line 3a (and you are providing this form to a partnership, trust, or estate)
  • You have any foreign partners, owners, or beneficiaries

According to the updated IRS instructions: 

This line is designed to indicate whether a flow-through entity has any direct or indirect foreign partners, owners, or beneficiaries when they provide their W-9 to another flow-through entity. 

Flow-through entities are businesses where generated income flows directly to their shareholders or owners. Rather than reporting the total income in the business tax returns, these shareholders report their individual share of income on their personal tax returns.

Apart from these, the draft doesn’t indicate any additional changes. It’s crucial to emphasize that the draft form is not a finalized version, and there remains a possibility of further adjustments until the final release.

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