A sole proprietor is an individual who owns an unincorporated business that is not run as an LLC under a corporation. If, as a sole proprietor you provide services to another business, then you need to fill out a W-9 form when requested by that business. The form establishes your identity, including your taxpayer identification number, usually a Social Security number for a sole proprietor.
A W-9 allows a company to accurately report payments made to a contractor by recording them on form 1099-NEC, which is sent to you and the Internal Revenue Service. You are not required, however, to fill out a W-9 to cover all types of business transactions engaged in by your sole proprietorship. It is only necessary when performing services through your business to another business.
Read More: Am I Required to Fill Out a W9?
B2B Services Only
A 1099-NEC reports only payments made as part of conducting a business or trade. If someone pays you for personal services, you do not have to submit a W-9 to cover those transactions. For example, if you are a building contractor and are hired by a business to renovate an office space, you need to submit a W-9 to that business. But if a homeowner hires you to build an outside deck, you don’t have to give the homeowner a W-9.
Merchandise Not Covered
If your sole proprietorship primarily sells merchandise, whether to consumers or to other businesses, you do not need to submit a W-9 to cover those transactions. Payments for merchandise are not included in a 1099-NEC, though you still need to report your sales income on IRS Form Schedule C, Profit and Loss from Business.
Substitute W-9 Sole Proprietor
The IRS provides a W-9 Form, but companies can substitute their own versions of the form so long as it clearly states IRS certifications that your taxpayer identification is correct, that you’re not subject to backup withholding because of failure to report dividend and interest income, and that you are a U.S. resident.
You are required to fill out and submit a substitute form when requested as long as it meets the IRS requirements. Substitute W-9s cannot, however, require you to agree to provisions unrelated to IRS certifications, or imply that you could be subject to backup withholding unless you agree to the unrelated provisions.
Read More: Self-Employed Tax Classifications
$600 Threshold for Reporting
A business and a sole proprietor needs to report all qualified payments made to a vendor only when they reach or exceed $600. Many businesses, however, will not wait for that threshold to be reached and instead request a W-9 from you before it makes any payments to your sole proprietorship. While not legally required, it is a good business practice on your customer’s part. Complying with the W-9 request shows you are ready to accept more business from this customer.
Tom Chmielewski is a longtime journalist with experience in newspapers, magazines, books, e-books and the Internet. With his company TEC Publishing, he has published magazines and an award-winning multimedia e-book, "Celebration at the Sarayi." Chmielewski's design skills include expertise in Adobe Creative Suite's InDesign and Photoshop. He holds a Bachelor of Arts in English from Western Michigan University.