A Brief Guide to W9 for Nonprofits

Are you a nonprofit organization? Do you understand the purpose and requirements of Form W-9? If you're hiring consultants for your capital campaigns, they'll need to report the income they receive from your nonprofit organization for services rendered.

The nonprofit files Form 1099 to report the income and provide the contractor with these tax forms instead of Form W-4. Form 1099 requires information on the contractor. If your nonprofit is filing it, how do you know what information to include?

The nonprofit must request a W-9 from the contractor before filling out the 1099.

What is a W9 Form?

Form W-9 provides nonprofits with tax information from their contractors to complete the requirements of Form 1099. Also known as a "Request for Taxpayer Identification Number and Certification form," the W-9 is an IRS document confirming the contractor's name, taxpayer identification number (TIN), and address.

The W-9 is different from the W-4, which is usually provided by employees to their employers. The W-9 Form doesn't provide for the withholding of tax payments due. Nonprofits are tax-exempt organizations, and they must complete and issue a W-9 to businesses requesting it for their tax filing. 

All nonprofit organizations must submit a W-9 to qualify for tax-exempt status with the IRS. This document establishes your organizational identity as independent from the influence of for-profit entities.

Why Nonprofits Need a W9 Form

Form W-9 is a requirement for nonprofits even though they are tax-exempt organizations. It assists with the tracking of payments to contractors hired by the nonprofit by tying the W-9 to the contractor's Taxpayer Identification Number and Certification form. 

The contractor must complete the W-9 for every project or task they undertake to meet legal requirements. They'll hand the W-9 to the nonprofit, which uses it to complete Form 1099-MISC, documenting monies paid to the contractor for services rendered. 

Nonprofits must complete Form W-9 if they provide services for other businesses during the tax year. For instance, if you operate an environmental protection nonprofit and hire a land survey contractor, the surveyor will issue you a W-9 to complete.

Differences Between W9 Forms for Nonprofits and For-Profit Entities

The IRS views the W-9 as a means of determining if a company is an S-Corp, LLC, or nonprofit 501(c)(3) for tax implications. However, it has other purposes for the Internal Revenue Services as well. The form provides written confirmation of the contractor's tax identification number and business information to complete the 1099 Form accurately.

The W-9 Form is slightly different for for-profit companies. It also provides a means of notifying the IRS of obligations to the Foreign Account Tax Compliance Act (FATCA). FATCA is an IRS initiative tracking American companies' assets outside the country.

For companies that fall under FATCA, some clients may have to withhold a portion of the payment due to the contractor, similar to how employers retain an amount of an employee's salary to cover their tax obligations.

For-profit entities may recover some of the tax paid via tax deductions on taxable income. However, since nonprofits don't pay tax, they don't qualify for deductions when completing tax returns. 

How to Fill Out a W9 for Nonprofits

Step #1 – Fill out your nonprofit's name per the Articles of Incorporation.

Step #2 – If you operate under a different name, enter that here.

Step #3 – DBA

Complete this section if you operate your nonprofit with a registered trade name.

Step #4 – Entity Type

Check the box for "C-corporation." Or select the "other" box and enter "nonprofit corporation."

Step #5 – Exempt Payee Code

Charitable organizations can leave this section incomplete. Otherwise, you must consult your tax advisor for the correct code.

Step #6 – Federal Tax Classification

Check the box labeled "other" and write "nonprofit corporation with tax exemption under section 501(c)(3)."

Step #7 – Type of income

Check the box titled "other income" if services rendered don't relate to your organization. 

Step #8 – Address

Enter your nonprofit's mailing address.

Step #9 – Taxpayer Identification Number

Enter the Employer Identification Number (EIN) issued to the organization by the IRS. If you don't have an EIN, you'll file Form SS-4 or apply for your EIN online through the resources on the IRS website. 

Step #10 – Social Security Number

Leave this section blank.

Step #11 – Certification

Sign and date the form to certify the information you provided is true and correct.

Common mistakes to avoid when completing the W9 Form for Nonprofits

• Don't file too early.
• Inaccurate or missing SSN.
• Misspelling of names or organizations.
• Inaccurate or incomplete information. 
• Incorrect filing status.
• Incorrect tax ID number.
• Mistakes with calculations.
• Incorrect banking details. 
• Unsigned or uncertified forms.

Tax Implications for Nonprofits Using W9

Section 501 of the Internal Revenue Code stipulates the tax exemption status issued by the IRS to qualifying organizations. The nonprofit must request its tax-exempt status from the Internal Revenue Service; you won't receive it automatically. 

The organization must meet specific IRS criteria to be eligible for tax-exempt nonprofit status. Form W-9 acts as a prerequisite when considering your 501(c)(3) application. When approved, a nonprofit is exempt from federal tax and income tax during the tax year.

The nonprofit treasurer must provide financial reporting for all charitable contributions, donations, and grants in the statement of activities and the financial statements. You must record information regarding the value of the donation or gift. The nonprofit must also note donation frequency, donation sources, and payment methods for financial transparency.

A Brief Guide to W9 for Nonprofits – FAQs

Q: Why do donors request a W9 from nonprofits?

A: Form W9 obtains the Social Security Number (SSN) or Federal Employer Tax ID number from a person or business entity. The form is necessary to issue an annual 1099-MISC for contract payments made by the nonprofit. 

Q: Are all nonprofits required to submit a W9?

A: While nonprofits are exempt from tax obligations, they must complete and issue a W-9 to requesting contractors or business entities. Nonprofits must submit the Form W-9 to qualify for tax-exempt status. 

Q: How often should a nonprofit update its W9?

A: The nonprofit must remain in compliance with its financial records and accounting and ensure it keeps its W-9 Form updated. Typically, Form W-9 requires completion when contractors aren't employees of the contracting organization and receive more than $600 in payments from the nonprofit within the tax year.

Q: What happens if a nonprofit fails to provide a W9?

A: Form W-9 is a critical part of IRS reporting requirements to remain in compliance with the tax code. Responsible persons of nonprofits who fail to provide a W-9 may be subject to a $20 penalty for each day until submitting it.

The maximum penalty for every failure to provide a copy of the organization's annual information return is $10,000. There are no maximum penalties for failing to provide a tax exemption application copy.

Conclusion

Form W-9 is an official document the IRS provides to nonprofits to verify their details and tax identification number when receiving taxable income. The information on the W-9 assists with completing Form 1099-MISC when filing income tax.

Independent contractors working with nonprofits must provide a W-9 to the organization. Contractors who don't submit Form W-9 may have 24% of their income withheld by the nonprofit to cover the tax obligation. 

It's critical for all nonprofits to remain in compliance to avoid problems with the IRS. Failure to comply with requests for information may result in your organization losing its tax-exempt status. 

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