Have you ever received a form called an W-9? W-9’s are sent to you usually by someone you do business with like a vendor, bank, or merchant credit card processing company asking for your federal identification number and other information such as your address and proper corporate or legal name.
It will also ask if you are subject to back-up withholding.
This is another innocuous looking form put out by the IRS which can be a trap if not dealt with properly.
When you open a bank account, merchant credit card account, make an investment or begin receiving payments reportable on Form 1099 such as interest, rent, dividends, miscellaneous income, cancellation of debt, or other payments, you will be asked to complete an W-9 form.
The payer, under rules promulgated by the IRS is obligated to hold back (withhold) 28% of the payment that is supposed to go to you if:
- You don’t give the payer your federal ID# in the required manner, or
- The IRS notifies the payer that the federal ID# you gave is incorrect.
A restaurant owner tells me the horror story that when he failed to correct a federal ID# with American Express, they withhold 28% of his customer’s American Express credit card receipts. Obviously this kind of mistake could be very costly in terms of cash flow as well as a bureaucratic nightmare to fix.
This is why it is important to open your mail in a timely fashion and if you don’t understand something, immediately contact your Kallas bookkeeper.