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What Is a W-9 and Why Does My Financial Institution Want Me to Sign One?

What Is A W-9 And Why Does My Financial Institution Want Me To Sign?

If your financial institution has requested a W-9, you may be wondering about the purpose of this form, how to complete it, and why your bank needs it. Luckily, this form is fairly straightforward. To get a sense of the essentials, check out this list of frequently asked questions.

1. What Is A W-9 and Why Does My Financial Institution Want Me to Sign One?

A W-9 (Request for Taxpayer Identification Number and Certification) is a form created by the Internal Revenue Service (IRS). Businesses use this form to collect the tax ID numbers of individuals or other entities. Once they have the form, businesses don’t send it to the IRS. Instead, they just keep it in their files. Then, when they report information to the IRS about payments made to you, they have your tax ID number, and they can note that number on their documents.

2. When Do Financial Institutions Request W-9 Forms?

Generally, banks request a W-9 form when they issue income to you. Typically, the income is interest or dividends, and the bank issues a 1099 form to report the income to the IRS.

Your bank includes your tax ID number on the 1099 form so that the IRS knows who received the payments. In many cases, you provide your tax ID number when you open your account, and if your bank already has those details, it may not request a W-9 form.

3. Why Do Foreign Financial Institutions Request W-9 Forms?

If you have accounts with financial institutions from other countries, they may also request a W-9 form. This includes banks, investment companies, brokers, and even some insurance companies.

These institutions have to report information to the IRS based on the Foreign Account Tax Compliance Act (FATCA). Designed to reduce tax evasion, the FATCA requires foreign financial institutions to report information related to accounts held by U.S. taxpayers or other entities (businesses, trusts, etc) that are primarily owned by U.S. taxpayers.

4. What Are FACTA Requirements for Banks?

FACTA requires foreign banks to notify the U.S. government about accounts held by Americans. To comply with FATCA, foreign banks need to know the name, tax ID number, address, account number, and balance of all American account holders. In most cases, foreign banks have your name, address, and balance, but they may not have your tax ID number. As explained above, they use a W-9 to obtain your tax ID number.

Foreign banks must report all accounts held by U.S. citizens, including pensions, stocks, partnership interests, mutual funds, foreign-issued life insurance, hedge funds, and foreign real estate. If you don’t submit a W-9, the bank may not be able to make a report to the IRS. At that point, the bank may close your account, or the bank may send a noncompliance report to the IRS, causing the agency to red flag you for potential issues.

5. What Type of Income Can You Receive From a Bank?

Financial institutions may pay you interest. For instance, most savings accounts earn interest, but you can also earn interest from bonds or other accounts. Banks must produce a 1099-INT on your behalf if you earn more than $10 worth of interest.

On top of that, you may receive dividends from investments such as stocks or mutual funds. If you have a company processing merchant payments for you, that entity may also request a W-9 and generate a 1099 for you.

6. What Information Do You Put on a W-9?

Luckily, W-9 forms are fairly short and easy to complete. To fill out this form, you need the following details

  • Your name
  • Business name if applicable
  • Your federal tax classification
  • Address
  • Tax ID number
  • Signature

If you are an individual, your federal tax classification is simply individual and your tax ID number is your Social Security Number (SSN) or Individual Tax Identification Number (ITIN). However, sometimes, you may fill out this form on behalf of your business. Then, your tax classification may be sole proprietorship, C-corporation, S-corporation, partnership, trust, estate, or limited liability company (LLC), and you can use an Employer Identification Number (EIN) as your tax ID.

7. What Is a Substitute W-9?

Some entities may request a substitute W-9 from you. As a general rule of thumb, the substitute form requests the same information you provide on the actual form.

Often, companies use a substitute form if they need your tax ID for state revenue agencies. If you receive a substitute W-9, you can request to use an actual W-9, or you can talk with your accountant to see if you should fill out an actual W-9.

8. Who Else May Request a W-9?

Essentially, any individual or business who might issue you a 1099 may request a W-9 from you. In particular, if you do freelance work for a company, they typically request a W-9.

In this situation, businesses are only required to issue a 1099 if they pay you more than $600 in a tax year. However, some businesses ask for W-9 at the beginning of your work relationship so that they have your information just in case your payments go over the $600 threshold.

9. Who Can Complete a W-9?

To fill out a W-9, you must be a U.S. person. This includes citizens and legal residents with authorization to work in the country. It also includes partnerships, corporations, or other associations based in the United States. Domestic estates and trusts can also fill out a W-9.

10. What If You Don’t Qualify to Use a W-9?

If you aren’t a U.S. citizen or if you don’t qualify to complete a W-9 for any other reason, you should fill out a W-8 form. The W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) is for individuals. The W-8BEN-E is for other entities such as foreign trusts, estates, or businesses.

Similar to the W-9 form, the W-8 requires your name, address, and signature. But it also needs your county of residency. When you aren’t a U.S. based person, the entity paying you may need to withhold a certain amount of tax from your payments, and to ensure they don’t withhold too much, you can note the correct tax rate based on the tax treaty between the United States and the country where you reside.

11. What If I Don’t Know My U.S. Status?

Some people may not be sure if they are a U.S. citizen or not. For instance, if you have citizenship in another country, you may not be sure if your U.S. citizenship is still intact. In that same vein, if you run a business in two countries, you may not be sure if your business qualifies as based in the United States.

In these situations, let the financial institution know that you are unsure of your status. They may be able to do some investigating and figure out your status for you.

Alternatively, consider contacting a tax professional to find out your status. Of course, in addition to understanding your residency and citizenship status in relation to the W-9 status, you also need to know your status for other tax documents.

12. What Happens If You Don’t Fill Out a W-9?

When you are requested to fill out a W-9 but you don’t, your financial institution will not have your tax ID number. In that situation, they may be required to do backup withholding. As of 2019, they must withhold 24% of your payments and pay that amount to the IRS. Then, you may be able to claim a refund, as applicable, from the IRS when you file your tax return.

The financial institution or anyone else who issues you payments may also have to use backup withholding if they have an incorrect tax ID number for you or if the IRS instructs them to do backup withholding.

If a foreign financial institution requests a W-9 and you refuse to fill out the form, the institution may not be able to meet its requirements under FATCA, and it may close your accounts.

13. How to Claim Exemptions from FATCA?

Some people are exempt from the reporting requirements created by FATCA. If you qualify for an exemption, you can note that on your W-9. You may receive exemptions in the following situations:

  • You are exempt from tax under section 501(a)
  • You have an individual retirement plan as defined by section 7701(a)(37)
  • You represent the United States or one of its agencies
  • You represent a state, the District of Columbia, a U.S. commonwealth or possession, or any other related entities
  • You are filing a W-9 on behalf of a corporation that regularly trades its stocks on an established security market
  • You are a security, commodities, or derivatives dealer registered in the United States
  • You are filing the W-9 for a real estate investment trust (REIT)
  • You are completing the W-9 on behalf of a bank you run
  • You are a broker
  • You are filing the W-9 on behalf of a trust
  • Your trust is exempt under section 403(b) or 457(g)

14. Do You Have to Provide Information to the IRS?

When you fill out a W-9 for a foreign financial institution, the financial institution uses your information to generate a report to send to the U.S. government. Depending on your situation, you may also need to submit some information to the IRS as well. In particular, you may need to file a Report of Foreign Bank and Financial Accounts (FBAR) or form 8938.

15. What Is the Foreign Bank and Financial Accounts Report (FBAR)?

If you are a U.S. person (including citizens, resident aliens, and trusts or estates based in the United States), you must file a

FBAR report if you have more than $10,000 in foreign accounts. Note that this number is the aggregate total of all foreign financial accounts opened at any time during the year. If you have $5,001 in one foreign bank account and $5,000 in other foreign investments, you are over the threshold and must complete this form. You need to file the FBAR electronically using the BSA E-Filing System..

16. What Is Form 8938?

Additionally, you may also have to file Form 8938 (Statement of Specified Foreign Financial Assets). As of 2019, people living in the United States only have to file this form if you have more than $50,000 in foreign assets at the end of the tax year or more than $75,000 in foreign assets at any time during the tax year.

If you’re living outside the United States, you only have to file this form if you have more than $200,000 in assets at the end of the tax year or more than $300,000 at any time during the tax year. These thresholds are for individuals and for taxpayers who are married filing separately, and you should double these numbers if you are married filing jointly.

17. Where Can You Get a W-9?

If a financial institution requests a W-9, you can ask them to send you the form. They can email the form as an attachment or send you a copy in the mail. With an emailed copy, you may be able to fill out the form online and then add a digital signature. Alternatively, you may have to print out the form, fill it in by hand, and then scan, save, and return it.

You can also get a W-9 from a tax professional. You can even authorize them to fill out the W-9 on your behalf. Finally, you can find copies of the W-9 form on the IRS website for easy downloading.

18. Do You Need to Be Careful With a W-9?

Because a W-9 contains your tax ID number and other identifying information, you want to ensure it doesn’t get into the wrong hands. If you mail the W-9, don’t make any notes on the outside of the envelope, and consider putting a blank piece of paper around the form so that no one can see anything through the envelope.

If you’re sending the W-9 over email, make sure you are sending the form to the right address, and try to avoid sending sensitive information over public WiFi. When you’re on public WiFi, hackers can track your keystrokes. Ideally, you should use a password-locked personal WiFi or create a virtual private network (VPN) before transmitting anything sensitive.

Beyond those essentials, don’t provide a W-9 to individuals, companies, or financial institutions that you don’t know. If someone requests a W-9, ask why they want it, and if you’re still unsure, consult with a tax professional to decide what you should do.

19. What Happens After You Provide a W-9 to the Bank?

As indicated above, when you fill out a W-9, the financial institution uses that information to create a 1099 for you. There are a variety of different 1099 forms including the following:

  • 1099-DIV for dividend income
  • 1099-MISC for freelance income, prizes, and awards
  • 1099-B for income earned by selling stocks, mutual funds, and other transactions handled by a broker
  • 1099-S for proceeds from real estate transactions
  • 1099-K for payments received through merchant card transactions or third party network transactions
  • 1099-C for canceled debt — if financial institution allows you to settle the debt for less than you owe, you receive a 1099-C if you save more than $599
  • 1099-A for acquisition or abandonment of secured property

If you earn money from home mortgage interest or student loan interest, the financial institution may use the information from your W-9 to create a 1098.

20. What If You Live Abroad and Haven’t Filed Tax Returns for a While?

If you haven’t filed a tax return or an FBAR, don’t panic. The IRS offers a streamlined procedure to help you catch up on your reporting obligations without facing a lot of penalties or fines. Through this program, you can file your last three returns and your last six FBARs. To avoid excessive penalties, you simply need to certify that you didn’t know you were supposed to make these report and that you weren’t purposefully trying to avoid your obligations.

When you live abroad, you face all kinds of different tax obligations. To ensure you are meeting your reporting requirements and that you aren’t paying more tax than you should, you need to work with tax professionals who understand your situation. At Tax Samaritan, we specialize in helping Americans living abroad with their tax essentials. To learn more, contact us today.


Published by Randall Brody
Updated: April 22, 2019

About Randall Brody

Do you want to ensure that you are paying the lowest tax liability legally possible? And ensure that your return is accurate, complete and complies with all tax laws? Request a quote to see how I can help you.