This post is part of a larger presentation I give on the topic of Form 1099-MISC and related topics. Form W-9 is one of those “related topics.”
Form W-9 comes into play when a business pays a contractor. It helps the paying business:
- Know if it needs to issue a 1099-MISC to the contractor, and
- Gathers the necessary information for the business to issue the 1099-MISC if it needs to.
Line-By-Line Through Form W-9
You know the party is about to get cranked up when the accountant says “let’s go line-by-line through the tax form!” The W-9 is short and some of the lines are self-explanatory such as “City, State, ZIP.” We are focusing on the lines that may not be so straightforward.
Line 1: Name
So this is an easy one, right? Not if it’s a 1-person LLC!
As we will see in this article, 1-person LLCs get tricky, and I have had people argue with me about the W-9 and 1-person LLCs. But this is what the W-9 instructions say.
The name to put on Line 1 is as follows:
- Sole proprietor or a 1-person LLC taxed as a sole proprietorship: put the proprietor’s personal name here. DO NOT PUT THE LLC NAME HERE.
- Partnerships, including multi-member LLCs taxed as partnerships: put the partnership or LLC name here.
- Any type of entity taxed as a corporation (including an LLC of any size taxed as a corporation): put the legal name of the entity here.
Line 2: Business Name/Disregarded Entity Name
This line will often be left blank but is used in the following situations:
- A 1-person LLC taxed as a sole proprietorship puts the LLC name here.
- Any entity that has a “dba” puts the dba name here.
- Example: sometimes a corporation will have a “real” corporate name on its underlying legal documents but a different name that it holds itself out to the public as. This business will put the real corporate name on Line 1, and the dba name on Line 2.
Line 3: Tax Classification
This is straightforward except for LLCs (of course!).
- Sole proprietors AND 1-person LLCs taxed as sole proprietorships check the box that says “Individual/sole proprietor or single-member LLC”
- Corporations (NOT LLCs that have elected corporate tax treatment) will select either the C or S box to indicate that they are a C-corp or an S-corp.
- True partnerships (NOT LLCs taxed as partnerships) check the “Partnership” box.
- Trusts or estates check the “Trusts or Estates” box.
- LLCs have a section of their own:
- 1-person LLCs taxed as sole proprietorships: put nothing here as they simply check the “individual/sole proprietor” box.
- Multi-member LLCs will check the LLC box and then enter a “P” on the line.
- Any LLC that has elected to be taxed as a corporation checks the LLC box and then enters an “S” or a “C” on the line to indicate whether it’s an S-corp or a C-corp.
Line 4: Exemptions
I am not going to spend a lot of time on this line other than to say: this line is for exemptions from backup withholding or FATCA withholding. FATCA means foreign bank accounts and foreign investments and is beyond the scope of what we can talk about here. With backup withholding, individuals will seldom be exempt from backup withholding. However, a corporation would enter exemption code “5” here.
The only other line to fill out (aside from address) is the SSN or EIN line. This seems simple but again, 1-person LLCs can complicate things!
Did you know: a 1-person LLC taxed as a sole proprietorship will but the PROPRIETOR’S SSN (or EIN, if they have one in their name personally) on this line, NOT the LLC’s EIN.
Connection to Schedule C
I often say working in taxes everyday is like being trapped in a maze from which you can never escape, but the maze sometimes reveals new areas. Such is the case here. Regarding 1-person LLCs, the instructions to Schedule C say to only put the LLC EIN if the LLC has an EIN for employment taxes, a retirement plan, or various excise taxes. Otherwise a 1-person LLC taxed as a sole proprietorship leaves the EIN line blank.
This is similar to the instructions to the W-9 but a little different. Remember, the W-9 says to not use the LLC EIN at all, whereas the Schedule C says the EIN can be put there in certain circumstances.
One way to keep 1-person LLCs straight is this: a 1-person LLC is taxed as a sole proprietorship by default, and the IRS term here is that the LLC is a “disregarded entity.”
Interpreted literally, this means the existence of the “entity” is “disregarded” for federal tax purposes. So when filling out the W-9, it’s as if the LLC doesn’t exist, and so you use the proprietor’s information on the form.