What is the infamous W-9 form? Tax-exempt 501c3’s and other nonprofit organizations alike are required by Internal Revenue regulations to accurately report any and all payments for services received from a trade, a business, or an individual who is not treated as the organization’s employee.
Non-employees Get The W-9 Form
As many of my readers are already aware, persons who are considered employees of any company historically completes a detailed employment application, complete a W-4 form showing any dependents they are claiming, and complete a mandatory I-9 form. Employees will ultimately be issued a W-2 Form at the end of the tax year reflecting what they earned and what taxes have been deducted.
An expedient and easily understood method in describing those persons who are not employees is to simply recognize that they are persons who will not receive a W-2 Form at the end of the year and who certainly would not be able to pass the IRS employee test. Since those persons are not on the organization’s payroll, they will therefore receive their compensation by some other means of payment.
Examples of the types of payments are: honorarium, gift, stipend, love offering, donation, or payment for services rendered. Many times I have heard the IRS stating “what the compensation is called does not matter and is in the eyes of the IRS, immaterial.” Compensation is compensation!
W-9 Timing Is Critical
The IRS regulation further emphasizes that the W-9 Form must be received by the tax-exempt organization before any service is rendered. Before a check can be cut and/or processed, the Taxpayer’s Identification Number (TIN) or a Social Security Number of the Vendor, Contractor, Speaker, Teacher, Preacher, Consultant, etc. is required along with the full given name and a current address.
Any delay in providing a Tax ID Number (TIN) or Social Security Number (SSN) should always delay the check writing process. Contrary to historic belief this practice applies even when the amount of the payment is below the normal threshold of $600 before 1099 filing is required.
Please also note that the tax ID number provided must match or correspond to the entity that the check is payable to. Additionally if tax ID is not provided, then approximately 28% – 31% of the gross dollar amount of the compensation must be withheld by the nonprofit as a required backup withholding. The backup withholding is then submitted to the appropriate Tax Revenue Dept of the IRS on the taxpayer’s behalf as per IRS compliance code 1402 section C.
W-9 IRS Consequences
If the Tax Exempt organization fails to institute this W-9 and/or backup withholding process, serious fines or sanctions can be imposed on the tax-exempt organization itself and administered on the basis of per incident, per person. Incidentally, the per incident, per person could be imposed on all officers, directors, pastors, or board members even though they did not directly handle the transaction.
So remember to request a W-9 form for all of those rendering service to your tax exempt organization and Issue a 1099-MISC Form at the end of the year. For more information on the proper administration of all your forms and processes and other key tax-exempt topics, please also see the 1099-MISC series of articles.
Clifton C. Jones is an experienced proven professional in the Nonprofit industry and an expert in equipping nonprofits for business excellence. Clifton invites you to visit one his information packed websites to gain more insights about this articles topic: [http://providenceconsultinggroup.com] or feel free to call 1-800-406-1655 with questions about nonprofit resources and services on regulatory compliance or other topics.