As a business owner, filling out the W-9 is crucial in regulatory compliance, ensuring business transactions unfold smoothly and by IRS guidelines. The W-9, formally known as the “Request for Taxpayer Identification Number and Certification,” is not a tax return but rather a critical document that facilitates the flow of accurate tax information between a payer and payee.
This blog will explain the W-9 process and help businesses to easily navigate and complete the W-9 for an LLC.
What is a Limited Liability Company (LLC)?
A limited liability corporation (LLC) is a business entity created under state law in the United States and prevents individuals from being liable for the company’s financial losses and debtliabilities.
An LLC can be considered as a corporation, partnership, or Disregarded Entity for federal tax purposes. LLCs can be seen as a hybrid structure that incorporates elements of both partnerships and corporations.
Purpose of Form W9 for an LLC
Form W-9 is an IRS document that payees will use to share their TIN information with their payers. Their payers, in turn, will use this information to file 1099 forms to report the payments they made.
A common example of a ‘payee’ is an independent contractor. When a business contracts them to do work they become the independent contractor’s ‘payer’.
Therefore, when an independent contractor or freelancer the business hires makes $600 or more a year, they must complete the W-9 form. This also applies to businesses that get payments totaling more than $600 from a business partner.
Typically, LLCs may be required to fill out a W-9 form when they are involved in any contractual work with other businesses and have received payments for the services they rendered. The payments may also include debt cancellation, non-employee income, mortgage interest income, etc. This is one of the most important reasons to understand how to fill out a W-9 form for an LLC.
Federal Tax Classification of LLC
To complete Form W9 for an LLC, knowing about the Federal Tax Classification of LLCs is essential. The LLCs are classified into two types. They are:
Single Member LLC
The term single member is used to recognize that the LLC has a single owner. A single-member LLC is also a Disregarded Entity for federal tax purposes.
The term multi-member is used to describe this LLC that has two or more owners. A business with multiple owners operates as a partnership by default unless registered with the state as an LLC or Corporation. Multi-Member LLCs are classified into 3 types based on tax classification. These are: Partnership, S-Corporation, or C-Corporation.
Name/Business Name: The business must enter their information based on how their LLC is classified for federal tax purposes:
If the business is classified as a Single Member LLC, enter its name on Line 1 and its DBA name (if any) on Line 2.
If the business is classified as a Multi-Member LLC (treated as a Partnership or Corporation)- enter the business name on Line 1 and enter a trade or DBA name if they have one on Line 2.
[Note: If the business does not have a trade or DBA name, leave Line 2 blank]
Federal Tax Classification: In this section, the business must check the appropriate box for federal tax classification based on how their LLC is classified:
If the business is classified as a Single Member LLC, check the box as “Individual/sole proprietor or single-member LLC.”
If the business is classified as a Multi-Member LLC( treated as a Corporation or Partnership), check the box “Limited Liability Company” and enter the tax classification (C=C corporation, S=S corporation, P=Partnership)
Taxpayer Identification Number(TIN):
The most critical section to complete Form W9 for LLC is the Taxpayer Identification Number(TIN) information. The business must provide its TIN – it can be either a Social Security Number (SSN) or Employer Identification Number (EIN) based on the following conditions.
If the business fills in as a Single Member LLC, they must enter their Social Security Number (SSN).
If the business fills in as a Multi-Member LLC (classified as a partnership or corporation), they must enter their Employment Identification Number (EIN)
Additionally, the business should fill in the other required fields, such as address and exemption codes as they apply.
Fill out Form W9 for an LLC with TaxBandits
By understanding the complexities of the W-9 Form, LLCs can streamline their tax reporting processes and maintain compliance with IRS regulations.
TaxBandits is here to confidently guide LLCs with the knowledge needed to tackle the W-9.
TaxBandits, as an authorized E-file service provider, offers a Fillable W9 solution that allows the LLCs to complete Form W9 and share the Form W9 electronically with the businesses(payers) who requested it.
Plus, LLCs can take advantage of the TaxBandits W9 Manager when it comes time to request and collect W9 forms from their independent contractors and store them in one place for easy 1099 filing!