The W-9, officially titled “Request for Taxpayer Identification Number and Certification,” is an IRS form used to gather essential tax information from individuals and entities involved in financial transactions. The form allows the party disbursing funds to properly identify recipients for tax reporting purposes. This includes commission payments to agents, vendors, or contractors, and other compensation related to the transaction.

How to Fill Out a W-9 Form for Real Estate

So, what information is on a W-9 form? The W-9 form requires the following information, regardless of the industry:

  • Name (as shown on tax returns)
  • Business name/disregarded entity name (if applicable)
  • Federal tax classification
  • Address
  • Taxpayer Identification Number (TIN)
  • Certification and signature

What is a W-9 Form Used for in Real Estate? 

W-9 forms in real estate are essential for accurate reporting to the IRS and confirming transaction parties’ identities and tax statuses. Without properly completed W-9 forms, you may face several issues:

  1. Backup withholding: Without a properly completed W-9, you may be required to withhold a percentage of payments for tax purposes, known as backup withholding. Currently, the backup withholding rate is 24%. Collecting W-9s helps avoid this situation, ensuring smoother transactions for all parties involved.
  1. 1099 reporting and year-end process delays: W-9s are necessary for issuing 1099 forms, which are required for reporting various types of payments in real estate transactions. For example:
    • 1099-MISC for reporting payments to real estate agents who received $600 or more in commissions
    • 1099-S for reporting proceeds from real estate transactions
    • 1099-NEC for reporting payments to independent contractor

Best Practices for Handling W-9s

To ensure a smooth process for collecting, verifying, and storing W-9 forms, consider implementing the following best practices:

  1. Establish a standard procedure to collect W-9s. Make W-9 form collection integral to your vendor onboarding and transaction initiation protocols. You can leverage workflows within your title production and vendor management software to reinforce these procedures. For example, Qualia allows users to set up automated reminders to request W-9 forms from new vendors before processing their first payment. 
  2. Use secure transmission and storage methods. W-9 forms contain sensitive tax information. Rather than using insecure channels like email, which are more likely to be compromised, consider using a secure communication portal like Qualia Connect to request and exchange sensitive documents.
  3. Verify completeness and accuracy. Ensure all fields on W-9 forms are filled out correctly, including name, tax classification, and Taxpayer Identification Number (TIN). Your title production software might have features to automate this process. For example, Qualia’s data validation features can help verify the accuracy and completeness of W-9 information entered into the system.
  4. Ensure annual updates. Implement a system to request new W-9 forms annually or when you become aware of changes in a party’s information. For example, Qualia’s workflow automation enables users to create tasks for annual W-9 information verification and updates.
  5. Maintain accurate records with cloud-based storage. Keep detailed digital logs of all W-9 forms received, including dates of receipt and verification. Use encrypted, cloud-based storage solutions to keep W-9 forms secure and easily accessible.

Staying Compliant with IRS Regulations

Compliance is critical for avoiding regulatory fines and post-transaction delays. Here are key strategies to ensure you stay compliant when handling W-9 forms for real estate closings:

Keep Up with Regulatory Changes

The IRS occasionally updates forms and regulations. Subscribe to IRS newsletters or follow their social media channels for the latest information. You’ll also want to conduct a yearly review of your W-9 procedures to ensure they align with current IRS requirements. 

Conduct Regular Audits

Perform quarterly internal audits of your W-9 collection and storage processes, and consider hiring an outside firm for an annual compliance review to identify any blind spots in your procedures.

Document Everything

Maintain detailed records of all W-9-related activities, including collection attempts, receipt, verification, and updates.

FAQ

How is a W-9 used in real estate?

Real estate agents and brokers typically need to provide W-9 forms to the settlement agent or title company handling the closing. This is because the sale of real property often results in reportable income for these professionals. The settlement agent uses the information from the W-9 to prepare and file Form 1099-S, which reports proceeds from real estate transactions to the IRS. Additionally, sellers may need to complete a W-9 form at closing. This allows the settlement agent to report the sale proceeds to the IRS using Form 1099-S, ensuring proper tax reporting for the transaction.

How long should W-9 forms be kept on file?

It’s generally recommended to keep W-9 forms on file for at least four years after the year in which the last payment was made.

How long is a W-9 form valid?

A W-9 form doesn’t expire. However, it’s good practice to request updated W-9 forms periodically, especially if there are changes in the payee’s information.

Can a W-9 form be filled out electronically?

Yes, the IRS allows for electronic completion and submission of W-9 forms, as long as all the required information is collected and the form is signed (electronically or physically).

Can I use a W-9 form from a previous year?

While W-9 forms don’t expire, it’s best practice to obtain a new form annually or whenever you suspect the information may have changed.